Monday, 12 January 2009

Franchise Value

FRANCHISE VALUE

Franchise businesses are those boasting
· barriers to entry and
· other competitive advantages
that make it too costly for new entrants to join.

1. Strong brands can help, so long as competitors cannot match them.
Examples include at least for some period of time those products bearing names synonymous with the goods, such as Coke, Kleenex, Hoover (in its days), Harley-Davidson (to some extent), and others.

2. Techniques producing franchise value include
· patents,
· exclusive licenses,
· know-how, and
· secret formulae.
· Generally high fixed-costs of entry also help.

3. Common elements of franchise businesses include
· high costs to consumers of switching away from the target’s own product in favor of products sold by competitors,
· high costs to consumers of seeking out such alternatives, and
· habits commanding consumer loyalty.

4. Foes of the franchise power are constraints competitors can evade. Examples are
· a unionized labor force,
· burden-some distribution arrangements, or
· limitations on an entity’s adaptability in the face of change.


Also read:
  1. Income Statement Value: The Earnings Payoff
  2. Adjustments in Current Earnings figure
  3. Avoid Pro Forma financial figures
  4. Avoid Extrapolated Future Earnings Growth figures
  5. Estimating Growth in Value Investing
  6. Franchise Value
  7. GROWTH'S VALUE
  8. GROWTH'S VALUE (illustrations)

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