Q&A Hero

Q: International opportunities for franchising are becoming: A) less prevalent B) neither more nor less prevalent C) more prevalent for product and trademark franchise systems and less prevalent for business format franchise systems D) more prevalent E) less prevalent for product and trademark franchise systems and more prevalent for business format franchise systems

Q: According to a recent FTC report, instances of problems between franchisors and their franchisees tend to be: A) prevalent practices B) isolated occurrences C) There have been no reported problems between franchisors and their franchisees. D) prevalent practices for product and trademark franchise systems and isolated occurrences for business format franchise systems E) isolated occurrences for product and trademark franchise systems and prevalent practices for business format franchise systems

Q: In addition to FTC disclosure requirements, ________ states have laws providing additional protection to franchisees. A) 6 B) 10 C) 15 D) 33 E) 47

Q: While franchise agreements vary, each agreement typically contains the franchise agreement and: A) the legal agreement B) the procurement agreement C) the purchase agreement D) the sell agreement E) the conversion agreement

Q: While franchise agreements vary, each agreement typically contains two sections: A) the statutory agreement and the purchase agreement B) the franchise agreement and the buy agreement C) the buy agreement and the membership agreement D) the procurement agreement and the statutory agreement E) the purchase agreement and the franchise agreement

Q: The document that consummates the sale of a franchise is called the: A) Franchise Disclosure Document B) franchise agreement C) license agreement D) Uniform Franchise Licensing Code E) franchise circular

Q: The FDD contains ________ categories of information. A) 5 B) 15 C) 23 D) 33 E) 41

Q: The Franchise Disclosure Document is accepted in (or by): A) 11 states B) all 50 states, all of Canada, and parts of Mexico C) 39 states and all of Canada D) all 50 states and parts of Canada E) all nations participating in the North America Free Trade Agreement

Q: Franchisors are required by law to disclose all their costs in a document called the: A) Fairness in Franchising Certificate B) Consistent Franchise Offering Code C) Standardized Franchise Code D) Franchise Disclosure Document E) Franchise Code of Conduct

Q: To avoid making a hasty judgment, a franchisee may not purchase a franchise for ________ from the time the Franchise Disclosure Document is received. A) 1 day B) 3 days C) 10 days D) 14 days E) 30 days

Q: The statute that regulates franchising at the federal level is: A) Federal Trade Commission Rule 436 B) Congressional Statute 399 C) SEC Statute 23 D) Congressional Amendment 442 E) SEC Fairness in Franchising Act

Q: Which of the following is not a disadvantage of buying a franchise? A) cost of the franchise B) duration and nature of the commitment C) restrictions on creativity D) availability of financing E) potential for failure

Q: Which of the following is not an advantage of buying a franchise? A) a proven product or service within an established system B) franchisor ongoing support C) availability of financing D) potential for business growth E) duration and nature of the commitment

Q: According to the textbook, the main disadvantage of buying a franchise is: A) franchise organizations typically grow slower than non-franchise organizations in the same industry B) franchisors typically provide poor levels of support C) the cost involved D) the service sector of the U.S. economy is waning in importance E) franchising is waning in its popularity

Q: There are two primary advantages to buying a franchise over other forms of business ownership. First, franchising provides an entrepreneur the ability to own a business using tested and refined business methods, and second: A) franchising is almost a sure way of making a profit B) a franchise agreement is typically easy to exit if expectations aren't met C) franchisors typically encourage creativity on the part of franchisees D) the franchisor typically provides training, technical expertise, and other forms of support E) franchise organizations are consistently more profitable than non- franchise organizations in the same industry

Q: The Partnering for Success feature in Chapter 15 focuses on how franchise organizations can boost their sales while at the same time reduce their expenses. The technique that the feature recommends to achieve these dual objectives is:A) strategic alliancesB) joint venturesC) outsourcingD) licensingE) cobranding

Q: Which of the following statements is incorrect regarding the franchisor-franchisee relationship? A) A franchisee may be charged a fee for additional training. B) Some franchisors require a new franchisee to pay a "grand opening" fee. C) Franchisees are often required to pay into a national or regional advertising fund. D) Weekly or monthly royalty fees are usually around 2% of net income. E) Franchisees may have to pay a monthly royalty even if the business is losing money.

