How to Set Sales Prices in an Indian Franchise Network

When turning an existing business into a franchise, owners often want every outlet to display the same prices. But setting prices in your own stores is different from controlling an independent franchisee’s sales prices. A franchise network needs to preserve its brand identity while respecting franchisees’ commercial independence. Start with a written pricing policy that gives customers clear information and complies with competition law.

1. Understand the legal boundaries first

India has no separate, comprehensive central law governing franchising, mandatory national franchise code of conduct or franchise-specific registration system. Nor is there a requirement to provide a pre-sale disclosure document in a prescribed format. This does not mean, however, that a franchise agreement can contain any pricing provision you choose.

The Indian Contract Act, 1872 provides the basis for the validity of an agreement and the parties’ obligations. The Competition Act, 2002 may apply to pricing restrictions. Section 3(4) covers the scrutiny of vertical arrangements such as resale price maintenance. These are arrangements between businesses operating at different stages of the supply or distribution chain.

Such provisions may be prohibited if they cause, or are likely to cause, an appreciable adverse effect on competition. Not every price recommendation is therefore automatically unlawful, but simply recording consent in an agreement is not sufficient protection either. The Competition Commission of India enforces this legislation. The Consumer Protection Act, 2019 is also relevant to customer-facing prices and promotions.

2. Distinguish recommended prices from binding prices

First, establish who actually sells the goods or services to the customer. Does the franchisee buy goods and resell them in its own name, or does the business use a different arrangement? Simply calling a franchisee an ‘agent’ does not change the underlying commercial relationship. Have the sales, invoicing and payment arrangements legally reviewed.

Then distinguish between the following in your pricing policy:

• Recommended sales price: The brand provides guidance, but where independent pricing applies, the franchisee can choose its own price.
• Fixed or minimum sales price: The franchisee is required to sell at a set price, or not to sell below it. This may create competition law risks.
• Maximum retail price: Where India’s legal metrology rules for packaged commodities apply, goods cannot be sold above the declared maximum retail price. Selling below that price is generally permitted.

Calling a policy a ‘recommendation’ while withholding supplies, reducing support or imposing penalties on franchisees that offer discounts can make it binding in practice. Actual conduct matters as much as the wording.

3. Set out the costs and responsibilities for joint discount campaigns

When preparing festive discounts, opening offers and customer coupons, do more than send out promotional materials. First, decide how participation will work and who will bear the cost.

Prepare a short briefing sheet for each campaign:

• Which goods or services are included, and how long will the offer run?
• Will the brand fund the discount, will the franchisee fund it, or will they share the cost?
• Who will receive the customer’s payment, and how will coupon redemptions be settled?
• How will the discount be recalculated if there is a return or cancellation?
• Which outlets will offer the promotion, and how will customers be told?

If a campaign is voluntary, do not impose hidden penalties for opting out. If you propose a compulsory campaign, have its pricing terms specifically reviewed by a lawyer. If not all outlets are participating, do not advertise the offer as available everywhere.

4. Avoid inadvertently controlling prices through technology

Permissions to change prices in sales systems, on websites and on delivery platforms should reflect the pricing policy. Giving franchisees independence on paper while permanently locking prices in the software creates a contradiction.

Decide who will enter recommended prices, who can make local changes and when those changes will become visible to customers. Establish a process for handling complaints about discrepancies between prices on bills, in online listings and on in-store displays.

Avoid sharing other independent franchisees’ future prices or discount plans in ways that encourage collective agreement on pricing. Gathering data to understand costs is one thing; getting franchisees to agree on one another’s prices is another. Make this boundary clear for network-wide meetings and messaging groups too.

5. Align the agreement with actual practice

Before granting a franchise, ask a lawyer to review the pricing clauses, promotional rules and software controls together. Explain to the brand team when monitoring discounts is a check on customer information, and when it could become pressure on a franchisee’s independent pricing decisions.

Also document the process for changing the pricing policy. Do not assume that amending the operations manual gives you unlimited authority to control prices. Keep records of notification of the new policy, its effective date and any necessary contractual consent.

Practical takeaway: Start by setting out three points on a single page: who sets prices, who funds discounts and what customers will be told. Then make sure the agreement, promotions and technology all follow that arrangement.