ITPEC IP October 2023 Question 79
Which of the following is the type of retailing where the headquarters provides the business right, the right to use the trademark, and know-how about opening and running stores, on the basis of contracts with member stores, and collects royalties in return?
Explanation
Franchise chain — the headquarters grants member stores its business rights, trademark and know-how by contract and collects royalties.
The headquarters (franchisor) supplies the brand, the store format, the operating manuals, training and often the goods; each member store (franchisee) is an independent business that invests its own capital, runs the store to the chain's standards, and pays a royalty on its sales. The chain grows quickly with the members' money, and members start with a proven business model. Convenience stores and fast-food restaurants are typical examples.
Answer (c)
Why not others:
- •(a) Outlet store — a store where a manufacturer or retailer sells its surplus or out-of-season goods at a discount
- •(b) Concept shop — a store built around one concept or lifestyle, often presenting a single brand's world
- •(d) Voluntary chain — independent retailers join voluntarily for joint purchasing and shared services while keeping their own names and management; there is no headquarters selling its trademark for royalties
Key rule: Franchise chain = headquarters sells rights and know-how for royalties; voluntary chain = independent stores cooperate as equals; regular chain = one company owns all its stores.
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