There are two major types of franchising found in the United States today. These two distinct franchising formats are called: (1) product or trade name franchising, and (2) business format franchising.
Product or Trade Name Franchising
The product and trade name franchising system has evolved from suppliers or manufacturers creating sales contracts with dealers to buy or sell their products or product lines. In this relationship the dealer(franchisee) requires the trade name, trademark, and/or product from the supplier or manufacturer. The franchisee identifies with the supplier through the product line. This method of franchising consists primarily of distribution by a single supplier of manufactured products to dealers who then in turn resell this to the end consumer. This franchising approach has been used extensively in the auto and truck industry, the soft drink bottling industry, and the tire and gasoline service station industries.
Business Format Franchising
We will be primarily concerned with the business format method of franchising which permits the franchisee to use the franchisor’s products and services, trade name, trademark,and most importantly, the prescribed business format.The business format provides the franchisee with great depth of knowledge and information concerning a great breadth of business activities including: marketing, promotion, site selection, price suggestions, grand opening plans, management, operations, training,financing, accounting systems, and legal support or information. This method or business opportunity allows an individual without prior experience an opportunity to be completely trained and informed about how to operate a new and different business. This also requires the franchisor to take the franchisee through a fairly extensive training program and to provide continuous training for the franchisee even after the franchising unit has been started. Conversion A new franchising technique allows independently operated businesses to convert to the form of an existing franchise business system. The new franchisee is expected to make changes in the existing business which would bring them into conformity with the common marketing display and trade identity. The conversion system is generally considered a business format franchise and has been successful in many real estate brokerages (Century 21), financial services, floral shops, and home remodeling contractors.