Many popular and well-known business chains, such as fast food restaurants, use a practice known as franchising. In franchising, someone who wants to open a store or restaurant pays an established company for the right to use the company's name and sell the company's products. Selling an established, in-demand product that has immediate name recognition benefits the new business by reducing the risk that the business will fail. In exchange, the new business agrees to follow all of the standard practices of the company with the name it wants to use.
<-NARRATOR:-> Now listen to part of a lecture on this topic in a business management class.
<-MALE PROFESSOR:-> OK, so we've been talking about starting a business...
let's say I want to open up a pizza restaurant.
Well, I know how tough it is to make a new business succeed,
and I want a sure thing.
So I contact a big company that owns a chain of pizza places-
let's say it's called Pizza Town-
and I pay for the rights to call my restaurant Pizza Town
and to sell Pizza Town's special, one-of-a-kind pizza.
Now, since everyone's heard of Pizza Town... it's really popular...
I don't have to worry about whether people will want to eat my pizza or not.
I already know this pizza will sell well because it's a known thing...
and that means that there's a better chance my business will succeed.
Now, in exchange for being able call my restaurant Pizza Town,
I have to agree to run the business the Pizza Town way.
And Pizza Town trains me to do this.
They show me how to do everything...
how to make my pizzas taste like Pizza Town pizzas, how to advertise...
even how to make my store look like a Pizza Town!
Now, this means that I don't have a lot of freedom or choice in the way I run my business.
But in a lot of ways, this is great for me.
After all, Pizza Town's way generally works...
they sell a lot of pizza.
Using the example given by the professor, explain how franchising works.