Understanding Organized Commerce
The franchise
Franchising is defined as a method of collaboration between legally and financially independent companies: the franchisor and the franchisee.
Its purpose is to exploit a franchise concept developed by the franchisor and reiterated by the franchisee .
In exchange for royalties (initial and ongoing), the franchisee has the right to use the know-how and the brand to market the collection of products, services and/or technologies to its customers, supported by commercial and technical assistance .
The franchise is therefore a structured partnership where the franchisee benefits from a framework and ongoing support to maximize their chances of success.
To be franchisable, four conditions must be met:
Distinctive signs: The franchisor must provide the franchisee with the distinctive signs of its business, such as the brand and the sign.
Proven know-how : The franchisee must benefit from know-how proven by the franchisor, meeting precise criteria (identified, secret, substantial).
Ongoing Support: The franchisor must provide ongoing support to help the franchisee implement the know-how and achieve success.
Collection of products, services and/or technologies: the franchisor has defined products, services and technologies meeting the needs of consumers in a specific market which are offered by the franchisee to its customers.
In exchange for royalties (initial and ongoing), the franchisee has the right to use the know-how and the brand to market the collection of products, services and/or technologies to its customers , supported by commercial and technical assistance .
The franchise is therefore a structured partnership where the franchisee benefits from a framework and ongoing support to maximize their chances of success.
The Brand License
Trademark licensing is another form of business partnership where the trademark owner allows a licensee to use the trademark, usually for a fee . This agreement often includes:
- A communication policy
- A visual identity (graphic charter, architectural concept)
Additional services may be included such as:
- A catalog of referenced products
- Referenced services
The brand license differs from the franchise mainly by the absence of transfer of know-how and ongoing support. This type of contract is suitable for companies that wish to use a well-known brand without the support and training obligations associated with the franchise.
Benefits of the Brand License Agreement
- Rapid and cost-effective expansion: Allows the franchisor to expand its brand and network without having to invest directly in new units, reducing costs and financial risks.
- Generate Regular Revenue: Royalties collected from franchisees provide a stable and ongoing source of revenue.
Disadvantages of Trademark Licensing
- Support and Supervision Costs: The franchisor may be required to invest in training, ongoing support and supervision of franchisees, which can represent substantial costs.
- Administrative complexity: Managing a franchise network involves administrative complexity, particularly in terms of performance monitoring, royalty management and franchisee support.
The Affiliation Commission
The affiliate commission is a commercial contract between a principal (the network) and an affiliate commissioner (the entrepreneur). The principal supplies the products and retains ownership of the inventory, while the affiliate commissioner sells these products and receives a commission on sales, often around 40%.
Benefits of Affiliate Commission
- Brand Awareness : The affiliate benefits from brand awareness without having to finance inventory.
- Accessibility : This formula is ideal for entrepreneurs with a commercial profile, reducing the financial risk compared to a classic franchise.
Disadvantages of Affiliate Commission
- Dependency : The affiliate is dependent on the principal for products, inventory and prices.
- Limited freedom : A partnership that is too restrictive may risk being reclassified as an employment contract or a branch manager contract.
The Commercial Concession
The commercial concession (or selective distribution) is characterized by territorial and resale exclusivities. The licensor (or supplier) grants a dealer the right to resell its products in a specific territory on an exclusive basis.
Special features of the Concession
- Authorization to use the trademark and distinctive signs
- Delivery obligation : the grantor must provide its partner with the goods ordered. It must, like any seller, guarantee the concessionaire against hidden defects, non-conformity or defectiveness of the products.
- Territorial exclusivity : Unlike the franchise, this exclusivity is mandatory in the concession.
- Assistance : Although the licensor is not obliged to transmit know-how, the licensor may offer technical, commercial, financial or accounting assistance in order to strengthen the unifying effect of the network.
In summary, each type of contract (franchise, brand license, commission-affiliation and concession) offers distinct advantages and disadvantages, allowing companies to choose the formula that best suits their objectives, their operating specificities, their positioning and their capacities to offer complementary services to their partners.
