Trade Name Franchise - Definition & Example
What is Trade Name Franchise?
Trade Name Franchisee can be defined as an arrangement in which there is a supplier (franchisor) who supplies a product or product family to any dealer (franchisee) who could also avail the identity (brand name) of the supplier (franchisor). Trade Name Franchise is also known as product franchise. The exclusive branded stored that are present in the market are usually product franchises. The term franchising can also be defined as a method of distribution of services or products.
In trade name franchising, the franchisor does not control the business processes, training and other methods at Retailer's (franchisee's) end. Also the dealer/retailer is free to sell and display competitors' products as well as far as there is an agreement. In trade name franchising, Retailer can maintain and display its own brand in addition to displaying the franchisor brand identity and elements. On the contrary, in business format franchise model, retailer/dealer has no branding or visibility of its own name but the only branding and identity is that of the franchisor.
The model involves at least two levels of people –
Franchisor – The entity which lends its trade name or trademark and a business system.
Franchisee – The entity which has to pay a royalty and quite often an initial fee to gain a right to operate business under the franchisor’s system and name.
Therefore, Franchising is a team effort. The success of franchiser depends on the proportion of franchisee operating profitably under him. The franchisee gains from the brand name which attracts customers and from the operating process which provides quality assurance and time efficiency. The franchisor’s brand equity increases by good performance of franchises and also receives monetary gains from the royalty/profit share received from franchisee.
Trade Name Franchise Example
For trade name franchise, a good example can be a retail store selling all products of Coca Cola and displaying brand name and identity. It can stock up all Coca Cola brands including sprite and other brands with hoardings but it does not stop the retailer from also selling Pepsi in the store. Also there is no control of Coca Cola to handle the business and sales process. The retailer can display and sell it in the traditional way.
Another example can be a sports store selling multiple products but has exclusive dealership with one of the major brands like Nike/Adidas etc. and displays the brand and identity prominently to attract customers.
In contrast, McDonalds, Dominos and KFC operates a huge number of stores worldwide under 'Business Format' franchise model where the franchisee also follows the business processes and methodology controlled by these brands and in most of the cases cannot sell competitors products.
Hence, this concludes the definition of Trade Name Franchise along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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