Product Franchising is a franchise relationship of two sides in the trade sphere in which the franchisor gives and the franchisee receives the exclusive rights, which are limited with specified territory, for sale the manufactured products under the franchisor’s brand. These relationships concern only to direct sales of products.
There are two types of Product Franchising.
In the first case, it is assumed to sale the manufacturer’s products as well as products with his trademark. Franchisee in these relationships specializes in retail as a rule since direct contact with customers has a particular importance in this type of franchising.
The franchisor can make delivery of the products directly to the franchisee or through third persons, the main function of which is to distribute the products. The third persons can be agents, distributors, sales representatives and others. This scheme of interaction allows not only increase product sales but also gives the opportunity to sell the products in remote areas as well as manages the financial side at a lower cost (logistics system).
Both sides of the franchise relationships can build interaction with the third persons according to different schemes. Products of the manufacturer, his trademark, uniformity and corporate networks to make products recognizable – are the main things in this kind of relationships. The wide assortment range provided to the consumer to choose from is also important. Franchisor can be manufacturer of toys, shoes, clothing, petroleum products, alcoholic beverages, etc. in such relationships.
The second type of Product Franchising is the sale of products by companies, which are not manufacturers but they have a long-term business relationships with many suppliers and also have such possibility as to control the range and to form it.
The franchisor purchases products from various suppliers in such relationships and sells it to franchisee, who carries out retail sales of this product.
The key point of this kind of franchising relationship is the franchiser’s brand, uniformity and corporate network, which allows recognizing the seller.