Select the options that enlists the advantages of franchising to the franchisor :

(A) Cost advantages

(B) Product acceptance

(C) Operating controls

(D) Quick expansion

(E) Structural controls

Choose the correct answer from the options given below:

(A) and (D) Only

The advantages a franchisor gains through franchising are related to expansion risk, capital requirements and cost advantages that result from extensive buying power.

The most obvious advantage of franchising for an entrepreneur is that it allows the venture to expand quickly using little capital. This advantage is significant when we reflect on the problems and issues that an entrepreneur faces in trying to manage and grow a new venture. A franchisor can expand a business nationally and even internationally by authorizing and selling franchises in selected locations. The capital necessary for this expansion is much less than it would be without franchising. Just think of the capital needed by DeLuca to build 8,300 Subway sandwich shops! 

Cost Benefits: The mere size of a franchised company offers many advantages to the franchisees. The franchisor can purchase supplies in large quantities, thus achieving economies of scale that would not have been possible otherwise. Many franchise businesses produce parts, accessories, packaging and raw materials in large quantities, then in turn sell these to the franchisees. The franchisee are usually required to purchase these items as part of the franchise agreement and they usually benefit from lower prices. One of the biggest cost advantages of franchising a business is the ability to commit larger sums of money to advertising. Each franchisee contributes a percentage of sales (1 to 2 %) to an advertising pool. This pooling of resources allows the franchisor to conduct advertising in major media across a wide geographic area. If the business had not been franchised, the company would have to provide funds for the entire advertising budget.