FRANCHISING VS LICENSING

For a company looking to expand, franchising and licensing are often

appealing business models. In a franchising model, the franchisee uses another firm's
successful business model and brand name to operate what is effectively an independent
branch of the company. The franchiser maintains a considerable degree of control over
the operations and processes used by the franchisee, but also helps with things like branding
and marketing support that aid the franchise. The franchiser also typically ensures
that branches do not cannibalize each other's revenues.
Under a licensing model, a company sells licenses to other (typically smaller) companies to
use intellectual property (IP), brand, design or business programs. These licenses are
usually non-exclusive, which means they can be sold to multiple competing companies
serving th
e same market. In this arrangement, the licensing company may exercise control over how
its IP is used but does not control the business operations of the licensee.
Both models require that the franchisee/lincensee make payments to the original business
that owns the brand or intellectual property. There are laws that govern the franchising
model and define what constitutes franchising; some agreements end up
being legally viewed as franchising even if they were originally drawn up as licensing
agreements.
Comparison chart
Differences Similarities
Franchising

Licensing

Governed by Securities law

Contract law

Registration Required

Not required

Territorial rights

Offered to franchisee

Support and Provided by franchiser

training
Royalty payments Yes
Use of Logo and trademark retained by
trademark/logo franchiser and used by franchisee
Examples
Control

Not offered; licensee can sell similar

licenses and products in same area
Not provided
Yes
Can be licensed

McDonalds, Subway, 7-11, Dunkin

Donuts

Microsoft Office

Franchiser exercise control over

franchisee.

licensor does not have control over

licensee

The Advantages to Franchising your Business

Some of the advantages to franchising your business include:

Capitalized Expansion - Expansion requires the investment of capital and resources that for
many successful business owners is limited and, sometimes, difficult to raise. Franchising serves
as a source for the capitalized expansion of a successful business. Rather than borrowing funds
from lenders, franchisees invest their own funds to expand your business.

Continuing Revenue Streams - Successful franchisors benefit from continuing royalties that
are, typically, based upon a percentage of franchisee gross sales and paid on a monthly basis.

Brand Development - The Multi-unit expansion associated with franchising serves to

supplement and expand the value of your brand. Franchisee contributions to local and regional
advertising further serve to expand brand recognition.

Economies of Scale - If managed properly the multi-unit expansion associated with franchising
results in increased volume purchases and leverage with business suppliers and vendors.

Managerial Talent - Franchisee owners - who have invested their own capital and savings typically serve as better managers and operators than paid employees who do not possess a
vested interest in the business.
The Disadvantages of Franchising your Business

Some of the disadvantages to franchising your business, include:

Legal Regulation - Franchising is a regulated activity and requires compliance with federal and
state franchise laws. To successfully establish a franchise, franchisors are required to work with
an experienced franchise lawyer to establish a solid blueprint for franchising.

Investment - Although franchising serves as a source for the capitalized expansion of your
business (i.e., franchisees invest in your expansion), the estabblishment of a franchise system
requires the investment of capital to cover legal fees and the cost of establishing a franchising
infrastructure.

1.FRANCHISING
The Advantages and Disadvantages of Franchising - If you Want to Buy a Franchise

The Advantages to Buying a Franchise

Some of the advantages - provided that you choose the right franchise - of buying a franchise,
include:

Established Brand - Compared to establishing a new business, your franchised business - from
day one - will possess an established brand recognized by consumers;

Established Business Systems - Your franchised business will benefit from established
business systems and procedures that have been tested and proven in the marketplace.

Training and Support - Your franchise business will benefit from the franchisors continued
training and support. This includes initial training and support that should be ongoing and
extend to your business operations and the continued development of the products or services
that you will be offering.
The Disadvantages of Buying a Franchise
Some of the disadvantages to buying a franchise, include:

Benefits Could Prove Illusory - If you choose the wrong franchisor, the typical "benefits"
associated with buying a franchise may prove to be an illusion. That is there are good franchisors
and franchise systems and there are bad franchisors and franchise systems. If you choose the
wrong franchisor and fail to thoroughly evaluate the franchise agreement, training, ongoing
support and brand recoognition may be non-existent;

Potential for Reduced Margins - As a franchisee you will be required to pay on-going
royalties. These royalties, typically, are based on your gross sales and not your profits. So,
royalties will impact your profit margin. So, make sure that the franchise opportunity and the
value of the franchise system outweighs your additional cost.

