Sales and Distribution Management

MBAM 562

UNIT EIGHT: WHOLESALERS, TRANSPORTATIONS

AND FRANCHISING

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 8.1 Wholesalers
8.1.1 Nature, scope, characteristics and classification of
wholesalers
•Wholesaling is the sale and all activities directly related to
the sale of goods and services to business and other
organizations for following purposes
1.Resale: - A business firm buys TVs from manufacturer
for resale
2. Use in producing other goods or services: - A firm
sells wheat flour to bakery for making Bambolino or Dabu
for consumers. Here, the Wholesaler like a middleman and
semi finished goods to finished goods.

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 3. Operating an organization: - A firm makes uniforms
and sells it to Hawassa University for their employees.
•Wholesale deals with sales to any customer except the
ultimate customer who buys it for their own use. Now the
wholesalers sell the goods or services to the ultimate
consumers at wholesale prices not retail price. Thus, we find
all sales are either wholesale or retail which depends on the
intention of the buyer either for resale or personal use. Those
firms which deal with wholesales are called Wholesaling
middlemen.
•We should distinguish between wholesaling and wholesaling
middlemen. Wholesaling is an activity which can be done by
any firm including by a manufacturer, or a retailer
occasionally. However, Wholesaling middle man is a firm who
specializes in wholesale, activities as business line.
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 What is necessary for wholesaling:-
a. Most Manufacturers are small and specialized. They
do not have infrastructure to meet and sell to all
potential buyers. Wholesalers’ services are needed here.
b. Most retailers are small and do not have sufficient
capital or infrastructure to buy quantity in bulk, transport
and store. Wholesalers are required here.
c. Skill and efficiency: - Wholesale is a specialized
field. It requires special knowledge and skill for efficiency.
Such skill and knowledge are not available with most of
the manufacturers and retailers.
• Classification of Wholesalers:- many classifications are
there. But some important wholesalers are also classified
into THREE categories
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1. Merchant Wholesalers
2. Brokers/ Agent wholesalers
3. Manufacturers’ wholesalers
1. Merchant Wholesalers:- This categories of wholesalers
are largest segment. Some important features are there.
A. Firms are independently owned.
B. Take ownership (Title) of products being distributed.
C. Take risk associated with the ownership. For example
Pharmaceutical wholesalers, textile wholesalers etc.
This is also classified into the following methods
A. Full service-merchant Wholesalers:- This method of
wholesalers are providing all services like delivery,
warehousing, credit promotion etc. Again this is also
divided into FIVE parts.
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1. General merchandise wholesalers:- Deals with wide range of
product mix like pharmaceutical, hardware, foods, cosmetics etc.
2. Limited line wholesalers:- Carriers narrow product mix of limited
nature like lighting fixtures, selected chemicals etc.
3. Specialty line wholesalers:-Deals with one or two specialized
line like Bajaj automobile dealership in Ethiopia or TVS dealership
etc.
4. Rock jobbers: - This is nothing but “Service Merchandiser” Rock
jobbers often specialize in items like magazines, house wares,
cosmetics etc. Does purchasing, financing and stocking functions
for retailers. They may prefer “Consignment selling” where in
retailer need not pay before hand and instead pay for merchandise
after these are sold out. Here, cash purchases and credit selling.
5. Co-operatives:- These are full-service wholesalers that are owned
and operated by members of the co-operative societies. These form
of wholesalers are popular in agricultural fields for supply of seeds,
fertilizers, warehousing etc.
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B. Limited service merchant wholesalers:-
This is sub-divided into FOUR
1. Cash and carry wholesalers:-Does most functions of
wholesalers except the following; Financing, delivery,
and promotion of products. They expect retailer pay cash
and carry their goods. They deal with fast moving items
like grocery, building materials, electrical fittings etc.
2. Drop shipper (Desk jobber):- Perform most functions
except physical possession, handling, storing or
promotion. They take order from customers, place
order with own finance, take ownership (titles) and
arrange shipment. Normally large volume of goods like
cement, coal etc.
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3. Truck owners: - Such wholesalers deliver product
direct to retailers or on-the-spot inspection and
acceptance. Often very limited services. They require
cash purchases, mostly used in perishable items
supplies like vegetables, meat, fish and certain
groceries.
4. Mail order wholesalers: - Sell products to retailers and
other organizational purchasers through direct mail or
catalogues and not thorough personal selling using
own sale force. Jewelers, cosmetics, automobile spare
parts are sold like this. It reaches even in remote
places and provides wide coverage.