Q: In the majority of cases, a franchisee pays the franchisor a royalty based on: A) a predetermined fixed weekly or monthly amount B) weekly or monthly net income C) the size of the franchise outlet D) weekly or monthly gross income E) the age of the franchise outlet

Q: According to the textbook, a franchisee's weekly or monthly royalty fees are typically around ________ of gross income. A) 1% B) 3% C) 5% D) 7% E) 9%

Q: Which of the following statement is not correct regarding the costs associated with purchasing a franchise? A) The franchisee typically pays a royalty based on a percentage of weekly or monthly net income. B) Capital costs vary by franchisor, but may include the cost of buying land and building a building. C) Additional fees may be charged for activities such as training staff, providing management expertise when needed, and providing computer assistance. D) Franchisees are often required to pay into a national or regional advertising fund. E) The initial franchise fee varies, depending on the franchisor.

Q: According to the textbook, which of the following is not a cost that is typically associated with buying a franchise? A) intellectual capital fees B) capital requirements C) continuing royalty payment D) advertising fees E) initial franchise fee

Q: The What Went Wrong feature in Chapter 15 focuses on Curves International, the fitness center for women. Over the past three years, nearly one-third of Curves' 7,700 franchises have closed. Which of the following reasons was not identified in the feature as one of the possible explanations for why so many Curves centers have closed?A) a turnover in the company's managementB) the poor economyC) cheaper competitionD) the company failed to keep up with changing trends, including more flexible hours for busy working womenE) the company sold too many franchises that are located too close together

Q: 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

Q: Because franchisees put their personal capital at risk, they are highly motivated to make their franchise outlets successful. According to the textbook, this advantage of franchising a business is referred to as: A) franchisee owner-incentive B) franchisee impulse C) agency theory D) institutional theory E) franchisee motivation

Q: According to the textbook, from the franchisor's point of view, the primary disadvantage of franchising is that: A) it is not legal in 11 states B) an organization allows others to profit from its trademark and business method C) franchise organizations consistently makes less money than alternative forms of business ownership D) it typically takes longer to grow an organization via franchising than company-owned stores E) the franchisees, rather than the franchisor, typically makes most of the money

Q: 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) agency B) stimulus C) control D) leadership E) motivation

Q: 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

Q: 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 things the founders of Wahoo did that has contributed to its success is:A) elect to make Wahoo's a relatively slow growth system, focusing on branding and service quality rather than rapid growthB) elect to make Wahoo's a nationwide system, operating in all 50 statesC) elect to make Wahoo's 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) elect to make Wahoo's a niche franchise that is only available in theme parks and food courts of mallsE) elect to make Wahoo's a fast growth system to establish a clear first-mover advantage in its niche

Q: Which of the following companies would not be suitable for franchising? A) College Nannies & Tutors B) Smoothie King C) McDonald's D) H&R Block E) Home Depot

Q: 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) a firm has a strong trademark, a desire to grow, and a well-designed business method C) a firm is trying to commercialize a technology product, it is well-funded, and it has a desire to grow D) a firm has a weak trademark, it is well-funded, and it has a desire to grow E) a firm has a desire to grow, it has a well-designed business method, and it is well funded

Q: An individual who owns and operates more than one outlet of the same franchisor, whether through an area or a master franchise agreement, is referred to as a: A) multifaceted franchisee B) super franchisee C) various-unit franchisee D) compound franchisee E) multiple-unit franchisee

Q: The people who buy franchises from master franchises are typically called: A) minor franchisees B) secondary franchisees C) mini-franchisees D) subordinate franchisees E) subfranchisees