2.LICENSING
Advantages of licensing
There are numerous advantages in entering into a licensing agreement with a foreign national:

Licensing requires very little capital outlay (making it an accessible channel even to
small companies) and it should provide a high rate of return on the capital invested
It provides access to markets which might otherwise be closed because of high rates of
duty, import quotas or other restrictions, or because of excessive transportation costs
Should the licensing arrangement prove to be a failure, it will not result in heavy financial
losses

The exporter does not face the risk of having assets nationalised or expropriated
The exporter gains access to the licensee's local marketing and distribution organisations,
and existing clientele, thus avoiding many of the problems associated with setting up a
wholly- owned manufacturing subsidiary
Many governments favour licensing over direct foreign investment because licensing
brings technology into the country without the disadvantages associated with direct
investment
Because of the limited capital requirements, licensing enables new products to be sold
worldwide before competition develops

Disadvantages of licensing
Licensing, however, does have some disadvantages:

During the period that the licensing agreement is in force, the firm may transfer sufficient
expertise to the licensee to enable the latter to set himself up as a competitor, not only in
the original market but perhaps also in neighbouring markets or even in the domestic
market
Licensing provides limited returns on the investment of managerial and engineering time
- royalties and fees normally constitute less than seven per cent of turnover
Governments can impose restrictions either on the remittance of royalties or on the
supply of components
It is often difficult to control the quality of the product which, in most cases, is sold under
the licensor's brand name
Although the contract should specify the responsibilities of each party,
misunderstandings and conflicts can arise during the implementation stage. Areas of
conflict might include; the marketing efforts of the licensee, the interpretation of
exclusivity and the extent of the licensee's territorial coverage

TYPES OF MARKETING
Traditional Marketing: In traditional marketing, more importance is given on selling the product.
They start with production and marketing is done while selling and promoting the product to attain
sales at profit. In this technique, the existing products are imposed on the market through
aggressive selling and promotional pressures.
Modern Marketing: Its main motive is customer satisfaction that is building a relationship with
MIS customer and is achieved through an integrated, corporate wide set of marketing activities.
This technique understands the needs and desires of the customer and product is designed
accordingly.

GLOBAL MARKETING VS INTERNATIONAL MARKETING

Global marketing means a company adopts the same promotional tactics across the world
think of Wal-Mart or Nike. In global marketing, the business thinks of the whole world as its

operating space and does not adapt its products or services, communication and distribution
channels to domestic requirements.
International marketing, on the other hand, means marketing a company applies when it opens
a subsidiary in a country and lets the subsidiary serve the local market, paying attention to local
customs in terms of religion, lifestyles and eating habits, for example.
#1. Product or Service Offering
In global marketing, a company offers the same products and services across the board, in
multiple countries. Think about banks, insurance companies and large retail chains like WalMart.
In international marketing, products and services are tailored to specific countries. Think about
Sharia finance products, which are only offered in Islamic countries or to Muslim customers in
non-Muslim countries or meat that is banned from Israeli or Muslim diet.
#2. Marketing Staff
Global marketing personnel tend to work at the companys headquarters and generally are a
diverse group of people. They possess various skills that collectively mesh well together, and
take a global view of the companys market.
Conversely, in international marketing, team members tend to hail exclusively from the same
country or a country with linguistic or cultural affinity with the primary country.
#3. Marketing Budget
The budget of a global marketing team is managed directly from the corporate headquarters. For
example, Nike sets a global marketing budget, which then trickles down to local offices.
In international marketing, however, budget issues are negotiated and handled at the local level,
within the subsidiary. Take for example McDonald, which runs local ads, some of which you
will never see in another country.
#4. Promotion Tactics
When it comes to promotion tactics, global marketing teams try to run ads and other
communication ploys that are in sync with a global audience.
An excellent way to understand is to see ads that were run during the 2014 FIFA World Cup a
perfect mix for global marketing: global sports event, billions of viewers, one passion for the
game.
In international marketing , commercials and other promotion tactics are tailored for the local
market.
#5. Operational Autonomy