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2. Brokers/ Agent wholesalers:- The agent wholesaler, does not
take title to the good. Instead of facilitates transaction/ sales
directly from producer to the retailers. This is known as agents
or brokers.
•These firms are independently owned.
•They do not finance the transaction
•Do not take title of products being sold. But work on
commission basis.
•Actively participate in negotiation of sales from producers and
purchase by dealers.
3. Manufacturers’ wholesalers:- Here an outlet fully owned and
manned by manufacturers. This is classified into TWO.
A. Manufacturers sales office: - Operate like an agent where as
owned by the manufacturers. Here, does not carry the stock
from head office. These people take orders and the same
message passes on to the head office.
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B. Manufacturer’s sales branch: - Manufacturer’s sales
branch does carry stock and sales can be executed
from such branches. Jittu vegetables plc, Hawassa
branch.
Functions and services:-
1. Functions and services rendered to manufacturers:-
A. Buying:-Placing order and negotiating terms as
agents for customers for whom ultimately the
manufacturers produce the item.
B. Market information:- The wholesales is providing
valuable market information to the manufacturers.
C. Transportation:- To providing transport facilities to
different market areas.
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D. Warehousing:- This includes storage, inventory control,
material handling and safety.
E. Financing: - Provide advances on orders which assist to
manufacturers.
F. Risk taking: - By taking ownership (title) of products the
wholesalers takes the risks and relieves the burden form
manufacturers.
2. To the customers thorough retailers:-
A. Selling:- Selling products to retailers including negotiating
the prices and sales terms as agents of manufacturers
B. Sorting: - Sorting and subdividing items into small
packages which ultimately provide to ease and convenience
to customers are services rendered to retailers. Here, this
type services for consumer goods as a best example.
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C. Warehousing: - These are services rendered by
wholesalers to the retailers and customers.
D. Transportation: - Wholesalers arranges
transportation of items from manufacturer’s
premises to market which assist retailer as well as
customers.
E. Financing:- Extending credit facilities, assists
customers through retailers.
F. Market information:- Wholesalers inform
customers through retailers regarding
information about new products and producers
new efforts.
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8.1.2 Wholesalers -Departmental stores-Multiple shops-mail
order business-co-operatives and super bazaar
1. Departmental Stores: - A departmental Store is a large retail
institution selling under one roof and under one control
practically everything from pin to piano. It is established on the
principle that it is easier to sell more goods to the same customer
by providing a wide range of merchandise that to find more
customers in a given locality to purchase to same kind of
merchandise. For example Mercado Super Market in
Hawassa.
2. Multiple shops: - A group of stores handling similar lines of
merchandise with single ownership and centralized management
control. These shops spread out and open stores in different
localities. Like factory out lets. Here, they are selling one type
goods. Ambassador suits, these shops located in major towns of
Ethiopia.
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3. Mail order business: - The receipt of orders through mail and
delivery the goods through parcel or some special instrument. This
system was first launched in USA. This is the oldest system. Now, no
organization is following.
4. Co-operative stores:- This main aim of this method is based on the
principles of co-operation which is defined as the combination of the
economically weak against the economically strong. Here an
association organized by consumers to obtain their requirements directly
from the manufacturers through bulk purchase and selling them
through the stores which are owned, managed and conduct them.
Here, the consumers just like a sellers.
5. Super Bazaar: - This is also known as super market. A large retailing
business unit selling mainly grocery items on the basis of the low margin
appeal, wide variety and assortments, self service, no credit facility etc.
Here, everyday, they observe the price index. According to current
price they are selling. These people are purchase the goods directly from
manufacturers and to eliminate the wholesaler and retailers.
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 8.2 Retailing-Nature and scope and functions,
classifications
Nature of Retailing: - Retailing is defined as all activities
directly related to the sale of goods and services to ultimate
customers for their personal or non-personal use. Any firm-
manufacturer, wholesaler or retailer that sells something
to the ultimate consumer for their non-business use is a
retailer.
In other wards the retailer is identified not by their form or
type or size of organization but by the type of activities they
perform. Retailing does not take into consideration place of
the exchange or time of exchange or by whom such
exchanges of goods/ services have taken place. Where the
customers are staying immediately the retail shops are
established.
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• As long as the good is exchanged ultimately to the
user, that transaction is called retailing.
• Sales can be through telephone, mail or in person. It
can be sold in store, market or at consumer’s home.
• Sales can be by salesman, manufacturer’s agent or by
store keeper. All such transactions are called retailing.
Retailing is not confined to goods. Exchange of
services to the ultimate user is also called retailing.
• The need of retailing, when earth and heaven is there
the retailing will continue.
• Basically the word of marketing is comes from the
retailing. Because the retailing position is more in all
aspects.
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Functions:-
•Offering product assortments and mix.
•Providing information on products and services, through
advertisements promotional steps and salesman.
•Gathering information from field and feedback to suppliers the
market intelligence.
•Handling, storing and assembling.
•Taking risk, and
•Provide items at the right time and place required by consumers.
Importance:-
• Act as purchasing agent for their customers.
• Act as sales specialists for their suppliers.
• To carry out these roles, retailers perform a number of activities.
Another reason for their importance is that they are performing the
ultimate objective of any business – “the satisfactions of
customers needs and wants”
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Characteristics of the retailers:-
•No large investment like production line is needed.
•Products can be often can be purchased on credit.
•The space can be rented instead of building up, own
premises,
•No major overheads like advertisement/warehousing etc.
•However, there are higher chances of failure because of
the following aspects
•Since many enter this field, competition is severe.
•Serving suppliers as well as customers is a delicate
balancing act, in which, many fail,
•Survival of business depends more on customer
satisfaction, customers are difficult to satisfy.

