Question 1

A study by the International Franchises Association reports that minorities own more than ________ percent of all franchises and women own ________ percent of franchises.

Accepted Answer

According to the International Franchises Association, minorities own 20% of all franchises and women own 25% of franchises. Therefore, the best choice is D, as it aligns with these statistics.

Question 2

When the franchiser has the right to establish a semi-independent organization in a particular territory to recruit, sell, and support other franchises, it is known as a ________ franchise.

Accepted Answer

A master franchise allows the franchiser to establish a semi-independent organization in a particular territory to recruit, sell, and support other franchises. This allows the franchiser to expand rapidly in a new territory while limiting their own involvement in day-to-day operations.

Question 3

A method of franchising that gives the right to create a semi-independent organization in a particular territory is a:

Accepted Answer

A master franchise allows the franchisee to create a semi-independent organization and develop franchises within a specific territory.

Question 4

In a ________ , a franchisee has the right to create a semi-independent organization in a particular territory to recruit, sell, and support other franchisees.

Accepted Answer

The option that best fits this description is master franchise. In a master franchise agreement, the franchisee not only has the right to operate a unit in a specific territory but also has the ability to recruit, sell, and support other franchisees in the same territory. This creates a semi-independent organization within that territory. Additionally, multiple-unit franchising refers to a franchisee owning and operating multiple units of the same franchise, conversion franchising is when an independent business converts to a franchise model, and cobranding franchising is when two or more brands collaborate to create a co-branded franchise. None of these options include the ability to recruit, sell, and support other franchisees in a specific territory.

Question 5

Establishing a Baskin-Robbins franchise inside a Blimpee's franchise is an example of ________ franchising.

Accepted Answer

Cobranding franchising involves the combination of two or more brands in a single location, such as a Baskin-Robbins franchise inside a Blimpie's franchise. Multi-unit franchising involves owning and operating more than one franchise location, while master franchising involves selling the rights to operate franchises in a particular geographic region. Diversionary franchising is not a recognized type of franchising.

Question 6

Pure franchising involves the right to use all the elements of a fully integrated business operation.

Accepted Answer

Pure franchising grants the franchisee the right to use all the elements of a fully integrated business operation, including intellectual property, business systems, and operational support.

Question 7

Quality is so important in franchising that most franchisers retain the right to terminate the franchise contract and to repurchase the outlet if a franchisee fails to maintain quality standards.

Accepted Answer

This statement is true. Maintaining quality standards is a crucial aspect of a franchise business, and franchisers often include provisions in the franchise agreement to ensure that franchisees uphold these standards. In some cases, this may include the right to terminate the franchise contract and take back ownership of the franchise outlet.

Question 8

Before entering a franchise contract, a potential investor should ask, "What can a franchise do for me that I cannot do for myself?"

Accepted Answer

This question prompts potential investors to evaluate the benefits and value that a franchise can bring compared to starting or running a business on their own.

Question 9

McDonald's recently set up several small franchises in nontraditional locations such as a hospital, a college campus, an airport, a subway station, and a sports arena. These locations are based on the principle of:

Accepted Answer

The nontraditional locations such as a hospital, a college campus, an airport, a subway station, and a sports arena are all examples of intercept marketing, where McDonald's is targeting customers in unexpected locations where they may not have expected to find a McDonald's restaurant. The other options (conversion franchising, multi-unit franchising, and cobranding) do not accurately describe this strategy.

Question 10

Examples of some benefits franchise systems offer include management training, brand appeal, standardization of goods and services, national advertising, proven business formats, centralized buying power, and site selection assistance.

Accepted Answer

The statement is true as it lists several benefits that franchise systems offer.

Question 11

A franchise is an arrangement in which semi-independent business owners pay fees and royalties to a parent company in return for the right to sell its products or services and often to use its business format and system.

Accepted Answer

This is the correct definition of a franchise.

Question 12

One of the major trends in franchising is the ________ of American franchise systems.

Accepted Answer

The internationalization of American franchise systems has been a major trend in franchising in recent years. Many American franchise brands have expanded their operations into foreign markets, seeking to capitalize on the growing global demand for franchised products and services. This trend has been driven by factors such as increased global competition, the rise of emerging markets, and the growth of international travel and trade. By expanding into foreign markets, American franchisors can increase their revenue streams, diversify their operations, and gain access to new customer bases.

Question 13

A franchise trend in which owners of independent businesses become franchisees to gain the advantage of name recognition is called:

Accepted Answer

The franchise trend in which owners of independent businesses become franchisees to gain the advantage of name recognition is called conversion franchising.

Question 14

Chris Jaffe, the owner of a small independent doughnut shop, is worried that a large doughnut franchise will open an outlet near her location and take away business. Taking a proactive approach, Jaffe contacts the franchise, and after a few months of negotiations, becomes a franchisee. Jaffe is an example of which trend in franchising?

Accepted Answer

Chris Jaffe is an example of conversion franchising, which is when an independent business owner becomes a franchisee of an established franchise in order to take advantage of the franchise's brand recognition and support.

Question 15

Pure franchising involves a system of franchising in which a franchisor sells a franchisee a complete business format and system.

Accepted Answer

Pure franchising is a type of franchising in which a franchisor sells a complete business format and system to a franchisee without including any other services such as marketing or advertising.

Question 16

A major advantage of a franchise contract is the national advertising campaign that most franchisers provide free of charge for their franchisees.

Accepted Answer

Franchisees typically pay fees, including advertising fees, which contribute to national advertising campaigns. These campaigns are not free of charge.

Question 17

When a franchisee buys a franchise, he or she is purchasing the expertise and the business of the franchiser.

Accepted Answer

Buying a franchise means that the franchisee is paying for the rights to use the franchiser's established business model, brand, and support network.

Question 18

________ is an emerging international market for U.S. franchisers that is expected to realize the highest future growth rate.

Accepted Answer

China is the best choice as it is the largest and fastest-growing consumer market in the world, with a growing middle class with an increasing demand for Western products and brands. Additionally, the Chinese government has made efforts to encourage foreign investment and economic development.

Question 19

Trade name franchising is a system of franchising in which a franchisee purchases the right to use the franchisor's trade name without distributing particular products under that name.

Accepted Answer

Trade name franchising allows the franchisee to use the franchisor's brand name for their business, but does not require them to sell specific products or services under that name.

Question 20

The principle of putting a franchise's products or services directly in the paths of potential customers with smaller, less expensive outlets is called:

Accepted Answer

The principle described in the question is intercept marketing, which involves placing franchise locations in high-traffic areas that potential customers are likely to frequent. Cobranding refers to two or more brands partnering together to increase exposure and sales. Area development involves an agreement in which a franchisee is given the right to develop multiple locations within a specific geographic area. Master franchise refers to an agreement in which a franchisee is given the right to operate and sub-franchise within a specific territory or country.

Quiz 6: Franchising and the Entrepreneur

A study by the International Franchises Association reports that minorities own more than percent of all franchises and women own percent of franchises.