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Entrepreneurship: Starting & Operating a Small Business, 4e (Mariotti)
Chapter 14 Franchising, Licensing, and Harvesting: Cashing in Your Brand
1) Licensing is ________.
A) the right to sell knockoffs of a product
B) the right to start a business and run it exactly as the licensor wants it run
C) the right to operate a business
D) renting your brand or other intellectual property to increase sales
Learning Object.: 14.1 Assess how you want to grow your business and eventually exit from it.
AACSB Category: Analytical thinking
2) ________, or spreading out the brand among many products and product lines can increase
market share, but it can also ________ the company.
A) Product line extension/unfocus
B) Alliances/focus
C) Diversification/focus
D) Diversification/unfocus
Learning Object.: 14.1 Assess how you want to grow your business and eventually exit from it.
AACSB Category: Analytical thinking
3) ________ is the addition of offerings beyond the company's core product or service.
A) Franchising
B) Diversification
C) Licensing
D) Complementing
Learning Object.: 14.1 Assess how you want to grow your business and eventually exit from it.
AACSB Category: Analytical thinking
4) One way to grow your business is to use diversification, which is the addition of offerings
beyond your core product or service.
Learning Object.: 14.1 Assess how you want to grow your business and eventually exit from it.
AACSB Category: Analytical thinking
2
5) Explain replication strategies and harvesting and how they differ.
Learning Object.: 14.1 Assess how you want to grow your business and eventually exit from it.
AACSB Category: Analytical thinking
6) Once you have established your brand, you can develop new products and use the brand to
promote it. This marketing strategy is called ________.
A) line extension
B) branding
C) line promotion
D) brand extension
Learning Object.: 14.2 Describe how businesses use licensing to profit from their brands.
AACSB Category: Analytical thinking
7) A ________ is a business that markets a product or service in the manner prescribed by the
parent business.
A) license
B) franchise
C) replica
D) branch
Learning Object.: 14.2 Describe how businesses use licensing to profit from their brands.
AACSB Category: Analytical thinking
8) Which business is an example of a franchise?
A) Sears
B) Burger King
C) Federal Express
D) The U.S. Postal Services
Learning Object.: 14.2 Describe how businesses use licensing to profit from their brands.
AACSB Category: Application of knowledge
3
9) If you are a franchisor and you charge a royalty of 5% on revenue and you have franchisees
that have revenues of $1 million, $2 million, $1.5 million, and $2.5 million, how much would
you earn in royalties?
A) $3,500,000
B) $3,000,000
C) $300,000
D) $350,000
Learning Object.: 14.2 Describe how businesses use licensing to profit from their brands.
AACSB Category: Application of knowledge
10) A ________ identifies the products or services of a company and differentiates them from
those of competitors.
B) product line
C) mission
D) brand
Learning Object.: 14.2 Describe how businesses use licensing to profit from their brands.
AACSB Category: Analytical thinking
11) Licensors must be careful that a licensee ________.
A) franchises the brand to as many others as possible
B) doesn't damage the licensing company's name
C) controls every aspect of the licensor's business
D) doesn't fail to pay royalties
Learning Object.: 14.2 Describe how businesses use licensing to profit from their brands.
AACSB Category: Analytical thinking
12) What did Ray Kroc do when he franchised McDonald's that set the bar for future franchise
operations?
A) He provided training and support to franchisees to ensure that quality would be consistent in
every McDonald's restaurant.
B) He licensed the McDonald's name to a wide variety of products such as hats and shirts.
C) He sold franchises in competing territories to encourage franchise owners to compete and
come up with new innovations for the company.
D) He improved the quality of hamburgers and customer service.
Learning Object.: 14.2 Describe how businesses use licensing to profit from their brands.
AACSB Category: Analytical thinking
4
13) A ________ represents the company's promise to consistently deliver a specific set of
benefits to customers.
A) product life cycle
B) product line extension program
C) brand
D) customer service policy
Learning Object.: 14.2 Describe how businesses use licensing to profit from their brands.
AACSB Category: Analytical thinking
14) If you buy a McDonald's franchise and agree to pay a royalty fee of 12.5% annually, how
much money will you owe McDonald's at the end of a year in which you sell $98,000 of
product?
A) $12,000
B) $12,100
C) $12,200
D) $12,250
Learning Object.: 14.2 Describe how businesses use licensing to profit from their brands.
AACSB Category: Application of knowledge
15) Which of the following is not a benefit of franchising to the franchisor?
A) growth with minimal capital investment
B) higher marketing and promotional costs
C) royalties
D) the minimal number of regulations regarding franchising
Learning Object.: 14.2 Describe how businesses use licensing to profit from their brands.
AACSB Category: Analytical thinking
16) Benefits of franchising for the franchisor include ________.
A) lower marketing and promotional costs
B) growth with minimal capital investment
C) royalty payments
D) All of the above.
Learning Object.: 14.2 Describe how businesses use licensing to profit from their brands.
AACSB Category: Analytical thinking
5
17) The benefits of franchising include growth with medium capital investment, lower marketing
but higher promotional costs, and royalties.
Learning Object.: 14.2 Describe how businesses use licensing to profit from their brands.
AACSB Category: Analytical thinking
18) What is franchising and how is it different from licensing?
Learning Object.: 14.2 Describe how businesses use licensing to profit from their brands.
AACSB Category: Analytical thinking
19) Which of the following is a harvest strategy, not an exit strategy?
A) merger
B) IPO (initial public offering)
C) acquisition
D) franchising
Learning Object.: 14.3 Explain how a business can be franchised.
AACSB Category: Analytical thinking
20) It typically requires at least ________ years to develop a company worth harvesting.
A) twenty
B) fifteen
C) twelve
D) ten
Learning Object.: 14.3 Explain how a business can be franchised.
AACSB Category: Analytical thinking
6
21) The harvest or exit strategies set out in a business's plan is important not only to the
entrepreneur but also to ________.
A) consumers
B) the IRS
C) investors
D) employees
Learning Object.: 14.3 Explain how a business can be franchised.
AACSB Category: Analytical thinking
22) William Petty's article on harvesting quotes Steven Covey who says, ________.
A) "The key to being effective in life is, 'beginning with the end in mind'."
B) "Your chance to sell or to merge typically occurs within the first two years of the life of the
business."
C) "You may have only one chance to harvest your business."
D) None of the above.
Learning Object.: 14.3 Explain how a business can be franchised.
AACSB Category: Analytical thinking
23) Harvesting means to sell, take public, or merge a company to yield proceeds for the
owner(s).
Learning Object.: 14.3 Explain how a business can be franchised.
AACSB Category: Analytical thinking
24) If you want to buy a business that is growing rapidly, what is the best valuation method to
use to determine a fair price for it?
A) book value method
B) market-based approach
C) future earnings method
D) pay-back method
Learning Object.: 14.4 Use methods of valuing a business.
AACSB Category: Analytical thinking