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 Classification: - The classification of retailing is based on
two aspects
1. Based on ownership:- Again this method is classified in to
THREE types
A. Corporate chains:- These are centrally owned and
managed stores. These deal similar range or lines of
products.
• A chain consists of two or more stores. However, by and
large.
• A corporate chain has central ownership
• Individual unit in a China has little autonomy and possess
high degree or standardization.
• In the recent census says about in USA, chains having 11 or
more stores constitute 39% of retail share.
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 B. Merchandising conglomerate:- These are corporations
that combine several different retailing forms under central
ownership and share some distribution and management
functions chains. These are part of corporate chains. Here, the
price, quality and quantity are one and the same, where as the
sales are individual. For example Beer company in
Ethiopia.
C. Independent Stores:-An independent store is a retailer
which is not affiliated to any corporate or any other stores
or chains. Majority of retailers belong to this category. These
form part independent stores.
• These are comparatively smaller size.
• They are autonomous.
• These stores normally charge higher prices compared to
chain stores.
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•Provide better quality of services for which customers are ready to
pay extra.
•Serve customers of different level, and provide additional services like
credit sales, door delivery, installation, and so on.
D. Contractual vertical marketing System:- This system is given in
Three
1. Retailer co-operatives:- This is formed by a group of small retailers
who agree to operate together and use common
wholesaler/warehouses. For examples grocery and hard ware etc.
2. Voluntary chains:- This is sponsored by a wholesaler that enters
into contract with interested number of retailers. For examples are
many in grocery, hardware, automobile spare parts etc.
3. Franchise System: - Franchising involves continuous relationships
in which a franchiser provides the rights to use it trade mark and
management assistance in return for payment received from
franchisee. Franchise system is defined as a combination of
franchiser and franchisee.
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 E. Non-store Retailing:- Retailing that take place
outside traditional store environments are referred to as
non-store retailing. This form is gaining popularity these
days. Like
•In home selling
•Direct marketing and
•Automatic vending:- In this method the machine delivers
the item once the customer makes the payment either in
cash or through credit cards. Automatic vending
machines are very popular in developed countries like USA
and West European nations. It is estimated that there is one
vending machine for every 50 Americans. The product
handled by vending machines are many such as consumers
like cigars, beverages, milk products and food items etc.
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2. Based on Marketing: - This is depends on selection of marketing mix.
Like
• Product range
• Price
• Location
• Promotion
• Customer service
• In addition to that
• Credit
• Delivery
• Gift
• Wrapping
• Installation
• Commissioning
• Parking
• Entertainment etc.
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The following are the sub classifications of merchandisers
1.Combination stores- This is also a giant store like super
store. Here not only selling all variety of goods including food
items to high range items in addition to that here they are
providing other facilities like parking, entertainment
activities etc. Generally the floor area can be the order of
5000 Sqm.
2.Hyper market- This concept first time in France. It
combines one-stop shopping just like super market. Where
as here one difference between super market and hyper market.
Here, nearly 50000 variety of items are selling. Even house-
hold services such as Laundry, shoe repair, Beauty parlors are
also provided. Middle and upper classless constitute its target
market. It emphasis low prices and gives a few services. It has
to provide numerous payment counters.
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 8.2.1 Strategy to sustain competitive advantage in
Retailing:-
•The following are some of the strategies to sustain
competitive advantage in retailing.
