The Wiley Blackwell Encyclopedia of Consumption and Consumer Studies

Franchising

DAVID B. BILLS

University of Iowa, USA

DOI: 10.1002/9781118989463.wbeccs125

Franchising is a business arrangement in which a parent company contracts with one or more smaller firms to grant or sell to them the right to distribute its products, implement its processes, or use its trade name. The recent development of franchising in the United States and elsewhere is characterized by steady to rapid growth in the number of franchised establishments, their increased levels of employment and sales, and their proliferation beyond the restaurant and retailing sectors in which they have been historically most prevalent into virtually all areas of contemporary economies.

The relationship between franchisors and franchisees is based on a contract that specifies the legal responsibilities and mutual expectations of each party to the contract. Still, the fact that the franchise relationship is so nearly an exclusive one means that the franchisors and franchisees share many common interests. Franchisors acquire a generally reliable means to expand their businesses, while franchisees acquire a measure of independence, sense of ownership, and reduced risk. Franchising permits the exploitation of efficiencies from scale economies. It allows the establishment of a parent company to share the overhead costs of such factors as marketing, advertising, and monitoring. These costs are often prohibitively expensive for a freestanding establishment. About 80 percent of the time, the franchisee ...