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Conclusion

The Franchise Relationship Model in Figure 2-2 is dynamic—as events affect one aspect of the model, all other aspects must be reviewed in a recurring iterative process. For example, if renegotiation of the license agreement were to result in a reduced royalty, the financial model would be altered. A change in royalty could dictate a change in the services that the franchisor provides. Any change creates a cascading effect throughout the system—a reconstruction of the relationship.

The FRM begins with opportunity recognition and shaping, and then articulates the competitive advantages and costs of the SDS that will extract the demand and create a return on investment. The emergent financial model is the manifestation of the interaction between the primary target customer and the SDS. The competitive sustainability of the franchise is embedded in the delineation of responsibilities between franchisor and franchisee and in the conscious design of the SDS. The franchisor’s tasks are centrally executed and focus on economies of scale; the franchisee concentrates on those responsibilities that require local, onsite entrepreneurial intensity. By sharing both the burden of the SDS and the potential for ROI, the franchise entrepreneurial alliance is formed.


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