1. Lower-cost and margin competition: - Learner and
more efficient retailer operations are on the cards. Many
Western firms are in the process of restructuring their
organizations to achieve “low-cost and margin
competition” in stead of traditional “high gross margin
competition”. They are now facing competition from high-
discount stores and electronic shopping channels. The
focus here is to provide value.
2. Newer technology Strategy:- New technology
strategy serves Two purposes
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• Increase Productivity: - Technology has excellent
opportunities to convert threat into opportunity. Retailers
will benefit in the following areas by using better technology.
• Logistics:-Improve efficiency and speed of transportation and
reduce costs. Like door delivery.
• Improve C.S.L:- This system by reducing waiting time and
efficiency of sales. In order to increase sales per square foot,
technology can assist to add entrainment, excitement and fun to
retail business.
• Direct communication- Facilitates improving relationships
marketing and individualized micro-marketing.
• Communication and control- Improve communication and
control among its stores and other departments.
• Eliminating in manual labor and repetitive tasks- This
enables more efficient and quick reposes to marketing dynamics.
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3. Smaller and smarter stores:-
Future retail stores are likely to be smaller. Customers can buy
their needed items without even visiting the premises by use to
telephone /internet/catalogue etc.
4.Longer customer value and strategy:- Customer loyalty may
lead to long term customer value. This relationship holds goods for
all members of the family for many years which include their
children and grand children. Retailer must now focus on new
generation’s need, by building up their relationship in 21 st century. A
company must think about selling not one car but ten cars for
different members of same family by bringing out new models to
suit taste of new generation.
5. Globalization-outlook strategy: - Retailers must develop in
global outlook in the future. Global sourcing and niche-marketing are
two areas. They must become destination points of new branded
products. Retailers must use their strength as a leverage to bring
global
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outlook in their product range and services. 27
8.3 Transportation
• Transport means movement of goods and persons from
one place to another. It also carries ideas and inventions to
the people.
• Efficient transport is indispensable to the economic
development of a country. It is indispensable for the
assembling and dispersal of raw materials and goods. It is an
integral part of commerce.
• It removes the hindrances of place and time in the exchange
of commodities.
• It gives place and time utility to the goods by removing them
from the place of production to the places where they are
consumed.
• No nation of the world can progress without efficient and
sufficient facilities of transport.
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•In the words of Alfred Marshall “The transport industries
which undertake nothing more than the mere movement
of persons and things from one place to another has
constituted one of most important activities of men in
every stage of advanced civilization”.
8.3.1 Role and modes:-Transportation is very essential for
physical distribution of product and services. Transportation
enables channel members like manufacturers, wholesalers and
retailers to make their products available at the premises of
customers. Another important aspect is the cost of
transportation which accounts nearly 30% of total distribution
costs.
Timely delivery, security of items on transportation, and
proper handling also make transportation function very
important. This will directly result in customer satisfaction.
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Summarizing, following aspects high light important role
of transportation.
• Supply of products in sufficient quantity
• Supply of products in time
• Cost consideration-Price stabilization.
• Easy availability of products.
Mode of Transport:- FIVE major modes of transport.
1. Air ways: - This mode is fastest and safest. But it is the
costliest of all. Hence less than 1% of transshipment
takes place through this mode. However, due to
globalization more and more goods are likely to be
transported through air in the future.

