Pricing and Discounting Freedom: What to Check Before Joining a Franchise in Japan

Even shops trading under the same brand face different rents, customer profiles and competitor prices from one area to another. When joining a franchise network, brand consistency matters, but so does how much control you have over your own selling prices. Rather than assuming you can leave pricing to the franchisor, examine regular prices, discounts and coupons separately, checking both the contract and how things work in practice.

1. Distinguish between recommended prices and mandatory prices

Start by asking the franchisor for more than its current price list. Obtain the franchise agreement, operating rules on pricing, discount application forms and promotional guidelines, then establish who decides which prices.

Labels such as ‘standard price’, ‘recommended price’ and ‘nationwide uniform price’ do not, on their own, tell you how much discretion franchisees have. Even if a price is described as recommended in writing, you need to investigate further if changing it leads to corrective instructions or adverse treatment. Equally, a requirement to notify the franchisor of a price change could simply be a procedure for updating price displays, or it could effectively be an approval requirement. The distinction matters.

Specific questions make it easier to compare the answers you receive:

• Are the procedures different for raising and lowering regular prices?
• Can individual outlets offer their own limited-time discounts or reductions before closing?
• Can prices differ for in-store sales, takeaway and delivery?
• Will price changes also appear in the franchisor’s advertising and ordering interfaces?
• What happens if you do not adopt the recommended prices?

Do not settle for an answer such as ‘generally permitted’. Check which products are exceptions, what conditions apply and which department makes the decision. When comparing brands, consider not just the degree of freedom offered, but whether you can run the outlet in a way that meets local demand.

2. Independent franchisees, pricing and Japanese law

A franchisee is not a branch of the franchisor: it is a legally independent business. Japan’s Antimonopoly Act also applies to transactions between franchisors and franchisees. The Japan Fair Trade Commission’s guidelines on franchise systems under the Antimonopoly Act identify conduct that may raise concerns during franchise recruitment and in dealings after a contract is signed.

It is important to distinguish between a franchisor suggesting a selling price and requiring franchisees to follow it. As a general rule, restricting the resale prices of goods supplied by the franchisor to franchisees raises concerns under the Antimonopoly Act. However, the issues requiring examination vary according to how goods or services are provided, the contractual relationship and how the restrictions are enforced in practice. The mere presence of a pricing clause does not mean that every such provision is automatically unlawful.

If a franchisor with a superior bargaining position unfairly disadvantages franchisees, this may also raise concerns about abuse of a superior bargaining position. Do not accept ‘that is only natural because we share a brand’ as a sufficient explanation. Ask specifically about the purpose and necessity of the restrictions and the burden they place on your outlet.

Under Article 11 of Japan’s Act on the Promotion of Small and Medium-sized Retail Business, franchisors whose operations qualify as a specified chain business under the Act must provide prospective franchisees with written information and explanations before a contract is signed. The Japan Fair Trade Commission’s guidelines, meanwhile, apply to a broad range of franchises, not just retail and food service. Whether statutory disclosure requirements apply and whether pricing restrictions raise concerns under the Antimonopoly Act are separate questions to check.

3. Trace discounts and coupons through to who bears the cost

Using specific sales scenarios is an effective way to assess your pricing discretion. For example, suppose you have unsold products approaching their sales deadline. Ask when they can be marked down, which products qualify, how large a discount is allowed and whether approval is needed. If an application is required, also check what happens when the person responsible is unavailable and how quickly a response must be given. A process is of little practical use if the opportunity to sell has passed before approval arrives.

For franchisor-led coupons, the discount received by the customer is not necessarily the same as the cost borne by the franchisee. Check the following points, following the process from redemption through to settlement:

• Who funds the discount: the franchisor, the franchisee or an external delivery provider?
• If the franchisor reimburses the cost, what conditions apply and when is payment made?
• Can customers combine multiple discounts or loyalty points?
• How is the allocation of costs adjusted if goods are returned or an order is cancelled?
• Which promotions can an outlet opt out of, and which require participation?

Check how much you retain after a discount by deducting purchasing costs, payment and delivery fees, franchisee-funded discounts and other relevant costs from the sales proceeds. You should also establish how discounts and franchisor reimbursements are treated when calculating royalties. To avoid counting the same cost twice, ask the franchisor to prepare a worked settlement example for a hypothetical transaction. This can make inconsistencies in the explanations easier to spot.

4. Complete a pricing discretion checklist before signing

For your final review, create a checklist with four rows: changes to regular prices, markdowns near sales deadlines, outlet-specific coupons and franchisor campaigns. For each, record who makes the decision, how to apply, the response deadline, who bears the cost and the relevant contractual clause. Any blank is a question to resolve before signing.

Be particularly alert if you are told that discounting is unrestricted but cannot change prices on the point-of-sale system. Check the screens or operating instructions to establish who has permission to make changes, whether requests to the franchisor involve fees or delays, and who corrects discrepancies between prices displayed in the outlet and those shown on ordering interfaces.

If you have the opportunity to speak to existing franchisees, ask about specific experiences rather than general satisfaction: ‘When you requested a price change, what procedure did you follow and how long did it take?’ Bear in mind that terms may differ depending on when the agreement was signed or the outlet format. Confirm with the franchisor whether what you have heard also applies to your proposed agreement.

If you discover penalties for changing prices, refusals of approval without clear reasons, or costs that differ from what you were told, gather the relevant clauses and records of the answers you received. Before signing, consult a lawyer familiar with franchise transactions and Japan’s Antimonopoly Act. Signing a contract does not, in itself, remove any concerns under that Act. Equally, you should not simply decide to disregard contractual clauses on your own initiative.

Key practical takeaway: Before deciding to join, obtain written confirmation of ‘who decides, who pays and when action can be taken’ in three situations: changing regular prices, discounting unsold stock and accepting coupons.