Q: 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

Q: Phil Atkinson recently entered into an agreement with Sonic to open seven Sonic Fast-Food Restaurant franchises. According to the agreement that Phil entered into, he has the right to open up to seven Sonic Fast-Food Restaurant franchises within the city limits of Portland, Oregon. Phil has entered into a(n): A) individual franchise agreement B) area franchise agreement C) locality franchise agreement D) district franchise agreement E) neighborhood franchise agreement

Q: A(n) ________ involves the sale of a single franchise for a specific location. A) individual franchise agreement B) one-of-a-kind franchise agreement C) pinpoint franchise agreement D) specific franchise agreement E) precise franchise agreement

Q: Which of the following statements is incorrect regarding business format franchises? A) Arby's sells business format franchises. B) A business format franchise can be very rigid and demanding. C) Automotive services and convenience stores are well-known examples of business format franchises. D) In a business format franchise, the franchisor provides a formula for doing business to the franchisee along with training and other forms of support. E) The business format franchisor obtains the majority of its income from selling its products to its dealers at a markup.

Q: Clark Jensen recently opened a Planet Smoothie franchise. So far, he is very satisfied with Planet Smoothie because in exchange for an initial franchise fee and an ongoing royalty payment, Planet Smoothie has provided Clark a formula for doing business along with training, advertising, and other forms of assistance. Clark purchased a ________ franchise. A) business extension B) formula driven C) sales extension D) business format E) product and trademark

Q: 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) General Motors establishes product trademark rather than business format franchises. C) Product trademark franchises are by far 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.

Q: Betty Collins has been a Ford dealer for the past 20 years. Betty owns a: A) business format franchise B) product and trademark franchise C) business design franchise D) product plus franchise E) product and business format franchise

Q: 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

Q: There are two distinctly different types of franchise systems: A) product trademark franchise, business arrangement franchise B) product plus franchise, business format franchise C) business design franchise, product improvement franchise D) product extension franchise, business design franchise E) product trademark franchise, business format franchise

Q: According to the textbook, one of the first companies in the United States to utilize franchising was: A) McDonald's B) Singer Sewing Machine C) H&R Block D) Coca-Cola E) Gold's Gym

Q: 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

Q: ________ 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 business in exchange for an initial franchise fee and an ongoing royalty. A) Licensing B) Joint Venturing C) Contracting D) Subcontracting E) Franchising

Q: According to the textbook, in 2007 over ________ individual franchise outlets were operating in the United States. A) 510,000 B) 765,000 C) 880,000 D) 1.3 million E) 2.0 million

Q: Which of the following statements is incorrect regarding franchising? A) Franchising is growing in popularity in the United States. B) There are some instances in which franchising is not appropriate. C) New technologies are often introduced through franchise systems. D) Franchising, by its very nature, involves the sharing of knowledge between a franchisor and a franchisee. E) The failure rate for franchise systems is relatively high.

Q: College Nannies and Tutors, the company profiled in the opening feature for Chapter 15, was started by Joseph Keeley, a student at St. Thomas University in St. Paul, Minnesota. According to the feature, Keeley met Peter Lytle, the angel investor who funded his startup, at:A) an alumni event for a community college they both attendedB) a Small Business Development Center workshopC) a Chamber of Commerce event in MinneapolisD) the awards ceremony for a business plan competition that Keeley wonE) a social event for aspiring entrepreneurs and investors sponsored by the city of St. Paul

Q: Which of the following statements is incorrect regarding acquisitions? A) In an acquisition, the surviving firm is called the acquirer. B) An acquisition is the outright purchase of one firm by another. C) In most cases, a firm acquires a competitor or a company that has a product line or distinctive competency that it needs. D) If a firm decides to grow through acquisitions, it is extremely important for it to exercise extreme care in finding acquisition candidates. E) Many firms have found that the process of assimilating another company into their current operation was easier than they thought it would be.

