Académique Documents
Professionnel Documents
Culture Documents
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5. Benefits of involvement in a franchise experience include:
a. management training and support.
b. brand name appeal and standardization of goods and services.
c. national advertising exposure and financial assistance.
d. all of the above.
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9. After a 10-year period, the success rate of individual franchise business that survive
is about ______________ than that of independent businesses.
a. twice as great
b. three times greater
c. no different
d. about half
10. When it comes to purchasing products, equipment, and incurring other expenses,
the franchiser:
a. cannot require the franchisees to buy from the franchise company.
b. can set prices franchisees pay for the products but cannot set the retail price the
franchisees charge.
c. is permitted to set the retail price for the franchisee.
d. cannot require franchisees to buy from an "approved" supplier.
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14. Which of the following should make a potential franchisee suspicious about a
franchiser’s honesty?
a. Claims that the franchise contract is a standard agreement and that there is no
need to read it or have an attorney look it over
b. An offer of direct financing of a specific element of the franchise package
c. Not providing detailed operational information until 10 days before signing the
contract
d. Requiring franchisees to spend a certain percentage of profits on advertising
15. In addition to reading the franchiser’s UFOC, it would be wise for the potential
franchisee to seek a franchise that offers which of the following?
a. A unique concept or marketing approach
b. A registered trademark
c. A positive relationship with franchisees
d. All of the above
16. The primary market for U.S. franchisers is __________, followed by __________.
a. Japan; Mexico, Canada, and Europe
b. Australia; Mexico, Canada, and Europe
c. Mexico; Canada, Europe, and Australia
d. Canada; Mexico, Japan, and Europe
17. A method of franchising in which a franchise opens more than one unit in a broad
territory within a specific time period is referred to as:
a. multiple-unit franchising (MUF).
b. master franchising.
c. product distribution franchising.
d. conversion franchising.
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18. Chris Jaffe, the owner of a small independent doughnut shop, is worried that a large
doughnut franchise will open an outlet near her location and take away much of her
business. Taking a proactive approach, Jaffe contacts the franchise, and after a few
months of negotiations, becomes a franchisee. Jaffe is an example of which trend
in franchising?
a. Piggyback
b. Conversion
c. Master
d. Subfranchising
19. McDonald’s recently set up several small franchises in nontraditional locations such
as a hospital, a college campus, an airport, a subway station, and a sports arena.
These locations are based on the principle of:
a. conversion franchising.
b. intercept marketing.
c. multi-unit franchising
d. piggyback franchising.
20. When the franchiser has the right to establish a semi-independent organization in a
particular territory to recruit, sell, and support other franchises, it is known as a
_____________ franchise.
a. multi-unit
b. piggyback
c. conversion
d. master
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True/False Questions
23. Before entering a franchise contract, a potential investor should ask, "What can a
franchise do for me that I cannot do for myself?"
24. Quality is so important in franchising that most franchisers retain the right to
terminate the franchise contract and to repurchase the outlet if a franchisee fails to
maintain quality standards.
25. When a franchisee buys a franchise, he or she is purchasing the expertise and the
business of the franchiser.
26. Pure franchising involves the right to use all the elements of a fully integrated
business operation.
27. Examples of some benefits franchise systems offer include management training,
brand appeal, standardization of goods and services, national advertising, proven
business formats, centralized buying power, and site selection assistance.
28. Most franchisers provide extensive financial help such as loans and low-rate
financing for their franchises.
29. The failure rate for franchises is below that for other types of new businesses.
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30. In addition to other fees, franchisees must also pay royalties but only on net profits;
in other words, no profits, and no royalties.
31. A major advantage of a franchise contract is the national advertising campaign that
most franchisers provide free of charge for their franchisees.
32. By signing the franchise contract, a franchisee typically surrenders some freedom
and autonomy in operating his business.
33. It is illegal for a franchiser to require franchisees to purchase products only from
"approved suppliers."
34. Having an attorney review and evaluate a franchise contract is unnecessary since
the FTC requires all franchisers to offer a "standard" franchise contract.
35. The franchise contract defines the rights and the obligations of both parties and sets
the guidelines that govern the franchise relationship.
36. A Uniform Franchise Offering Circular (UFOC) is a document that every franchiser
is required by law to give prospective franchisees before any offer or date of a
franchise.
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38. A good method for evaluating a franchiser’s reputation is to interview existing
franchise owners about the operation.
39. A multi-unit franchise gives the franchisee the right to open more than one
franchise outlet in a territory within a specific time frame.
40. The primary market for U.S. franchisers is Mexico, with Japan and Europe next.
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Essay Questions
42. Define franchising. Explain the three types of franchising. Which is the fastest-
growing segment?
Page 189
Pages 191-199
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44. What is a Uniform Franchise Offering Circular? How can it help a potential
franchisee?
Page 202
Pages 205-209
46. What are some indicators that a potential franchisee might be dealing with a
dishonest franchise? What steps can a potential franchisee take to avoid becoming
a victim of a dishonest franchise?
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• Get-rich-quick schemes
• Reluctance to provide references
• Evasive or vague answers
Pages 205-209
47. Explain the following franchise concepts and give an example of each: intercept
marketing, conversion franchising, multi-unit franchising, and master franchising.
Page 132
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48. Explain three trends currently shaping the franchising industry.
Pages 211-215
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Franchising and the Entrepreneur
Ralph Emerson thought he’d been a librarian long enough, and when the
opportunity arose to open a small tobacco, pipe, and cigar shop in the newly
renovated downtown business district, he was ready to act. Pipe Dreams is a
franchiser of smoke shops, and was founded eight years ago by a noted tobacconist
in New York City. The concept for the shops is simple, yet sophisticated. It is
simple in the sense that the shops sell only tobacco-related products, but
sophisticated in the breadth and quality of the inventory they carry. Each franchise,
depending on size, is stocked with inventory selected by the company’s founder.
The franchiser finances the shop’s initial inventory. The franchisee is expected to
create a decor within predetermined standards that Pipe Dreams establishes. Each
franchisee must attend a three-day workshop, outlining the fundamentals of tobacco
blending, the merchandising of pipes and cigars, and the techniques of successful
business operation.
The franchise contract requires the franchisee to contribute 1.5 percent of gross
revenue to a national advertising campaign. According to the contract, Pipe Dreams
will finance the required fixtures for the store for ten years. In addition, the
franchiser supplies all inventory at very favorable prices because it purchases in
large quantities.
Ralph knows he can buy tobacco products from a variety of wholesalers. He also
has some ideas on what would make a tobacco shop successful in this town. Ralph
knows that Pipe Dreams franchisees have had a high success rate in the past.
Questions
49. Help Ralph make a decision by outlining the advantages and the disadvantages of a
franchise arrangement.
50. Assuming that Ralph has adequate capital, would you recommend that he invest in
the franchise or open his own tobacco shop? Why?
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