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2. Road ways:-Here motor vehicles like Lorries/ trucks,
trailers accounts for the major mode of transport. It
accounts for nearly 25% of share of transportation in
throughout the world market. Recent studies the
maximum transportation through out world it increases to
35%. Where as in Ethiopia as per internet survey
nearly 65% of transportation through this mode.
• Flexibility and Easy availability
• Faster and safer
• Can go to any place and at any time, and dependable.
• However, the limitations are the lower capacity, higher
cost and lower fuel efficiency. Trucks are used to
complement other types of transports like air ways, rail
ways and water ways.
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3. Railways:- This is the most sought after mode of
transportation of products. This is classified into two i.e.
passenger railways and goods railways. The popularity of
railways due to the following aspects.
•Reasonable cost.
•Mass transfer capability
•Relatively safe and fast
•Capable of long distance transportation
•Better haulage capacity
•Availability of space is railways.
•Products normally transported through railways are coal,
fuel, wood, steel, sand etc. Rail way transport share is the
order of 35% in and around of the world. Where as in India
nearly 55% of share of the total transport.
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•There is no single percentage of rail transport in Ethiopia. In recently,
one African summit was conducted in the capital city of Ethiopia i.e.
Addis Ababa with that conference the Prime Minster of India was
promised to the Ethiopian country how much amount you need about
rail transport from Djibouti to Addis Abba that amount we will
sponsor.
•Of late, there appears to be a trend of decrease in market share. This is
due to inefficiency in rail ways. Transit damages, thefts, delay etc.
This loss is again for road ways through vehicular transports.
4. Water ways:-This is also another mode of transport. There are
two ways.
A. Overseas through ships
B. Inland water ways through boats
•In land water ways are compared to roadways and railways fro
movement of products within the territory of each country. The
share of inland water ways transportation is the order of 15%. The
following are advantages:
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• Least cost
• Most fuel efficient
• Low damages and losses on transportation,
• Low value and bulk if products like coal, fuel etc
• Limitations
• Utility is restricted a long rivers,
• Limited stations
• Slow and Less dependable.
• Especially in Ethiopia, Overseas shipment is best mode
of transport. The majority of the consumer goods,
capital goods, technical goods through this mode.
Nearly 80 to 90% of the above goods imported through
this mode.
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5. Pipe ways: - This is also another mode of transport,
exclusively for through this mode for fuel. These
modes each and every country is following expect oil
countries like Middle East countries.
Now days with out fuel the remains mode of
transports not working. Almost all countries are
completely depends on this mode for fuel. Because this
also very important mode of transport.
Lowest cost
Fastest and uninterrupted supplies
Fuel efficient
Low losses and damages etc.