Marketing does not mean you sit in a corner office and think about how to sell a product. The
typical marketing mix has four components, what experts call the 4Ps: product, price,
promotion and place (of distribution).
So in terms of operational autonomy, global marketing teams tend to run everything from A to Z,
from the corporate headquarters, whereas international marketing teams handle things
domestically.
#6. Social Media
By reviewing their social media pages, you can quickly see which companies favor global
marketing over international marketing and vice versa. For example, you will notice that
McDonald adopts an international marketing strategy, with Facebook pages as diverse as
McDonalds Malaysia, McDonalds Brazil, McDonalds Italia and McDonalds Polska (Poland).
Conversely, Nike or Caterpillar runs a single page.
#7. Customer Engagement
Customer engagement is more active in international marketing. By setting multiple
communication channels, a company can better engage with fans and customers at a local level.
That is not to say that global marketing is less effective when it comes to customer engagement
the tactics are just different.
But it is clear that international marketing tends to produce a higher level of engagement than
global marketing.
#8. Advertising
In global marketing, commercials are run all over the world, whereas international marketing
favors ad airing in the local market exclusively or in similar markets, at most.
Some products lend themselves pretty well to global advertising. We already talked about sport
gear; you also have movies and songs as well as technology products.
Other products, conversely, cannot exist in some countries because of cultural prohibition or
legal censorship.
#9. Market Research and R&D
Market research and R&D are as deep and broad in global marketing as they are in international
marketing.
Sometimes, though, global marketing can produce big flops when market research has not
properly conducted or local customs thoroughly studied. Think, for example, of Chevy Novas
and Mazda LaPutas unfortunate stints in the Spanish market (in Spanish, no va and la puta
mean it doesnt go and the whore, respectively.).

Other product flops include the Ben-Gay aspirin, McDonalds Arch Deluxe, and the Cocaine
Energy Drink produced by Redux Beverages.

STANDARDIZATION & CUSTOMIZATION

1. CUSTOMIZATION
Customization on the other hand refers to the tailoring of the campaign according to the needs of
an individual or groups of individuals. These are high margin products where the volumes are
low and the buyers are few. E.g. If an expensive luxury yacht was on sale then the company
selling it could go to the extent of tailoring the marketing efforts according to the needs of
specific buyers.
Reasons Pulling Towards Adaptation
1.Culture 2. Market development 3. Competition 4. Laws 5. Economic differences 6.
Customer perception Differences 7. Political environment 8. Level of customer similarity
9. Marketinginfrastructure 10. Differences in physical conditions 11. Technology 12.
Sociological factor
2. STANDARDIZATION
standardization means "one size fits all." It refers to the tailoring of amarketing program or
campaign in such a way that there are enough elements to appease everybody. The target
audience is vast. Standardization helps keep the costs low of reaching out to many people. It is
employed typically in situations where the product in question is for mass consumption. These
products are typically low volume products that makes it economically unfeasible for
customization.
Customization on the other hand refers to the tailoring of the campaign according to the needs of
an individual or groups of individuals. These are high margin products where the volumes are
low and the buyers are few. E.g. If an expensive luxury yacht was on sale then the company
selling it could go to the extent of tailoring the marketing efforts according to the needs of
specific buyers.
Reasons pulling towards standardization
1. Global uniformity and image
2. Economies of scale
3. Synergetic and transferable experience
4. Consistency with the mobile consumer
5. Easier planning and control
6. Stock costs reduction

