Pricing in a franchise network: the franchisee’s right to decide

When you turn your existing business into a franchise network, the way you manage customer prices changes significantly. You may have set prices centrally for your own outlets, but applying the same approach to independent franchisees could breach competition rules. It is therefore worth defining who has authority over pricing before signing your first franchise agreement: who sets the price, how are promotions run, and what does the point-of-sale system allow?

1. Separate the shared concept from independent pricing

A franchise network consists of legally and financially independent businesses. A shared customer promise, service model and visual identity do not, in themselves, give the franchisor the right to dictate franchisees’ resale prices. This distinction must be recognised even when customers expect a consistent experience from outlets operating under the same brand.

Finland has no specific franchise legislation, statutory franchise registration requirement or separate franchise pre-contractual disclosure law. General business registration and disclosure obligations do, however, apply. Contracts are governed by legislation including the Finnish Contracts Act, while the Unfair Business Practices Act is relevant to business-to-business marketing. The Finnish Competition Act and, where the conditions for their application are met, EU competition rules are central to managing customer pricing. Price communications aimed at consumers are subject to the Finnish Consumer Protection Act.

The Finnish Franchising Association’s Code of Ethics is a form of self-regulation, not legislation. Compliance with it does not replace a competition law assessment or make an otherwise prohibited pricing requirement lawful.

Start your preparations by mapping out pricing authority. Distinguish between prices at your own outlets, recommendations given to franchisees and prices displayed through shared channels. For each, identify which business sells to the customer and who approves the final price. This helps prevent practices previously used within a single business from inadvertently becoming obligations imposed on independent franchisees.

2. Make recommended prices genuinely optional

As a general rule, imposing a fixed or minimum resale price is prohibited. A recommended price or maximum price may be permitted, provided that pressure or incentives do not effectively turn it into a fixed or minimum price. The arrangement must also be assessed against other applicable competition law requirements.

The wording of the agreement is not the only deciding factor. If the operations manual describes a price as a recommendation but network management threatens sanctions for departing from it, the practice may constitute prohibited resale price maintenance. The same risk arises if discounts are capped in a way that effectively sets a minimum price.

Check these practices in particular:

• Can the franchisee change a recommended price without approval from network management?
• Is marketing support or another benefit conditional on following the recommended price?
• Does charging a lower price lead to a warning, supply difficulties or a contractual penalty?
• Is price monitoring used to put pressure on franchisees who depart from recommended prices?
• Does the point-of-sale system restrict discounts or price changes?

You can help franchisees calculate costs, assess demand and understand margins. However, that support must strengthen their own decision-making rather than replace it. For example, you can explain the cost assumptions behind a recommended price while making it clear that local costs and the franchisee’s final pricing decision may differ from the model.

3. Plan promotions and sales channels together

A shared promotion needs more than an advertising image and a price list. First decide whether it involves voluntary participation by franchisees, a recommended price or a maximum-price arrangement. Do not assume that a short promotion automatically justifies imposing a binding selling price. Any exceptions require a case-by-case competition law assessment.

Draw up a written plan for the promotion covering confirmation of participation, promotional products, duration, responsibility for costs and customer communications. If the promotion only applies to certain outlets, this limitation must be clear in the marketing. Customers should not have to find out at the till why an advertised offer does not apply to that particular shop.

When advertising price reductions on goods to consumers, take account of the Finnish Consumer Protection Act’s requirement, as a general rule, to also state the lowest price at which the goods were marketed during the 30 days preceding the reduction. Establish how to obtain accurate price histories for the different sellers and sales channels. The network’s history of recommended prices alone may not reflect the prices actually charged by a franchisee.

For online sales and shared booking systems, also identify the actual seller. Centralised payment processing does not, on its own, make the franchisor the seller. Agreements, order confirmations, payment flows and information given to customers must reflect the actual arrangement. If the network sells directly and the franchisee delivers the service, the pricing assessment may differ from that for sales made by the franchisee. Have the structure reviewed before introducing it.

4. Reflect pricing authority in contracts and everyday tools

Pricing principles must be consistent across the franchise agreement, operations manual, promotional guidelines and software. Independence written into a contract is of little use if a centralised system locks prices and the franchisee has no genuine ability to decide them.

Before opening a franchised outlet, test at least the ability to change a standard price, apply a local discount and opt out of a promotion. Also check that prices update correctly across customer-facing channels. Assign someone responsibility for resolving inconsistencies between systems and agreements.

Train network management to handle pricing questions appropriately. A franchisee’s concern about a neighbouring outlet’s lower prices is not grounds for requiring that outlet to raise them. Nor should franchisee meetings be used to agree shared future prices. The exchange of commercially sensitive pricing information between competitors can create a separate competition law risk, even if the franchisor does not set prices.

Set meeting rules accordingly and restrict access to reports as necessary. Monitor the success of the network through measures such as service quality and customer experience, rather than adherence to recommended prices.

Practical checklist: map out pricing authority, have your promotional model reviewed by a lawyer with competition law expertise, and test a franchisee’s ability to change prices in the actual system. A shared brand is strengthened by clear rules, not by pricing freedom that exists only on paper.