Dealerships are a license to distribute a product. Dealers work with a manufacturer to get its goods to the buyer. Dealers have a continuing relationship with the licensor of the product, but do not need to incorporate the entire business plan of the licensor into their own business.
Dealerships are known as product franchises. The term “franchise” refers to a variety of business opportunities in which the owner of a product, process, service, system, or name gives permission to a second party to use it in exchange for payment. As of early 1000, there were roughly 1200 businesses in 18 industries offering franchise opportunities in India. Franchises are a popular method of starting a new business, and for good reason. The failure rate for new businesses is nearly 40 percent in the first year, compared to less than 5 percent of new franchise failures in that same year.
A dealership is sometimes called a retail distributor. It is similar to a distributorship, except that a dealer usually sells only to the public. Unlike other types of franchisees, including distributors, a dealer is not usually restricted to carrying one product line. Most commonly, this type of arrangement is found in the automotive industry.
Just as in other franchise businesses, a prospective dealer will receive a product or service with a proven market, the ability to use trademarked names associated with the products or services, an accounting and inventory system, a marketing plan, and the ability to purchase and advertise in volume. In addition, a dealer will receive the following from the manufacturer: a prospectus covering their rights and responsibilities in the relationship, training and support, site selection criteria/assistance, and quality control information.
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