Advantages of Standardization.
International uniformity has its own advantages. As people travel the World, they can be
assured that wherever they go the product that they buy from you will be same and that it will
have the same, standard benefits. This could mean the components that they buy from you in
different local markets as they themselves become global.
Standardization reinforces positive consumer perceptions of your product. One of the payoffs
of great quality for a single product category is that the reputation of your product will help you
sell more of it. Positive word-of-mouth pays dividends for brand owners.
Cost reduction will give economies of scale. Since you are making large quantities or the same,
non-adapted product you benefit from the advantages associated with manufacturing in bulk.
For example, components can be bought in large quantities, which reduces the cost-per-unit.
There are other benefits relating to economies of scale, including improved research and
development, marketing operational costs, lower costs of investment, and in an age where trade
barriers are coming down standardization is a plausible product strategy.
Quality is improved since efforts are concentrated upon the single product. Staff can be trained
to enhance the quality of the product and manufacturers will invest in technology and equipment
that can safeguard the quality of the standardized product offering.
Disadvantages of Standardization.
Since the product is the same wherever you buy it, it is wholly undifferentiated. It is not unique
in anyway. This leaves the obvious opportunity for a competitor to design a tailor-made,
differentiated or branded product that meets the needs of local segments. Of course products
have different uses in different countries (for example cycling is a leisure activity in some
nations, and a form of transport in others). Local markets have local needs and tastes. Therefore
by standardizing, you could leave yourself vulnerable.

Nevertheless, although the standardization approach is more common, its adoption is not
unconditional, as proposed by Douglas and Wind (1987). The authors explain that
standardization strategy increases a companys performance. However, this is only true for
companies in which competition takes place in a global range, such as consumer durables,
electronics, fashion, luxury goods, perfumes, etc. In these cases, the same product can be sold
throughout all markets. On the contrary, there are other industries in which the same does not
apply and this must be considered.
Consumer nondurables, including food products, are the most sensitive to differences in national
tastes and habits, making them more likely to need changes for various markets. For example,
Unilever saw an opportunity among low-income consumers in India who wanted to buy the
companys high-end detergents and personal care products, but couldnt afford them. In
response, the company developed a low-cost packaging product and other options that allowed it
to offer dramatically less expensive options. This flexibility not only opened a new market for
the company, but also allowed it to develop brand loyalty that consumers could take with them
when their income increased and they could afford higher-end products from the same
manufacturer.
Businesses should answer questions related to the marketing mix such as what do we intend to
standardize? and Do we standardize customer service and product support, marketing
communications, pricing, and channels of distribution? The answers to these questions should
neither be all standardized nor all adapted. It should be a balance of both.

Striking The Right Balance

Both approaches appear to be rational, logical and coherent, highlighting the advantages and
benefits that a multinational company could gain by using either approach. Yet, when
multinational companies exert all their efforts on the extreme position of either approach, they
often become unfeasible and incoherent. The truth is, marketing for multinationals does not lie in
either of these two opposite approaches, as both approaches are likely to coexist, even within the
same company, product line, or brand (Kitchen, 2003; Vrontis, 2003; Soufani et al., 2006).
Many researchers agree that standardizing certain elements of the marketing mix and adapting
others to different market conditions is necessary (Vrontis and Thrassou, 2007). These authors
believe that standardization and adaptation is not an all-or nothing proposition, instead it is a
matter of degree. For example, diversity among different countries does not allow full
standardization. However, the high cost related to adaptation may limit the use of the adaptation
approach (Vrontis, 2005). Nanda and Dickson (2007) concentrate on three factors to examine
standardization/adaptation behavior: homogeneity of customer response to the marketing mix,
transferability of competitive advantage and similarities in the degree of economic freedom.
They note that even in countries with similar cultures (e.g. across the European Union) there are
differences in customer needs and wants. Further more they argue that standardization will be
successful when the homogeneity of customer response and the degree of similarity in economic
freedom is high and competitive advantages are easily transferable.
Elements of both approaches should be incorporated in order for multinational companies to
succeed. Gaining the benefits of both approaches requires companies to not only standardize
various marketing mix elements and marketing strategies, but also to follow adaptation where
essential in order to satisfy apparent market needs.
McDonald's and the Marketing Mix
One company that has managed to highlight the benefits of both the standardized and adaptation
approach is McDonalds. With more than 33,500 restaurants in 119 countries the company
skillfully manages its franchise model, delivering a remarkably consistent customer experience
and branding (Im lovin It) while still allowing for locally relevant menu and service variations
in segments across the globe. Furthermore, all advertisements are shot in 12 different languages,
featuring the customized products catered to each region. In 2003, McDonald's introduced the
McArabia, a flatbread sandwich, to its restaurants in the Middle East. It also introduced the
McVeggie in India and the EBI-Fillet-O shrimp burger in Japan.

