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Mike is considering setting up his own store - Leaving Cert Business - Question D - 2019
Question D
Mike is considering setting up his own store. He read online that Centra operates as a franchise. (i) Explain the term franchise as a form of business ownership. (... show full transcript
Worked Solution & Example Answer:Mike is considering setting up his own store - Leaving Cert Business - Question D - 2019
Step 1
Explain the term franchise as a form of business ownership.
Answer
A franchise is a business model in which the owner of a business (the franchisor) grants another party (the franchisee) the rights to operate a business under the franchisor's brand, using their business model and selling their products or services.
The franchisee pays a fee for this license and typically a percentage of sales in royalties or profits. The main benefit of this arrangement is the ability to operate a business with a recognized brand name and a proven business plan, minimizing the risks commonly associated with starting a new business from scratch.
Step 3
Outline two advantages for Mike of setting up a Centra store under the franchise model rather than operating as an independent retailer.
Answer
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Economies of Scale: As a franchise, Mike would benefit from collective buying power, which allows for reduced costs on supplies and inventory, leading to higher profit margins. With over 425 Centra stores in the Republic of Ireland, he would be part of a larger purchasing group, ensuring competitive prices.
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Established Reputation: By operating under the Centra brand, Mike gains immediate brand recognition and customer trust. He can leverage an existing marketing strategy and established customer base, which would be more challenging to develop as an independent retailer.