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8.3.2 Transportation Mix and selection:-
•There are five major transportation modes such as airways,
roadways, railways, waterways and pipe ways. The selection criteria
depends on various attributes of transport function like in Ethiopia,
there is no railways transport after that they are prefer other then this
mode. Generally, the selection based on these factors
•Low cost.
•Higher speed.
•More locations covered.
•Higher ranges of products covered.
8.4. Franchising
8.4.1 Definition, nature and scope and limitations
“ A franchise is a contractual association between a manufacturer,
wholesaler, retailer or service organizations(the franchiser) and
independent business units(the franchisees) who buy the right to won,
operate and sell one or more type of products or services
manufacturer-owned or patented by the franchiser”.
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 “ A contract or agreement, either expressed or implied, whether
oral or written between two or more persons by which, a franchisee
is granted the right to engage in the business of offering, selling or
distributing goods or services under a marketing plan or system
prescribed is substantial part by a franchiser and the operation of
the franchisee’s business, pursuant such plan or system is
substantially associated with the franchiser’s trademark, trade
name, service mark(after sales care), logo type, advertising or other
commercial symbol designating the franchiser or its affiliate “ By
California Franchisee investment law of USA.
Nature and Scope:-
• Deal with some unique product or service
• Deal with a special method of doing business
• Based on trade name/ logo type/ trade mark or service mark of
the franchiser
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• Depend on goodwill and or patent right developed by the
franchiser.
• Generally, the scope of franchise has two variations like
limited scope like area and expanded scope means not only
particular area they will expand any area of the country, as
per agreement.
• For example Bajaj auto’s in Ethiopia. In Ethiopia only two
franchisees are there one is Tagrow Bajaj and another is
Sedio Bajaj. In addition to that these two franchisees are
expand not only particular area they are providing sub-
franchisee to others this called expand the franchise. The
relationship between franchisee and franchiser is called
franchise. The owner of the product or service is called
franchiser where as those who are agent or seller of the
product is called franchisee.
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• Compensation: - The compensation received by the
franchiser may vary with terms of contract. However, by and
large, following are the major heads of such compensation
• Initial fee (Lump-sum)
• Royalty on sales
• Lease fees on equipment
• A share on net profit.
Limitations and Remedies of Franchising:-
• As any other distribution system, franchising also has its
own strengths and weakness. There was a time when
franchising was much sought after. This rush is now reduced.
• In recent times the competition has become very severe.
Many franchising business are struggling for survival. This is
because of its serious limitations.
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1.Rationale of franchising is for making quick front money rather
than ensuring long-term profits through building up competent
and trust worthy, network relationship.
2.Franchising system is often related to short-term objectives
instead of long –term objectives.
In many cases the franchisees to exploit the franchisers by way of
wrong directions and in addition to that generally the franchisee is
a local person and some times to dominate the franchisers. Lack of
trust in each other it leads to some conflicts.
Lack of role congruence is another reason for the failure of
franchising. For example, the franchiser is interested to expand his
business. Hence he opens up more outlets. The franchisee on the
other hand, is interested in making profit. For expanding the
business the franchiser is opening new franchises near to existing
ones causing the business of existing franchisee to suffer. This is
another case of conflicts.
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 Remedies:-
1.Preventing arbitrary and draconian measures by franchisers
2.Protecting the interests of franchisees.
These regulatory measures involve the following:
• Franchiser must possess sound financial status.
• Franchiser must disclose all aspects of business and the firm.
• Franchisees cannot be dismissed without adequate causes.
• Franchisees territory must not be restricted unreasonably.
• Franchisees territory must not be compelled to buy and sell
products or add on units, not envisaged in the agreement.
• Prevent “resale” of franchisees instead of products. Such type
of sales is called “Pyramid-type- sales”.

