Deck 8: Franchising Structures and Strategies

Question 1

Which of the following is most likely a true statement about the McDonald's franchise format?

A) McDonald's provides franchisees with general guidelines about job responsibilities but allows franchise managers to determine serving specifications.
B) Most McDonald's franchisees are responsible for finding a restaurant site and constructing the new building using their personal capital.
C) McDonald's provides franchisees and managers with extensive training about running a McDonald's franchise.
D) McDonald's franchisees receive occasional assistance from headquarters when sales are slow.
E) McDonald's franchisees are strongly encouraged to make menu changes to suit local tastes.

Answer 1

C

Question 2

The practice of licensing an entire way of doing business under a brand name in exchange for ongoing fees from franchisees is known as ________.

A) B2B licensing
B) multi-unit franchising
C) business format franchising
D) authorized franchise marketing
E) intellectual property franchising

Answer 2

C

Question 3

Francesca purchased a frozen yogurt franchise,Yo-To-Go,and she has been successfully operating the new store for three months.Each month,a Yo-To-Go franchise consultant visits Francesca's store.What is the LEAST likely purpose of the regular visits?

A) evaluating product quality
B) monitoring the store's performance
C) assessing the quality of customer service
D) handling employee management issues
E) reporting the store's status to the franchisor

Answer 3

D

Question 4

Brad has decided to purchase a fast-food franchise,Taste Buds.Which of the following will Brad,the franchisee,LEAST likely receive from the Taste Buds franchisor?

A) information about how to make Taste Buds menu items
B) the financial capital needed for Brad to hire employees
C) proven strategies for marketing Taste Buds restaurants
D) permission to use the Taste Buds logo and trademark
E) a business format to use in Brad's market area

Question 5

Francesca purchased a frozen yogurt franchise,Yo-To-Go,and she has been successfully operating the new store for three months.Which of the following will Francesca most likely receive from the franchisor on a regular basis?

A) stock payments
B) expansion assistance
C) employee benchmarks
D) capital investments
E) promotional materials

Question 6

How does franchising most likely benefit a franchisor?

A) protects the brand name and logo
B) provides financial capital for growth
C) provides knowledge to shareholders
D) identifies the needs of niche markets
E) protects the franchisor against economic risk

Question 7

What is a key characteristic of franchising?

A) The franchisor assumes the identity of the franchisee.
B) Franchisees manufacture the products sold by franchisors.
C) The franchisee appears to be a subsidiary of the franchisor.
D) The franchisee sells competing brands in the product category.
E) Franchisors and franchisees share downstream channel functions.

Question 8

By opting for franchising instead of setting up company-owned branches,a firm most likely overcomes the problem of ________.

A) managerial scarcity
B) brand inconsistency
C) inadequate service
D) strategic control
E) free riding

Question 9

Maria recently signed a franchise contract with Perfect Pizza.She will have to acquire inventory,purchase equipment,and advertise the restaurant's opening.If Maria's franchise fails,which investment will she never recover?

A) sunk costs
B) lump sums
C) variable fees
D) fixed costs
E) sales royalties

Question 10

In a(n)________ franchise system,dealers meet minimum criteria established by the manufacturer and receive the right to sell a product and use the manufacturer's trade name for promotional purposes.

A) product
B) authorized
C) multi-unit
D) independent
E) company-owned

Question 11

Which aspect of franchising most likely enables a franchisee to build a client base quickly?

A) brand equity
B) facility design
C) market surveys
D) financial advice
E) management training

Question 12

Franchise managers are most likely encouraged to work hard because they are ________.

A) residual claimants
B) human capital
C) stockholders
D) opportunists
E) free riders

Question 13

Why is site selection highly important to most franchised retail operations?

A) Brand equity enables a franchisee to build clientele quickly.
B) The franchisor can negotiate a lease in a large shopping mall.
C) Financial capital enables a franchisee to build a large facility.
D) Market potential determines a store's sales and productivity.
E) Downstream channel functions depend on a store's location.

Question 14

Which statement about franchising is most likely true?

A) Franchisees provide downstream marketing channel functions for a manufacturer.
B) Franchisees are company subsidiaries of a vertically integrated manufacturer.
C) Franchisors assume the identity of franchisees to convey vertical integration.
D) Franchisors provide downstream marketing channel functions for franchisees.
E) Franchising first developed in the U.S. after WWII in the soft drink industry.

