Term
| The difference between single-unit and multi-unit franchises is: |
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Definition
| In multi-unit franchisees, franchisees receive permission from the franchisor to own and operate more than one unit at the outset of their relationship, whereas single-unit franchises initially only receive permission to operate a single unit at the outset. |
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Term
| In product distribution franchising, the franchisor provides the franchisee substantial training for operating the business (T/F)? |
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Definition
| Ans: False- training is offered more in business format rather than product distribution franchising (see franchising chapter). |
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Term
| Write the full form of the acronym UFOC |
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Definition
| Uniform Franchise Offering Circular |
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Term
| How do gray markets and counterfeiting differ? Explain briefly. |
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Definition
| Counterfeiters actually manufacture fake versions of your product,. Gray marketers take the product as it is (they do not manufacture it), and sell it to/through unauthorized distribution channels |
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Term
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Definition
| According to Hofstede, Power distance is the willingness of members in a society to accept unequal distribution of power among themselves. More the power distance, more hierarchical the society. Eastern cultures in general tolerate more power distance than the West. |
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Term
| An example of direct exporting |
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Definition
| Foreign distributor/ foreign agent |
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Term
| Differing price elasticities of consumers and channel members make it difficult for firms to garner channel support for price promotions. (T/F) |
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Definition
| True-see pricing chapter. Customers might get excited at the prospect of a small price cut, but retailers who have to execute/ administer these price cuts might not be as excited, esp. if they do not see themselves making a profit at that miniscule price cut. |
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Term
| Describe how/ why pricing decisions can create conflict between direct and indirect channels. List two ways to resolve such conflicts. |
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Definition
Mostly, it is a pricing conflict.
This conflict can be resolved by keeping accounts for direct vs. indirect channels separate; selling different configurations of products through these channels etc |
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Term
| A manufacturer sells a product to wholesaler for $30. If the cost of manufacturing the good is $20, what is the manufacturer’s profit percentage? |
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Definition
| Manufacturer’s profit =$30-$20. As a percentage of initial cost to manufacturer ($20), this is (10/20)*100= 50%. |
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Term
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Definition
| Each reseller must obtain profit margins (gross margin and net profits) in excess of operating costs. |
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Term
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Definition
| Revenue - Cost of goods sold [COGS] |
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Term
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Definition
| = Gross Profit - Operating expenses |
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Term
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Definition
| Set channel margin in ratio to functions performed. |
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Term
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Definition
| Manufacturers lack 1) power and 2) cost accounting data to do this. |
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Term
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Definition
| Margins on your product should be competitive with rival brands at various levels of the vertical channel. |
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Term
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Definition
| (e.g., Apple) and those that offer strong channel to channel (e.g. promotions) can do with lower margins (because retailer has to exert less effort sell). |
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Term
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Definition
| (e.g., Magnavox) must pay larger margins for retailer efforts to sell their brand. |
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Term
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Definition
Rebates, price-discounts, free goods, quantity discounts etc.
Special price are short term incentives to motivate dealers and stimulate sales. |
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Term
| What are some trade-offs in deploying such discounts? |
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Definition
-Channel takes such discounts for granted, and might not later exert effort if discounts are missing.
- Might dilute brand image.
- Psychological resistance to increasing prices later. |
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Term
| Conventional Norms in margins. |
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Definition
| Retailers will resent if conventional margins are not allowed, unless they are explained the rationale for otherwise. |
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Term
| Margin Variation on Models |
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Definition
♠ Lower margins OK for “traffic builders”; can “trade up” consumers to higher priced models from these.
♠ Retailers must “buy in” into such the promotional values |
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Term
| Manufacturers and channel members each seek to control pricing. Manufacturers want control to: |
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Definition
-Reduce risk of brand dilution
-Minimize risk of price war |
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Term
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Definition
| Sales through unintended or unauthorized outlets |
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Term
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Definition
Damaged Relationship with authorized channel
Brand dilution
Authorized dealers skimp on services etc
Legal Liability |
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Term
| Gray Markets: Potential Solutions |
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Definition
Selective distribution; eliminate channel who sell to unauthorized outlets.
Change buyer preferences (e.g., for more services).
