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Entrepreneurship: Successfully Launching New Ventures, 6e (Barringer/Ireland)
Chapter 15 Franchising
1) Uptown Cheapskate, the company profiled in the opening feature of Chapter 15, was started
by Chelsea and Scott Sloan. According to the feature, Chelsea and Scott decided to grow
Uptown Cheapskate via franchising because they wanted to ________.
A) grow quickly without making a huge investment in real estate
B) capture the prestige of being a franchise organization
C) maintain maximum control of their business while at the same time maximizing profits
D) grow quickly while at the same time maintaining maximum control of their business
E) grow slowly while at the same time maximizing profits
2) Which of the following statements is incorrect regarding franchising?
A) In some industries, such as automotive and retail food, franchising is a dominant form of
business ownership and growth.
B) There are some instances in which franchising is not appropriate.
C) Franchising is a relatively new form of business organization.
D) Franchising, by its very nature, involves the sharing of knowledge between a franchisor and a
franchisee.
E) Franchising is a relatively poorly understood form of business ownership and growth.
3) ________ is a form of business ownership in which a firm that already has a successful
product or service licenses its trademark and method of doing business to other businesses in
exchange for an initial franchise fee and an ongoing royalty.
A) Licensing
B) Joint Venturing
C) Contracting
D) Franchising
E) Sub-Contracting
4) Franchising is a form of business ownership in which a firm that already has a successful
product or service licenses its trademark and method of doing business to another business in
exchange for ________.
A) an initial franchise fee and an ongoing royalty
B) a one-time franchise fee
C) an equity position in the new business
D) an ongoing royalty
E) an initial franchise fee and an equity position in the new business
5) According to the textbook, the Comfort Keepers business idea lends itself to franchising
because the ________.
A) company has the ability to grow profitably and has a good trademark
B) company’s business concept is easy to teach and individual Comfort Keeper outlets are
inexpensive to open and operate
C) company has new technology to introduce to the marketplace
D) company has intellectual property and the ability to grow quickly
E) company has a good trademark and a good business method
6) The two distinctly different types of franchise systems are ________ franchise and ________
franchise.
A) product trademark; business arrangement
B) product plus; business format
C) business design; product improvement
D) product extension; business design
E) product trademark; business format
7) A ________ franchise is an arrangement under which the franchisor grants to the franchisee
the right to buy its products and use its trade name.
A) product and trademark
B) product extension
C) business format
D) production plus
E) business design
8) General Motors operates a ________ franchise system.
A) product format and trademark
B) product extension
C) product and trademark
D) business format
E) business format and trademark
9) James Ryan has been a Coors Beer distributor for the past 20 years. James owns a ________
franchise.
A) business format
B) product and trademark
C) business design
D) product plus
E) product and business format
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10) Which of the following statements is incorrect regarding product and trademark franchises?
A) Rather than obtaining a royalty or franchise fee, the product and trademark franchisor obtains
the majority of its income from selling its products to its dealers or distributors at a markup.
B) Ford Motors establishes product trademark rather than business format franchises.
C) Product trademark franchises are more popular than business format franchises.
D) Product and trademark franchisees are typically permitted to operate in a fairly autonomous
manner.
E) A product trademark franchise typically connects a single manufacturer with a network of
dealers or distributors.
11) Melanie Jacobs recently opened a Papa John’s franchise. So far, she is very satisfied with
Papa John’s because in exchange for an initial franchise fee and an ongoing royalty payment,
Papa John’s has provided Melanie a formula for doing business along with training, advertising,
and other forms of assistance. Melanie purchased a ________ franchise.
A) business extension
B) formula driven
C) sales extension
D) product and trademark
E) business format
12) Which of the following statements is correct regarding business format franchises?
A) Business format franchises are less popular than product and trademark franchises.
B) A business format franchise can be very rigid and demanding.
C) Agricultural machinery dealerships and soft-drink bottlers are well-known examples of
business format franchises.
D) Business format franchises are illegal in some states.
E) The business format franchisor obtains the majority of its income from selling its products to
its dealers at a markup.
13) Which of the following is NOT an industry in which business format franchises
predominate?
A) Soft drink bottlers
B) Business services
C) Hotels and motels
D) Quick service restaurants
E) Automotive service and repair
14) A(n) ________ franchise agreement involves the sale of a single franchise for a specific
location.
A) individual
B) one-of-a-kind
C) sole
D) defined
E) general
15) Jenna Page recently entered into an agreement with Anytime Fitness to open five Anytime
Fitness franchises. According to the agreement that Jenna entered into, she has the right to open
up to five Anytime Fitness franchises within the city limits of Lawrence, Kansas. Jenna has
entered into a(n) ________ franchise agreement.
A) individual
B) district
C) locality
D) area
E) city
16) A master franchisee, in addition to having the right to open and operate a specific number of
locations in a particular area, also has the right to ________.
A) stop making royalty payments if its sales decline
B) sell products made by companies other than the franchisor
C) offer and sell the franchise to other people in its area
D) use its own operating manuals to run its franchise outlets
E) stop making royalty payments if it is losing money
17) The people who buy franchises from master franchises are typically called ________
franchisees.
