Franchising in the Philippines: Who Sets the Prices?

A brand may be well known and sales may be strong, yet you could still be left with too little if prices do not cover your outlet’s costs. Before joining a franchise network, check who sets prices, who pays for discounts and how you can request changes. This is no minor detail: it affects your ability to keep the business running.

1. Find out whether prices are recommended or compulsory

Ask for the draft agreement, the relevant sections of the operations manual, the current price list and the promotions policy. Do not settle for an explanation that “prices are the same everywhere”.

Distinguish between three possible arrangements:

• Recommended prices: The franchisor provides guidance, but you have genuine freedom to depart from it.
• Prices subject to approval: You can request a change, but it depends on the other party’s review and approval.
• Compulsory prices: You cannot change prices, or you face penalties for failing to follow those set for you.

What matters is how the policy works in practice, not simply what it is called. If prices are “recommended” but supplies can be cut off when you depart from them, the arrangement needs careful professional review.

Also ask whether separate policies apply to in-store purchases, deliveries, bulk orders and temporary promotions. Costs can differ across sales channels, so a general answer is not enough.

2. Understand the legal limits

The Philippines has no single comprehensive franchise law. However, that does not mean any condition can be imposed freely. Executive Order No. 169 provides protections for micro, small and medium-sized enterprises entering into franchise agreements. The Civil Code, Intellectual Property Code and Philippine Competition Act are also relevant.

Under Article 1306 of the Civil Code, parties may agree on contractual terms provided these do not contravene the law, morals, good customs, public order or public policy.

Section 87.2 of Republic Act No. 8293, the Intellectual Property Code, is more specific. For arrangements covered by the rules on technology transfer, prohibited clauses include those reserving to the licensor the right to fix the sale or resale prices of products manufactured under the licence. A franchise agreement may fall within these rules.

Section 91 provides a mechanism for requesting an exemption. If the franchisor says its arrangement has been approved, ask for the relevant documentation and have it checked to establish whether it covers your agreement. Failure to comply with the applicable provisions of Sections 87 and 88 may render an agreement unenforceable without an approved exemption and the required registration.

A separate assessment also applies under Republic Act No. 10667, the Philippine Competition Act. Simply saying “this is the brand standard” does not override prohibitions on anti-competitive agreements. Ask a lawyer to review the precise clause and how it is enforced; not all pricing policies necessarily have the same legal effect.

3. Calculate the effect of discounts on each sale

Prepare a breakdown for both regular and promotional prices. For each product or service, record the amount you will actually receive and the costs directly associated with that sale.

Include ingredients or stock, packaging, payment processing charges, delivery commissions and sales-based fees. What remains is only a contribution towards rent, wages, other expenses and profit—not yet net profit.

For each promotion, ask:

• Who funds the discount: you, the franchisor or both?
• If costs are reimbursed, when will you receive payment and what supporting evidence is required?
• Is there a limit on the number of products you must sell at a discount?
• Can you request to opt out if your outlet cannot afford to participate?

Test the figures using the costs at your chosen location. A promotion that works well for one outlet could leave another with a shortfall.

4. Put the process in writing before signing

Speak to existing franchisees about their experience of changing prices. Find out how long approval takes and how rising costs are addressed. Use their answers to clarify the agreement, not as a substitute for it.

Ask for the notice period for promotions, the allocation of costs, the process for requesting changes and the person authorised to make decisions to be clearly set out in writing. If the agreement, manual and a new announcement conflict, it should be clear which takes precedence, while remaining compliant with the law.

Practical takeaway: Before buying a franchise, make sure you understand who controls prices and whether your outlet can meet the associated obligations. Have a financial adviser calculate the impact and a lawyer review the legal limits before you sign.