Jose Fernandez recently became a franchisee in the Cartridge World franchise. Cartridge World specializes in selling replacement cartridges for printers and fax machine cartridges. Jose was pleased to be one of the almost 1700 franchisees in the Cartridge World franchise (the world’s largest toner replacement franchise). Although he had paid a franchise fee of $30,000 to Cartridge World and invested almost $140,000 to start up his franchise, he was confident that the future would be good. Cartridge World had been in business for almost 15 years and the fact that so many franchisees had been established during that time gave him the feeling of being part of a large and strong organization. Further, he thought there would always be a need for print cartridges simply because print cartridges always run out of ink and have to be refilled or replaced. The only thing that really concerned Jose was the 6 percent royalty he had to pay to Cartridge World on all of his sales. Competition from other toner replacement franchises, Cartridge Depot and Rapid Refill was growing and big name cartridge manufacturers such as Hew let Packard were getting more aggressive. Jose wondered if he could continue to pay the 6 percent royalty in the long run if increased price competition squeezed his margins. How might Cartridge World address the concerns of Jose Fernandez? Are there limitations on Cartridge World’s capacity to respond? Explain.
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