Types of Franchising Systems

Franchising systems exist in a few models and are classified due to the group of participants:

Producer with producer
  • Producer with wholesaler
  • Producer with retailer
  • Wholesaler with wholesaler
  • Wholesaler with retailer
  • Retailer with retailer
  • Serving company with serving company

 1. Producer with producer

Above mentioned relations may be deeply considered on the following example. The company is supposed to work out and patent new production technology which allows to reduce expenses up to 25%. Other corporations may also want to use a similar method of production.

Just from this moment relationships may arise. Firms use the license with the granted right to practice the stated technological process, and company-innovator gets definite commission compensation known as royalty. In this case, franchisor represents himself as a licensor while the franchisee is the licensee. But at even such kind of communications the franchisee doesn’t lose his autonomy. He is practically authorized with the whole range of free activities (the procedures and policy isn't regulated, and as however technological equipment).

2. Producer with wholesaler

This kind of relations are well looked through in the operation of the major manufacturing soft drink companies. They grant the franchisee the right to use the syrup concentrate which they produce themselves.

3. Producer with retailer

This is a franchising system of the first generation which arose at the very beginning of automobile construction. Dealer networks were the manufacturers of automobile which were founded on the principle of franchising. Petrol producers and fuel filling stations were working similarly.

4. Wholesaler with wholesaler, wholesaler with retailer

These categories have no sharp definition, but as a matter of fact they differ less from the relations of the producer with the retail seller.

5. Retailer with retailer

Most of such agreements are concluded when a major trade firm-franchisor makes decision to expand its sales system like this.

6. Serving company with serving company

In these relations the franchisor acts as the extension of the franchisor.