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Industries Involving Local Knowledge

Franchising tends to be more effective in industries in which local market knowledge is more important to business success than in other industries. Because the franchisee comes from the local market, he or she can provide information about needed adaptations to the market more cheaply than a centralized company can search for it. Moreover, as owners, franchisees profit from adapting products or services to meet the needs of local markets and thus have stronger incentives to do so than hired employees.

A good example of the incentives that franchisees have to adapt their products to local market needs in industries in which local market knowledge is important is the story of the Cincinnati franchisee who developed the McDonald's Filet-O-Fish® sandwich. Faced with a significant drop-off in Friday sales during Lent at his restaurant in a predominantly Catholic neighborhood, Cincinnati franchisee Lou Groen developed the fish sandwich to recapture customers who were going to other restaurants in search of meatless meals. Of course, this sandwich turned out to be a big success and was later transplanted worldwide by the McDonald's Corporation.

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