Tighter control of channel; |
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Term
| Inter-Channel (or Inter-Dealer) Free-riding |
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Definition
| E.g. Do product research in Best Buy, but purchase on Amazon; |
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Term
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Definition
| Legal agreement between independent firms, where one firm grants to another a license to sell a trademarked (branded) product for certain fee. |
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Term
| Capital Advantage (through fees etc) |
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Definition
Does not dilute business ownership, unlike debt.
Capital (franchise fee) can be used for training, promotion etc purposes, without restrictions. |
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Term
| Reduced Distribution Costs |
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Definition
| No overhead or fixed costs (like store front); franchisees also pay fee and royalty. |
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Term
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Definition
| Franchisees more driven than employees (who are risk-averse) due to capital commitment. |
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Term
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Definition
Proven business model; less risky.
Well –known franchise brand has already garnered consumer acceptance.
If franchisee wanted to create a brand/ business model alone, the costs could be prohibitive.
Business assistance from franchisor. |
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Term
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Definition
| One time flat fee to sign the contract |
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Term
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Definition
Fixed (rare) or as a % of sale (usually).
With % method, royalty will adjust to changing market conditions
But fixed method offers more certainty to parties |
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Term
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Definition
Flexibility limited by franchisor terms
Negative halo effect (if other franchisees goof up, you are also impacted!)
Obligation to pay royalty etc even if a loss is made |
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Term
| Can you afford a franchise? |
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Definition
-Start-up costs & fees?
-Sources of funds
-Profit potential & Time to break even?
-Other franchisees happy with their investment? |
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Term
| Channel Environment: Economic Factors |
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Definition
-Recession
-Inflation
-Deflation
-Fluctuating Currency Rates |
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Term
| Channel Environment: Competitive Factors |
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Definition
-Different Languages
-Many less-developed
countries do not
have free &
open competition
-Different Cultures
-Different Currencies |
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Term
| Sociocultural Environment |
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Definition
-Varying behavior
norms
-Varying cultural
values
-Varying
attitudes |
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Term
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Definition
| Broad preferences about appropriate courses of action; Values trigger attitudes. |
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Term
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Definition
| + or - evaluation of people, objects, event, activities, ideas. |
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Term
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Definition
| Describe shared expectations (unlike values which can be individual) about appropriate courses of action, but are specific to a situation (less broad than values). |
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Term
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Definition
| Willingness of society to accept unequal power distribution w/o justification. Strict societal and workplace hierarchy. |
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Term
| Individualism vs. Collectivism |
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Definition
| Take care of only self vs. the larger extended kinship/ group (I vs. we). Channels in collectivist cultures may rely on personal interaction rather than contracts. |
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Term
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Definition
| Preference for structured rules (predictable situations). |
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Term
| Masculinity vs. Femininity |
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Definition
| Assertiveness vs. cooperative values |
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Term
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Definition
| Most companies start their international expansion by exporting |
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Term
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Definition
-For example, a trading company will buy the firm’s goods outright and resell them in the foreign market
-Firm uses a middleman (independent intermediary) based in its home market to handle its exporting |
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Term
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Definition
-Company sets up (gets involved directly) its own export organization
-Once the international sales potential becomes substantial, direct exporting is appealing |
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Term
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Definition
| Firm - the licensor – offers its brand name to a foreign company – the licensee - in exchange for a royalty fee. |
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Term
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Definition
-Licensing is not very demanding on the company’s resources
-Therefore, it is especially appealing to small companies that lack the resources |
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Term
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Definition
| Misguided moves by the licensee can tarnish the brand |
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Term
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Definition
| Two companies jointly own part of each other (e.g., Ford-Mazda JV) |
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Term
| Benefits of Joint Venture |
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Definition
| Less resource needed, and can learn from a partner |
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Term
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Definition
-Partners may cut corners and leave JV after learning your technology.
-Cultural clashes |
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Term
| 100% Owned Plant (Manufacturing Subsidiary)Benefits |
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Definition
-Full control
-All profits go to company |
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Term
| 100% Owned Plant (Manufacturing Subsidiary)Caveats |
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Definition
-Carry the full burden of possible losses
-Risk of nationalization |
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