Franchise
A franchise is the area (literally or figuratively) in which a business enjoys a durable competitive advantage. To an investor, the terms franchise and brand are not interchangeable.
Many brands that have a lot of cachet aren’t franchises; while many brands that don’t have any cachet are franchises. For instance, some cellular phone service providers now have highly recognizable brand names. Unfortunately, that doesn’t do them a lot of good. They have to compete on price, and even if they didn’t someone else could come along and advertise. Because their services are undifferentiated, every company willing to spend enough on advertising should realize about the same results. If they provided a unique product or service (or could consistently provide the lowest price) their advertising would prove far more effective in building a franchise.
True franchises have really sticky customers. Often, this comes from a combination of having a unique product or service, spending lots of money on advertising, and customer complacency. Of these three factors, spending lots of money on advertising is by far the least important.
Examples of true franchises built on some or all of the above factors would include some seemingly very different companies such as: Microsoft, Google, eBay, Amazon, WD – 40, Clorox, Church & Dwight, Wrigley, Disney, Lucasfilm, The New York Times, GEICO, and Mars.
If you test each of these companies for the three aforementioned factors, you’ll see that in each case a unique product or service (usually artistic content or a brand name) or customer complacency is the reason for the company’s success.