McDonalds also chooses convenient locations for all of its franchises. This includes malls,
airports and local neighborhoods. These marketing strategies have confirmed to be effective,
indicated by the companys 7% increase in profit margins over the past four years
(Mourdoukoutas, 2012). However, McDonalds has made every effort to improve them through
recent marketing initiatives with respect to the 7Ps. McDonalds has begun to renovate its
eateries, going from a plastic look to a more brick and wood design in an effort to maintain a
contemporary image (Mourdoukoutas, 2012). They have also decided to re-image themselves

in their ads by incorporating a hip-hop theme with teen icons such as Justin Timberlake and Lee
Hom in China as a means to attract teenagers. In addition, the company has begun to offer
healthier food products, such as oatmeal, given consumers are more health conscious.in their ads
by incorporating a hip-hop theme with teen icons such as Justin Timberlake and Lee Hom in
China as a means to attract teenagers. In addition, the company has begun to offer healthier food
products, such as oatmeal, given consumers are more health conscious.

PRODUCT LIFE CYLE

1. Introduction: Sales are slow as the product is not yet known. Costs are high due to heavy
marketing spend to create awareness. Emphasis is on advertising and distribution. The recently
launched Cadbury Snaps range is an example of a brand at the introduction stage.
2. Growth: This stage shows growing market acceptance and increasing profits. Competitors
begin to enter the marketplace. The business concentrates on optimizing product availability. The
Natural Confectionery Company is an example of brand at growth stage.
3. Maturity: The rate of sales growth slows down as the product has been widely distributed and
sold. The company now focuses on creating brand extensions and promotion offers to boost
sales. New product research is critical to ensure future sales. The Cadbury Snack range is an
example of a brand at the maturity stage.
4. Saturation: Sales slow down as the market becomes saturated. Profits level off and may even
decline due to increased investment in marketing to defend against competitors. McDonalds is
an example of a brand that has reached saturation stage.
5. Decline: Sales slow down dramatically and profits fall off. The product may be dropped to
make way for new products and the cycle recommences. MG Rover is an example of a brand that
has reached the decline stage.

Extension strategies could include:

Repositioning the product in the market place - selling to a different market sector,
usually down market, this will mean a reduction in price. All inclusive holidays are now
part of every major tour operators product range , and targeted at family groups, when 10
years ago they were much more exclusive, used just in the West Indies.
Re-launching the product - can be with a new name or packaging. Examples include Cif,
was Jif, Snickers, was Marathon.
Aiming at a different market segment, e.g. promoting the healthy aspects of
consuming the product . Lucozade was sold as a product for sick children to drink while
recovering from measles or mumps , now it is a sports and health drink.
Targeting a different geographical market - often overseas. The old style VW Beatle was
still produced and sold in Mexico up to 2000, it was replaced by the Golf in Europe in
1974.
Cigarette manufacturers with falling sales in Europe and the USA are actively targeting
developing countries.

Using the "now with" policy, we often see this with limited edition cars, offering air
conditioning, or alloy wheels, or breakfast cereals with extra fruit, or washing powders
that wash whiter than ever.
Using new distribution channels -selling in new places, All sports centres now have
drinks and snacks machines. Schools are offered a cut of profits if they install the same
sort of vending machines.
Promotion try new advertising methods, and new marketing campaigns