Rajat was studying in class X. He had to drop out from school as his family could not afford it. He had to take a job of a peon in an office to provide money for his family. He lost his job at the office as the bank interest rate had gone up and the office was finding it difficult to meet expenses. On his way home he stoped at a snack stall to eat something. There he got the idea of opening his own snack stall. Rajat went to meet Mr Om, who was known to his father and used to give finance to people in need. Mr. Om agreed to give finance to Rajat. Rajat took 2 lakhs from Mr. Om and purchased a stall for ₹80,000 and some utensils and gas for ₹20,000. He purchased vegetables, bread, oil, spices etc for ₹10,000, cups, plats and disposable items for ₹5,000. He decided to make sandwiches and sell them for ₹50 each as the competition was high and he wanted customers to come to his stall. He named his food stall "Paras food stall."

In the disposable item, Paras also purchased some boxes so that customers who wanted to take the food home can be given in the boxes. This increased his cost by ₹6,000. By the end of the year, the demand of the sandwiches made by Rajat increased and earned a profit of ₹80,000 after paying taxes.

Due to the popularity of the sandwiches of Rajat, his two friends approached him and asked Rajat if he could help them. Rajat told them that he will manufacture the sandwiches and they would be given the right to distribute them in different parts of the city. The cost of production reduced as Rajat now had to produce in bulk. Rajat's friends are also very happy as all the sandwiches got sold and everyone knew about the sandwiches made by Rajat.

"Rajat's friends were able to sell all the sandwiches as everyone knew about the sandwiches made by Rajat." Identify the advantage of franchising to the franchisee.

Product acceptance

The correct answer is option (3) - Product acceptance.

This is the key advantage. Rajat's friends benefited from the existing brand recognition and established customer base thanks to Paras food stall's popularity. Without the pre-existing acceptance of the product, they might have struggled to sell the sandwiches, especially in different parts of the city.

Product acceptance: The franchisee usually enters into a business that has an accepted name, product or service. In the case of Subway, any person buying a franchise will be using the Subway name, which is well known and established throughout the United States. The franchisee does not have to spend resources trying to establish the credibility of the business. That credibility already exists based on the years the franchise has existed. Subway has also spent millions of dollars in advertising, thus building a favourable image of the products and services offered. An entrepreneur who tries to start a sandwich shop would be unknown to the potential customers and would require significant effort and resources to build credibility and a reputation in the market.