Q: Two years ago, Jason Jennings and Mary Scott each owned a small chain of bagel restaurants in Orange County, California. Just recently, they decided to pool their interests and combine their individual chains of restaurants into one chain. What Jason and Mary did with their firms is called a(n): A) licensing agreement B) strategic alliance C) acquisition D) joint venture E) merger

Q: Trevor Watts owns a printing company. Over the past three years, Trevor has significantly increased his sales through the outright purchase of other printing firms. Trevor is pursuing a(n) ________ strategy. A) acquisition B) merger C) strategic alliance D) joint venture E) licensing

Q: A(n) ________ is the pooling of interests to combine two or more firms into one. A(n) ________ is the outright purchase of one firm by another. A) acquisition, merger B) merger, acquisition C) licensing agreement, acquisition D) joint venture, strategic alliance E) strategic alliance, joint venture

Q: Which of the following is an advantage of growth by means of external growth strategies? A) clash of corporate cultures B) increased business complexity C) loss of organizational flexibility D) antitrust implications E) economies of scale

Q: Which of the following is a disadvantage of growth by means of external growth strategies? A) diversification of business risk B) economies of scale C) getting access to proprietary products or services D) reducing competition E) increased business complexity

Q: Which of the following is an example of an external growth strategy? A) market penetration B) product line extension C) strategic alliance D) new product development E) geographic expansion

Q: Kent Williamson owns a firm that manufacturers and sells electrical supplies. He is currently trying to grow his firm through licensing and strategic alliances. Kent is pursuing a(n): A) domestic growth strategy B) external growth strategy C) subsidiary growth strategy D) internal growth strategy E) secondary growth strategy

Q: ________ growth strategies rely on establishing relationships with third parties, such as mergers, acquisitions, strategic alliances, joint ventures, licensing, and franchising. A) External B) Domestic C) Outside D) Distant E) Peripheral

Q: Which of the following is the primary disadvantage of franchising as a foreign market entry strategy? A) It is usually a one-time activity. B) quality control C) A firm loses partial control of its business finances. D) high transportation costs E) The costs of setting up and maintaining a manufacturing facility and permanent presence in a foreign country can be high.

Q: Which of the following is the primary disadvantage of licensing as a foreign market entry strategy? A) high transportation costs B) quality control C) It is usually a one-time activity. D) A firm loses partial control of its business operations. E) A firm in effect "teaches" a foreign company how to produce its proprietary products.

Q: Which of the following is the primary advantage of exporting as a foreign market entry strategy? A) No foreign currency risk is involved. B) Exporting requires little knowledge of foreign markets. C) Exporting is a relatively inexpensive way for a firm to become involved in foreign markets. D) The exporting company's customers put up most of the capital needed to establish the export operation. E) Exporting involves very little effort on the part of a firm.

Q: According to the textbook, international new ventures are: A) businesses that have employees located in three or more countries B) businesses that sell products in five or more countries C) businesses that, from inception, seek to derive significant competitive advantage by using their resources to sell products or services in multiple countries D) businesses that are headquartered in a foreign country and export their products to the United States E) new ventures that export at least one-third of their products to foreign countries

Q: According to a recent PricewaterhouseCooper's survey (cited in the textbook) of rapid-growth entrepreneurial firms, ________ of the 350 firms surveyed sell in international markets. A) 15% B) 25% C) 46% D) 77% E) 90%

Q: Frank Patterson owns a chain of barbershops that started near Atlanta and has expanded into northern Florida, South Carolina, North Carolina, and West Virginia. Frank is growing his company via a strategy of: A) geographic expansion B) market penetration C) product line extension D) outsourcing E) licensing

Q: Entrepreneurial businesses that grow by expanding from their original location to additional geographic sites are pursuing a: A) common expansion strategy B) market penetration strategy C) universal networking strategy D) geographic expansion strategy E) product line extension strategy

