Franchising: who decides prices, discounts and promotions?

A recognisable brand and frequent promotional campaigns can attract customers, but they do not guarantee adequate profits for each outlet. Before joining a franchise network in Italy, you need to understand who sets prices, how discounts are organised and who bears the cost. These checks will help you assess the franchisee’s independence and the financial viability of offers made to customers.

1. Distinguish between recommended and imposed prices

In Italy, Law No. 129 of 6 May 2004 governs franchising between legally and economically independent businesses. The contract must be in writing to be valid. However, the franchisee’s independence does not mean that every commercial policy adopted by the brand is automatically prohibited or permitted: pricing arrangements are also subject to competition rules.

The European framework includes Article 101 of the Treaty on the Functioning of the European Union and EU Regulation 2022/720 on vertical agreements. As a general rule, imposing a fixed or minimum resale price constitutes a hardcore restriction of competition. Recommended or maximum prices may be permitted, provided they do not become fixed or minimum prices through pressure or incentives.

It is therefore not enough to find the word ‘recommended’ in the contract. Check what happens if the franchisee charges a different price: do they lose financial contributions, receive formal objections or face restrictions on supplies? These are matters to discuss with a lawyer specialising in competition law. Any potential justification requires a case-specific assessment, rather than a general appeal to consistency across the network.

2. Read the contract and promotional rules together

Article 4 of Law No. 129/2004 requires the franchisor to give the prospective franchisee a complete copy of the contract and the attachments required by law at least 30 days before signing. Use this period to request any commercial rules referred to in the agreement and clarify how promotions work.

Not all useful campaign information is automatically covered by the mandatory attachments: you will need to request additional details expressly. In particular, check:

• whether participation in campaigns is optional or required by the contract;
• how far in advance you are told about their duration, products and terms;
• whether you can run local offers and what approval is needed;
• who funds discounts, free gifts and loyalty rewards;
• how product shortages and customer complaints are handled.

Ask for concrete examples of previous campaigns, including how their costs were shared. A promise of reimbursement is not the same as a contractual commitment: if the franchisor’s contribution is crucial to your margin, the terms, amounts or calculation methods, and the timing of payment or credit must be clearly set out.

3. Calculate the margin on each offer

Assess a promotion on its margin, not just the expected number of sales. Work with your accountant to prepare a calculation sheet for each type of offer, using comparable figures and accounting for VAT correctly.

From the actual sales revenue, deduct the cost of the product or service, payment processing fees, any packaging and other variable costs. Also factor in any applicable royalties: check whether the basis for calculating them takes discounts into account and how it treats promotional contributions.

If the offer requires extra work, deliveries or dedicated materials, include those costs too. Only add contributions from the franchisor once you know the conditions and can reasonably expect to be entitled to them.

Then compare the promotional margin with your usual margin. Ask how many additional sales you need to offset the reduction in margin, and how many discounted sales will replace purchases that would have happened at full price anyway. Do not treat an increase in takings as automatic proof that an offer is worthwhile.

4. Clarify vouchers, reimbursements and customer communications

Gift vouchers, loyalty points and discount codes may be issued by one business and redeemed at another. Before signing, trace the flow of money: who receives the initial payment, who supplies the product or service, and who reimburses the franchisee?

Ask for a written procedure covering reporting deadlines, required documents, disputes and the handling of returns. Delayed reimbursement can create a cash-flow requirement even when the sale remains financially worthwhile.

Also check who prepares and reviews promotional messages. For announcements of price reductions on goods, Article 17-bis of the Italian Consumer Code generally requires the previous price to be stated, meaning the lowest price charged to consumers generally during the preceding 30 days. There are exceptions and specific rules: not all loyalty schemes work in the same way. A centrally organised campaign must therefore be compatible with the circumstances of the individual outlet.

In practice: before signing, ask to be walked through a promotion from the initial announcement to the final reimbursement. If you cannot identify who sets the price, who pays for the discount and how much you retain, ask for written clarification before committing your capital.