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Chapter 2. The Franchise Relationship Mo... > Transaction Analysis: In the Franchi...

Transaction Analysis: In the Franchise Relationship, How Are Responsibilities of the Franchisor and Franchisee Allocated?

So far, we have discussed market demand without reference to the individual responsibilities of the franchisor and franchisee. We call the assignment of these responsibilities transaction analysis. There can be no viable franchise until you have a financially sound business model for the single outlet. Franchising creates sound, single-store operations and economics in a unique way. The tasks and responsibilities necessary to deliver the product to the customer are clearly documented in the contract and allocated between the franchisee and franchisor based upon their respective capabilities and efficiencies. The sum of the transactions constitutes the brand equity shared by the parties to the license agreement. Those issues that stand outside the realm of foreseeable and definitive actions but that will play an ongoing role in the operation of the franchise will be documented and continually updated in an extracontractual franchise operations manual. This manual gives both parties the opportunity to update rules, regulations, and procedures that will come to bear over time.

Thus, in setting up the franchise, you must ask, What are all the individual transactions necessary to deliver the prescribed SDS? These tasks must then be allocated between the franchisor and franchisee on the basis of whether the task is best executed at a national (franchisor) level or at a local (franchisee) level. As a general guide, the franchisor tasks are those that carry economies of scale. This usually implies a size or bulk requirement in the task, such as management training or bulk purchase of equipment. Franchisee responsibilities are based on the task being executed on site in the local market, such as local sourcing of raw materials and hiring employees. Critical to local entrepreneurial intensity is customer contact and local market knowledge. Some tasks are shared. For example, the franchisor has a national role in marketing, and the franchisee is responsible for local interpretation and execution of advertising and promotion.


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