A) minor
B) secondary
C) mini
D) subordinate
E) sub
18) A multiple-unit franchisee is a person who owns ________.
A) franchise outlets from more than one franchisor
B) both product and trademark franchise outlets and business format franchise outlets
C) and operates more than one outlet of the same franchisor
D) more than 10 franchise outlets
E) franchise units from multiple franchisors
19) Franchising is a form of business organization in which a firm that already has a successful
product or service licenses its trademark and method of doing business to other businesses in
exchange for an initial franchise fee and an ongoing royalty.
20) A product and trademark franchise typically connects a single manufacturer with a network
of dealers or distributors.
21) A Pepsi Cola bottling dealership is an example of a business format franchise.
22) In a business format franchise, the franchisor provides a formula for doing business to the
franchisee along with training, advertising, and other forms of assistance.
23) Business format franchises typically allow franchisees substantial flexibility in how they run
their individual franchise units.
24) An area franchise agreement allows a franchisee to own and operate a specific number of
outlets in a particular geographic area.
25) The people who buy franchises from master franchisees are typically called employee-
franchisees.
26) What is the difference between a product and trademark franchise and a business format
franchise? Which type of franchise is most common for entrepreneurial firms?
27) From the franchisor’s point of view, which of the following is incorrect regarding
franchising?
A) Establishing a franchise system should be approached carefully and deliberately.
B) Franchising is a relatively simple business endeavor.
C) Franchising involves managerially demanding tasks.
D) Over the years a number of fraudulent franchise organizations have come and gone.
E) Franchising is a fairly heavily regulated form of business ownership.
28) Franchising is appropriate when a ________.
A) firm’s business methods are not polished, it has a desire to grow, and it is trying to
commercialize a technology product
B) firm has a strong trademark, a desire to grow, and a well-designed business method
C) firm is trying to commercialize a technology product, it is well-funded, and it has a desire to
grow
D) firm has a weak trademark, it is well-funded, and it has a desire to grow
E) firm has a desire to grow, it has a well-designed business method, and it is well funded
29) Which of the following companies is suitable for franchising?
A) Home Depot
B) Dropbox
C) Qdoba Mexican Grill
D) Walmart
E) GoPro
30) The Savvy Entrepreneurial Firm feature in Chapter 15 focuses on Wahoo’s Fish Taco, a
franchise organization that offers Mexican food mixed with Brazilian and Asian flavors.
According to the feature, one of the things the founders of Wahoo’s did that has contributed to its
success is elect to make Wahoo’s ________.
A) a relatively slow growth system, focusing on branding and service quality rather than rapid
growth
B) a nationwide system, operating in all 50 states
C) an extremely affordable system to buy into, with a $9,000 original franchise fee and an
ongoing royalty of only 2 1/2 percent
D) a niche franchise that is only available in theme parks and food courts of malls
E) a fast growth system to establish a clear first-mover advantage in its niche
31) According to our textbook, which of the following is NOT a quality to look for in
prospective franchisees?
A) Individual, rather than team-oriented
B) Ability to follow instructions
C) Experience in the industry in which the franchisee operates
D) Ability to operate with minimal supervision
E) Adequate financial resources and a good credit history
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32) Franchising is a popular form of business growth.
33) Home Depot is an example of an organization that is perfectly suited for franchising.
34) An individual who is team oriented and has experience in the industry in which the franchise
competes is a good candidate to be a franchisee.
35) When is franchising appropriate (from the business owner’s point of view)? Provide an
example of when franchising is appropriate and when it is inappropriate.
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36) According to a concept called ________ theory, it is more effective for the units of a
growing chain to be run by franchisees than by managers because managers are usually paid a
salary and may not be as committed to the success of their individual units as franchisees, who
are in effect the owners of the units they manage.
A) incentive
B) stimulus
C) agency
D) stewardship
E) motivation
37) According to the textbook, from the franchisor’s point of view, the primary disadvantage of
franchising is that ________.
A) it is a poorly understood form of business ownership
B) an organization allows others to profit from its trademark and business method
C) franchise organizations consistently make less money than alternative forms of business
ownership
D) it typically takes longer to grow an organization via franchising than company-owned stores
E) it is not legal in seven states and the District of Columbia
38) Which of the following is a company that is suitable for franchising but has a relatively small
number of franchise outlets?
A) Anytime Fitness
B) Hampton Inn Hotels
C) McDonalds
D) Starbucks
E) The UPS Store
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39) Which of the following was NOT identified in the textbook as one of the disadvantages of
franchising a business?
A) Loss of control
B) Friction with franchisees
C) Franchisee motivation
D) Differences in required business skills
E) Legal expenses
40) An advantage of franchising, from the franchisors point of view, is that franchising helps a
venture grow because the franchisees provide the majority of the capital.
41) A management concept called agency theory refutes the value of franchising for
organizations with multiple units, like restaurant chains.