Question

Differentiate between trade name franchising and business format licensing.  

Answer 1

Trade name Franchising

1. Under franchising model, the franchisee uses another firm's successful business model or a product and brand name to operate what is effectively an independent branch of the company(i.e franchiser).

2. The franchiser maintains a considerable degree of control over the operations and processes used by the franchisee, but also helps with things like branding and marketing support that aid the franchise( for eg MacDonald) .

3. The franchiser also typically ensures that branches do not compete with each other and affect the revenues.

4. The franchisor provides training, knowledge, marketing and other resources and skills to the franchisee to operate the business according to its business model (franchiser's).

5. Franchising is used by businesses to further expand their business after they have gained success.

6. franchising is usually regulated by the franchising regulations. However, if these are not present, then Companies Law is used to regulate franchising agreements

Business format licensing

1.Under a licensing model, a company sells licenses to other companies to use intellectual property (IP), brand, design or business programs.

2. These licenses are usually non-exclusive, which means they can be sold to other companies serving the same market as competitors.

3. In this arrangement, the licensing company may exercise control over how its IP is used but does not control the business operations and working of the licensee.

4.The licensor charges a fee or royalty from the licensee for using the intellectual property of the licensor.

5. Example, Coca-Cola and Pepsi brands have provided licenses to local bottlers in various countries all over the world to produce and sell their beverages.

6. Licensing is usually regulated by the Contracts Law