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 Conclusion: - Proper implementation of regulatory
measures is essential to derive benefits.
Misuse of rules lead to corruption and demoralization.
similarly excessive regulations curb initiative and
entrepreneurship. Excessive regulations also lead to the
search of alternatives to seek out better quality business
relationship, in the form of partnership. In such
partnership, each investor invests amounts proportional to
his contribution. Here they share “pleasure and pains”
proportional to their investment.

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 8.4.2Strategies, agreement, terms of payments selection
criteria
Strategies:-
A. Structural changes:- In case of vertical structure of
master-slave relationship has been replaced by horizontal
structure in which, franchiser and franchisee are equal.
Franchiser provides to the Franchisee for necessary managerial
input and training. Franchisee provides the entrepreneurship so
that the business prospers. Their functions are complementary to
each other words; recognisation under this concept resembles the
“voluntary co-operative” in structural design and relationship.
B. Participation: - parent company and the entrepreneur share
stake in the business. In proportion to their investment. Here the
franchisee, the entrepreneur, possesses the ability to acquire a
grater share, as the time passes, as the profits increase.
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C. Management Consultancy: - The franchiser acts as a
management consultant, where as the franchisee act as
consultant. The gives guide lines to the franchiser why
because the franchisee is local person in addition to that
he/she knows about the pulse of the public.
D. Buying service agreement: - In this strategy the
franchiser provides best to its franchisee by offering them
lowest prices. Some franchiser is allowed to sell their
product under franchisee’s label.
E. Multi unit franchising: - This is a recent strategy where
franchising is done on multi unit instead of single unit
franchisee. Here franchisee acts as a mini-franchiser and
does so many activities on behalf of the franchiser like
recruitment, training, managerial assistance, some times
finance
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and warehousing and so on. 44
 E. Buy back agreement: - Of late franchiser are offering buy
back arrangement. In this case, within a stipulated time,
franchiser is in such case the franchisee is paid back full or
part of his investment.
F. Others:- Now so many developments are there, the
franchisers are providing systematic and well planned services
to the franchisees with determination to make the franchisee
succeed.
Terms and Conditions: - Generally, there is no specified
terms and conditions according to their interest means
between these two parties. General format is there.
1. Name of the Parties:
2. Nature of business:
3. Details of license:
4. Payment details:
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5. Location:
6. Equipment and furnishing:
7. Duties of the franchiser and franchisee:
8. Settlement of disputes:
9. Termination of agreement:
10. Other if any :
• Terms of payments:-
A. Franchisee Fees: - Generally, the fees structure of the
franchisee is mentioned in the terms and conditions according
to that method both are following. This system only some
commitment between the parties. Generally the franchisee will
pay some lump sum amount to the franchiser by way of
license fees. Management will provide some training facilities
to the franchisee. Franchisee fees will be reimbursed when
commitment is completed, some times the franchiser will pay
interest on franchisee fees also.
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B. Royalties: - Royalties are income of franchisers and continued
as long as sales take place. These are normally stated in the form
of a “percentage of gross sales or minimum payment per unit of
time whichever is greater”. This is main method of this
transaction, if franchisee is satisfied about the Royalty, the
organizational sales will be increase. Either increase of sales or
not depends upon the royalty.
C. Advertising Fund: - This is a regular payment by the
franchisee towards building up this fund. Generally in the
country level advertisements, the franchiser will give. Where
as in the international level advertisements will be given by the
franchisee, the reason is the franchisee knows about knowledge
of the people according their knowledge they will follow. Finally,
this amount bared by the franchiser other wise that amount will
deduct and the remains amount send to the franchiser from
franchisee.
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D. Administrative Expenses:- In order to retain and support franchise
system franchiser are expected to incur a number of administrative
expenses like TA/DA, telephone charges, building rent etc.
E. Goods and services: - These are expenses incurred by the
franchisees for inventory holding of franchisers goods and services.
8.4.3 Obligations of franchisers:-
1. Permit franchisees to use company trade mark.
2. Merchandising assistance in products and services.
3. Assist location and site selection of franchisee outlet.
4. Assist purchase/lease/rent site/buildings.
5. Assist store construction design and layout.
6. Financial assistance.
7. Training and development.
8. Inspection and periodic visit.

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9.Programme and scheduling and assistance in advertisement
10. Record transactions and keeping accounting for tax and
other purposes.
11. Design and maintenance of necessary records and manuals.
12. On the spot and field counseling.
13. Feedback and up gradation of information on technology
and new products and their availability and accessibility free
or on fresh terms if needed.
14. Saving through centralized purchasing common items for
all franchisees and centralized advertisement and
15. National advertising campaign.

THANK YOU
WISH YOU ALL THE BEST
LEARNING NEVER ENDS........
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