Question 15

McDonald's has most likely earned praise for ________.

A) adapting menu items to meet cultural preferences and nutritional needs
B) minimizing corporate intervention in local restaurant management
C) developing personal relationships with local restaurant suppliers
D) encouraging franchisees to open multiple locations
E) offering franchising opportunities to minorities

Question 16

According to Howard Schultz,the founder of Starbucks,franchising ________.

A) serves as the best way to run a channel
B) prevents firms from growing fast enough
C) improves product and service consistency
D) leads firms to propagate major problems
E) creates a strong sense of brand ownership

Question 17

Large franchisors have company lawyers to draft documents,architects to draw plans,and technicians to install and test equipment for franchisees.Franchisees benefit from these ________ that lower costs and provide better franchising results.

A) downstream functions
B) economies of scale
C) supply chain tools
D) marketing strategies
E) branding capabilities

Question 18

Free riding among franchisees is most likely prevented by ________.

A) franchisors striving to build a strong brand image
B) franchisees using social media for promotions
C) franchisors enforcing business format rules
D) franchisees outsourcing most service tasks
E) franchisors employing in-house attorneys

Question 19

Which of the following is LEAST likely an advantage of franchising for franchisors?

A) obtaining financial capital
B) growing the brand quickly
C) avoiding monitoring costs
D) motivating local managers
E) overseeing hiring practices

Question 20

In the EU,a franchise is distinguished as having all of the following features EXCEPT ________.

A) use of a common name
B) use of a common sign with a uniform facility presentation
C) communication of know-how from franchisor to franchisee
D) transfer of regular stock options from franchisor to franchisee
E) continuing provision of commercial assistance by the franchisor to the franchisee

Question 21

Anthony recently signed a franchise contract with Tasty-Freeze,an ice cream chain.As Anthony readies the store,he frequently contacts Tasty-Freeze representatives with questions about recipes,tools,and advertising.Which of the following most likely motivates the Tasty-Freeze franchise to assist Anthony as he develops his business?

A) sunk costs
B) lump sums
C) annual profits
D) upfront costs
E) sales royalties

Question 22

The Tubby Tacos franchise holds the lease for all Tubby Tacos restaurants.Tubby Tacos franchisees make monthly lease payments to the national franchisor.What is the LEAST likely reason that Tubby Tacos ensures that it is the landlord of all franchisees?

A) protect the franchisor's rights
B) obtain a better site due to franchisor size
C) allow some flexibility to assist franchisees
D) decrease the level of franchisor management
E) enhance credibility when making termination threats

Question 23

According to the text,a franchise system that is ________ old has the greatest chance of success.

A) 6 months
B) 1 year
C) 2 years
D) 3 years
E) 4 years

Question 24

Kyle owns a Cars-To-Go franchise.Kyle's franchising contract stipulates that he must purchase the cars he rents from the national Cars-To-Go franchisor,although Kyle could save money by purchasing cars from a local dealership.Which term best describes this contract requirement?

A) supply fees
B) tied sales
C) sunk costs
D) front end fees
E) territorial exclusivity

Question 25

Why do most franchisors offer the same contract to all franchisees?

A) ensure cooperation
B) minimize start-up costs
C) encourage longer contracts
D) provide negotiation flexibility
E) avoid appearing discriminatory

Question 26

What is a competitive advantage of franchising?

A) attracting new customers
B) focusing on a branded concept
C) forming long-term contracts
D) developing multiple products
E) separating channel functions

Question 27

Which term refers to building too many stores close to each other and undermining their ability to earn profits?

A) segmentation
B) fragmentation
C) plural formation
D) cannibalization
E) expansionism

Question 28

Kyle owns a Cars-To-Go franchise.Kyle's franchising contract stipulates that he must purchase the cars he rents from the national Cars-To-Go franchisor.What is the most likely reason that the franchisor makes this requirement?

A) give Kyle the right of first refusal
B) monitor rental agency's safety rates
C) ensure the quality of rental cars
D) lower Kyle's fixed franchise costs
E) create contract consistency

Question 29

Shoes-4-Less simultaneously maintains both company stores and franchised outlets.Shoes-4-Less is most likely following a ________ strategy.