Q: Ted Donovan owns a store that sells all-terrain vehicles (ATVs). In the past Ted just sold one version of each of the ATVs he sold in his showroom, but to increase sales, Ted now sells a low-end, a medium-priced, and a high-end version of each of the ATVs he sells. Ted's new strategy is called a(n): A) improving an existing product or service strategy B) market penetration strategy C) product line extension strategy D) geographic expansion strategy E) joint venture strategy

Q: A(n) ________ strategy involves making additional versions of a product so that it will appeal to different clientele. A) product line extension B) geographic expansion C) improving an existing product or service D) strategic alliance E) market penetration

Q: ________ is work that is done for a company by people other than the company's full-time employees. A) Ability enhancement B) Productivity subcontracting C) Capacity enhancement D) Outsourcing E) Insourcing

Q: Pam Ryan owns a store that sells running shoes and related products. Pam is currently trying to increase sales through endorsements by famous runners and former Olympic athletics. Pam is pursuing a(n): A) strategic alliance strategy B) licensing strategy C) market penetration strategy D) geographic expansion strategy E) improving an existing product or service strategy

Q: A(n) ________ seeks to increase the sales of a product or service through greater marketing efforts or through increased production capacity and efficiency. A) product line extension strategy B) strategic alliance strategy C) geographic expansion strategy D) market penetration strategy E) improving an existing product or service strategy

Q: If a business enhances the quality of a product, makes it more convenient to use, improves its durability, or makes it more up to date, any one of those initiatives fall under the category of: A) increasing the market penetration of an existing product or service B) extending product lines C) geographic expansion D) licensing E) improving an existing product or service

Q: Which of the following was not identified in Chapter 14 as one of the top 10 reasons new products fail?A) lack of passion for the productB) target market is smaller than originally projectedC) target market is not defined correctlyD) sales and marketing efforts are not focused and alignedE) product doesn't address important customer needs

Q: The Savvy Entrepreneurial Firm feature in Chapter 14 focuses on SwitchFlops, a company that produces sandals with interchangeable straps. The primary takeaway from the feature is that savvy growth-minded startups:A) utilize both internal and external growth strategiesB) emphasize internal rather than external growth strategiesC) emphasize international growth strategies from their inceptionD) configure their products and services in ways that have built-in growth potentialE) compete on the basis of quality rather than price

Q: Which of the following was not identified as one of the keys to effective new product and service development? A) focus on a broad rather than specific target markets B) get quality and pricing right C) conduct ongoing feasibility analysis D) develop products that add value E) find a need and fill it

Q: Which of the following statements is not true regarding new product development? A) New product development involves designing, producing, and selling new products as a means of increasing firm revenues and profits. B) When new product development is properly executed, there is tremendous upside potential. C) The key to successful new product development strategy is to develop products that aren't simply "me-too" products. D) In general, developing new products is a low-risk strategy. E) In many fast-paced industries, new product development is a competitive necessity.

Q: Which mechanism for firm growth involves the creation and sale of new products or services? A) acquisitions B) licensing C) franchising D) new product development E) international expansion

Q: Which of the following is an advantage of internal growth strategies? A) encourages internal entrepreneurship B) adds to industry capacity C) need to develop new resources D) investment in a failed internal effort can be difficult to recoup E) slow form of growth

Q: Which of the following is an example of an external growth strategy? A) licensing B) improving an existing product or service C) increasing the market penetration of an existing product or service D) extending product lines E) geographic expansion

Q: Internally generated growth is often called ________ growth because it does not rely on outside intervention. A) natural B) whole C) expected D) organic E) ordinary

Q: New product development, other product-related strategies, and international expansion are examples of: A) external growth strategies B) domestic growth strategies C) secondary growth strategies D) internal growth strategies E) inward growth strategies

Q: Which of the following is an example of an internal growth strategy? A) licensing B) merger C) new product development D) strategic alliance E) acquisition

Q: Abby Covin owns a firm that manufacturers and sells high-end furniture and home accessories. She is currently trying to grow her firm by developing new products. Abby is pursuing a(n) ________ growth strategy. A) outside B) inward C) internal D) external E) domestic