Practice Flashcards
Flip to reveal answersWhat is a franchise?
Track your progress — Sign up free to save your progress and get smart review reminders based on spaced repetition.
All 30 Flashcards — Franchises
Sign up free to track progress and get spaced-repetition review schedules.
Question
What is a franchise?
Answer
An agreement where a franchisor lets a franchisee use its brand and business system in return for fees and royalties.
💡 Hint
Brand + system for payments.
Question
Give one advantage of franchising for the franchisee.
Answer
An established brand reduces marketing risk because customers already know and trust the name.
💡 Hint
Brand reduces risk.
Question
Fill the gap: A franchisor earns money from the franchisee through fees and ______.
Answer
Royalties.
💡 Hint
Upfront + ongoing.
Question
In franchising, who is the franchisee?
Answer
The person or business that buys the right to operate an outlet using the franchisor’s brand and systems.
💡 Hint
Franchisee runs the outlet.
Question
For a franchisee, why is training/support valuable?
Answer
It reduces mistakes and helps them run the business using a proven system, improving survival chances.
💡 Hint
Support reduces risk.
Question
Fill the gap: The franchisee pays an initial fee and ongoing ______ to the franchisor.
Answer
Royalties.
💡 Hint
Upfront + ongoing.
Question
For a franchisee, what is a key disadvantage besides fees?
Answer
Less freedom — they cannot easily change products, pricing or decor without permission.
💡 Hint
Rules limit choices.
Question
What does the franchisee gain from the franchisor besides the brand?
Answer
Training, support, systems/know-how, and often national marketing.
💡 Hint
Brand + system + support.
Question
Who owns the brand and IP in franchising?
Answer
The franchisor owns the brand, business model and intellectual property.
💡 Hint
Franchisor = owner of brand.
Question
Why is franchising often lower risk for a franchisee than starting an independent business?
Answer
Because the model is proven and the franchisor provides training, systems and brand recognition.
💡 Hint
Proven system + support.
Question
Why must franchisees follow strict rules?
Answer
To ensure consistent quality, branding and customer experience across all outlets.
💡 Hint
Consistency protects brand.
Question
Give one disadvantage of franchising for the franchisee.
Answer
They must pay fees and royalties, reducing profit, and have less freedom to change how the business operates.
💡 Hint
Fees + less freedom.
Question
What is one common item covered in a franchise contract?
Answer
Territory (where the franchisee can operate) and conditions for renewal/termination.
💡 Hint
Territory + exit terms.
Question
For a franchisor, why are franchisees often “motivated operators”?
Answer
Because they invest their own money, so they have strong incentives to work hard and protect profits.
💡 Hint
Own money = motivation.
Question
What payments does a franchisee typically make?
Answer
An initial franchise fee plus ongoing royalties (often a percentage of revenue).
💡 Hint
Upfront fee + ongoing royalty.
Question
How does franchising help the franchisor grow?
Answer
It enables rapid expansion using franchisees’ capital instead of the franchisor funding each outlet.
💡 Hint
Grow fast with others’ money.
Question
Give one advantage of franchising for the franchisor.
Answer
Rapid expansion without funding every new outlet because franchisees invest their own money.
💡 Hint
Grow fast with less capital.
Question
Why is franchising often called external growth?
Answer
Because the firm expands by adding outlets run by independent owners rather than growing only from within.
💡 Hint
Expansion via others.
Question
What is the typical form of ongoing payment in franchising?
Answer
A royalty, usually calculated as a percentage of sales revenue.
💡 Hint
% of revenue.
Question
Give one disadvantage of franchising for the franchisor.
Answer
Less direct control over daily operations and reputation risk if one franchisee performs badly.
💡 Hint
Control + reputation risk.
Question
Why can one poor franchisee harm the whole franchise system?
Answer
Because customers judge the brand as a whole, so one outlet’s bad quality damages reputation everywhere.
💡 Hint
Brand reputation spills over.
Question
What is a key risk for the franchisee linked to the whole system?
Answer
Brand reputation risk from other franchisees’ poor performance.
💡 Hint
Other outlets can hurt you.
Question
For a franchisor, what is a major operational challenge?
Answer
Monitoring quality across many outlets is difficult, increasing reputation risk.
💡 Hint
Hard to control everyone.
Question
What does the franchisor usually provide to the franchisee?
Answer
Training, marketing support, and operational guidance (systems and know-how).
💡 Hint
Support + systems.
Question
Exam tip: When evaluating franchising, what balance should you show?
Answer
Benefits and drawbacks for BOTH franchisor and franchisee, linked to the case.
💡 Hint
Two viewpoints + case link.
Question
Franchising is a form of what growth strategy?
Answer
External growth (expanding by working with independent franchisees).
💡 Hint
External growth method.
Question
Exam tip: In franchising answers, what must you always specify?
Answer
Whether you are discussing the franchisor or the franchisee, because the impacts differ.
💡 Hint
Pick the viewpoint.
Question
Exam rule: In franchising questions, what must you link to marks?
Answer
The correct viewpoint (franchisor vs franchisee) and the contract-based nature (fees, royalties, rules).
💡 Hint
Viewpoint + contract.
Question
Give a simple example of franchising.
Answer
A burger chain lets an individual open an outlet using the brand for an upfront fee and monthly royalties, plus training/support.
💡 Hint
Brand + fee + support.
Question
What is a franchise agreement?
Answer
A legal contract covering fees, territory, duration, standards, training, and termination conditions.
💡 Hint
Contract sets the rules.
Read the notes
Full study notes for Franchises
Topic 1.5 hub
Growth and evolution
More from Topic 1.5
All flashcards in this topic
BM exam skills
Paper structures & tips
Track your progress with spaced repetition
Sign up free — Aimnova tells you exactly which cards to review and when, so you remember everything before your IB exam.
Start Free