A) niche
B) global
C) multiple
D) plural form
E) business format

Question 30

Coffee Cups,a national coffee shop franchise,uses a plural form strategy.The franchisor wants to create functional rivalry between the two forms by monitoring company outlets closely.Which of the following would most likely enable Coffee Cups to achieve this goal?

A) general reports that cover most aspects of Coffee Cup outlet operations
B) annual, announced field audits of the top performing Coffee Cup outlets
C) team-building exercises to build trust between Coffee Cup managers
D) performance evaluations of Coffee Cup managers and employees
E) mystery shoppers who pose as customers in Coffee Cup outlets

Question 31

A franchisee engaging in opportunistic holdup with a franchisor would most likely ________,

A) demand tie-in sales
B) request lower royalties
C) negotiate for rent relief
D) invest in equipment
E) share profits

Question 32

What is LEAST likely an advantage of franchise systems that include both company-owned outlets and franchisees?

A) testing new ideas
B) training employees
C) refining business formats
D) enforcing contract requirements
E) motivating both sides to improve

Question 33

Which of the following refers to a franchisee that owns many outlets and has an organizational structure that mimics the franchisor's structure?

A) licensed
B) multi-unit
C) single-unit
D) plural form
E) business format

Question 34

Company X,a franchisor,used franchisees to build the Company X brand and the company system.Now that Company X is large and successful,it is using pricing tactics and restrictive contract terms to force franchisees to sell their franchises back to Company X.Which term best describes the actions of Company X?

A) free riding
B) negligent franchising
C) opportunistic licensing
D) redirection of ownership
E) organizational consolidation

Question 35

What is the most likely reason that many franchisors also run company-owned stores?

A) promotion strategies
B) market differences
C) brand equity shifts
D) service outputs
E) capital investments

Question 36

Coffee Cups,a national coffee shop franchise,uses a plural form strategy.The franchisor frequently compares the performance of company and franchisee outlets to encourage each to improve sales.Which of the following most likely enables the Coffee Cups franchise to make such comparisons?

A) benchmarks
B) trends
C) guidelines
D) mutual strategies
E) business formats

Question 37

Why does goal incongruity most likely exist between franchisors and franchisees?

A) Franchisors want compliance, and franchisees want innovation and flexibility.
B) Franchisors seek to maximize sales, and franchisees seek to maximize profits.
C) Franchisors want open communication, and franchisees want full autonomy.
D) Franchisors seek to maximize profits, and franchisees seek to maximize sales.
E) Franchisors want innovation and flexibility, and franchisees want compliance.

Question 38

A franchisor would most likely punish a franchisee for a contract violation when _________.

A) the franchisee runs a shabby facility in a highly visible location
B) the franchisee is part of a dense, tightly knit network of franchisees
C) strong relational governance allows the system to operate on norms of solidarity
D) the franchisor has invested significantly in the franchisee that has made the violation
E) performance ambiguity prevents the franchisor from clearly identifying the enforcement situation

Question 39

Which of the following would LEAST likely be addressed in a franchise contract?

A) organizational structure
B) territorial exclusivity
C) terms of renewal
D) marketing strategy
E) intellectual property protection

Question 40

According to the text,franchising in the U.S.was primarily developed by which company?

A) Coca-Cola Company
B) Ford Motor Company
C) Standard Oil Company
D) Singer Sewing Machine Company
E) McCormick Harvesting Machine Company

Question 41

Multi-unit franchising is becoming increasingly common.Briefly explain the functionality and advantages of multi-unit franchising.

Question 42

What is a plural form system? What are the benefits of such a system?

Question 43

Franchising is a fast growing form of retailing especially in the retail sectors of Europe and the U.S.

Question 44

What are some reasons that entrepreneurs choose franchising over starting a new business? How does a franchisor benefit from a franchising arrangement?

Question 45

In a franchising arrangement,the franchisee acts as a separate business entity but is required to return all of its profits to the franchisor.

Question 46

Describe the three sections of most franchise contracts that determine who will enter the arrangement and how the franchise will function.

Question 47

Annual profits serve as the best tool to assess franchisee performance because profits can be readily observed and verified,unlike sales,which are difficult to measure.

Question 48

Franchisors benefit from a franchisee's entrepreneurial spirit and knowledge of the local market.

Question 49

Differentiate between business format franchising and authorized franchise systems.

Question 50

A plural form strategy is more effective when franchisors monitor their own units using mystery shoppers and unannounced field audits.