Buying a Franchise: Check Pricing Freedom and Discount Promotions

A consistent brand identity does not automatically mean uniform selling prices. When you join a franchise network, you generally operate as an independent business owner and bear the commercial risk of your business. Before buying, you should therefore establish who sets prices, how discount promotions work and whether you retain genuine freedom to make decisions in day-to-day operations. Till software, ordering platforms and centrally advertised offers deserve particular attention.

1. Understand the legal framework for pricing

Germany has no specific franchise act or national franchise register. Franchise agreements are governed in particular by the German Civil Code (BGB), where applicable the German Commercial Code (HGB), and German and EU competition law. Standard contract terms are also subject to review under sections 305–310 BGB, with special rules applying to business-to-business contracts.

For selling prices, the key provisions are section 1 of the German Act against Restraints of Competition (GWB), Article 101 of the Treaty on the Functioning of the European Union (TFEU) and Regulation (EU) 2022/720. The latter is known as the Vertical Block Exemption Regulation. Subject to certain conditions, it exempts certain agreements between businesses operating at different levels of the supply chain from the prohibition on anti-competitive agreements.

Fixed or minimum resale prices are generally problematic under competition law. Under this regulation, they are classed as hardcore restrictions. Imposing such prices can therefore cause the agreement to lose the benefit of the block exemption. Whether an individual exemption is available requires a separate assessment; it is not a reliable basis for blanket pricing requirements.

Non-binding recommended prices and maximum selling prices, by contrast, may be permissible. However, pressure or incentives must not turn them into fixed or minimum prices in practice. The parties’ market position also plays a role in the competition law assessment.

A franchise association’s code of ethics is a form of self-regulation, not legislation. It is no substitute for reviewing either the contract or actual pricing practices.

2. Look beyond the contract for genuine pricing freedom

The phrase “non-binding recommended price” is not enough on its own. What matters is whether you can actually calculate and charge different prices. Alongside the draft agreement, ask for the rules governing pricing, promotions and the sales software used.

During a demonstration, work through a complete sales transaction:

• Can you change prices yourself without approval from head office?
• Do changes apply equally at the till, in the online shop and on ordering platforms?
• Will your own prices be overwritten by the next data update?
• Can you disable promotions loaded centrally into the system?
• For online orders, who actually contracts with the customer?

The final question is important: if head office makes the sale itself, its pricing may need to be assessed differently from a sale made by your business. The actual contractual and distribution arrangements are decisive, not simply the label given to the digital service.

Also speak to existing franchisees. Ask specifically what happens when they depart from recommended prices. Reports of formal warnings, delivery delays or the withdrawal of benefits because of lower prices warrant a more detailed legal review.

Ask for written explanations of any technical restrictions. A software setting is not merely an administrative detail if it effectively prevents you from setting your own prices.

3. Model the financial impact of discount promotions in advance

Joint promotions can attract customers and strengthen brand recognition. However, they do not deliver the same financial results at every location. Differences in rent, staffing costs and local demand can make the same promotion attractive for one business and loss-making for another.

Ask for a typical promotion to be explained using a specific product or service. Calculate the net revenue after the discount and deduct the direct costs. Include packaging, payment processing, platform commissions and any additional staffing required. Separately check whether turnover-based payments are calculated on the revenue actually received or on another basis specified in the contract.

Then clarify how costs are shared:

• Who funds the discount, and when is any reimbursement made?
• Can customers combine several vouchers or benefits?
• Who bears the costs of refunds or cancellations?
• Are there quantity limits or an option to pause participation if capacity is stretched?

Participation and price restrictions are separate issues. A contractual obligation to take part in advertising does not automatically make fixed selling prices lawful. Short-term joint low-price campaigns may be assessed differently under narrowly defined conditions; rely on this only after an expert has reviewed the specific arrangement.

4. Agree clear procedures before signing

Ask for written provisions that clearly distinguish between permissible recommended prices, technical implementation and participation in promotions. Useful safeguards include clear advance notice periods for promotions, transparent reimbursement procedures and a named contact for prices loaded incorrectly into the system.

Also record how local variations will be reflected in central advertising. If an advertised price is not available at your business, the issue goes beyond difficult conversations with customers: the advertising may also raise concerns under German unfair competition law. Information about participating outlets and offer conditions should therefore match how the promotion actually operates.

Before signing, have any conflicting clauses reviewed by a lawyer experienced in franchise and competition law. Verbal assurances about pricing freedom offer little protection if the contract, software and actual practice say otherwise.

Practical takeaway: Work through both a regular sale and a discount promotion from start to finish. Sign only once pricing decisions, technical implementation and responsibility for costs are aligned and the legal position is clear.