Franchising in Taiwan: Setting Recommended Prices and Promotion Participation Rules

When opening an established business in Taiwan to franchising, head office will often want to retain the price list used by company-owned outlets to simplify marketing and management. Franchise outlets, however, are run by separate operators who bear their own rent, staffing costs and operating risks. Uniform pricing across all outlets is therefore not just a branding decision: it also raises competition law issues. Before recruiting franchisees, clarify which prices are recommendations, which requirements are promotion conditions, and who bears the cost of discounts.

1. Distinguish brand standards from price restrictions

Head office can set product specifications, service procedures and display requirements, but this does not give it blanket authority to determine franchisees’ selling prices. Taiwan has no single dedicated statute governing franchise relationships. Contractual rights and obligations generally fall under the Civil Code, while market conduct is subject to the Fair Trade Act and other legislation. Trademark licensing also involves the Trademark Act.

Article 19 of the Fair Trade Act generally prohibits a business from restricting the prices at which its trading counterpart resells supplied goods to third parties, or at which those third parties subsequently resell them, unless there are justifiable grounds. This provision also applies to services, with the necessary adaptations. A clause citing the need to ‘maintain brand image’, or a franchisee’s signed agreement, does not automatically make a price restriction lawful.

Each arrangement should first be assessed according to the goods, services and transaction structure involved, rather than treating all franchise arrangements alike. Where price restrictions are genuinely needed, legal advisers familiar with Taiwan’s competition rules should assess the justification and supporting evidence, rather than simply drafting contractual language around an existing practice.

Franchisees must be free to depart from recommended prices in practice. Even if a price list is labelled ‘for reference only’, head office may still be imposing an effective restriction if it stops supplies, withdraws support or deducts money from a security deposit because a franchisee reduces prices independently. Fixed prices, minimum prices and maximum prices all warrant review; none should be assumed to be inherently risk-free.

2. Build pricing autonomy into contracts and systems

Start with a pricing authority matrix setting out the recommended prices for each category of goods or services, who can change them, how changes are made in the system, and who is responsible for customer-facing price information. Its purpose is not to introduce another approval process, but to ensure franchisees understand how to exercise their autonomy.

Head office can explain the cost assumptions behind its recommendations, such as packaging, wastage and staffing inputs. It should, however, clearly distinguish operational analysis from mandatory pricing. Departing from a recommended price should not automatically be recorded as an inspection failure or affect access to training, normal supplies or routine operational support.

Point-of-sale systems can easily undermine contractual promises. If the contract allows franchisees to set their own prices but the system locks prices and requires head-office approval for changes, the arrangement needs reviewing. Before launching the franchise programme, test price changes, receipt printing and price display updates in a trial outlet to ensure that every stage works consistently.

Possible provisions for legal advisers to refine include:

• Head office provides recommended selling prices; franchise outlets determine their actual selling prices independently, in accordance with the law.
• Franchise outlets must ensure that in-store displays, ordering pages and checkout prices are consistent.
• Head office provides support for making price changes and does not penalise outlets for departing from recommended prices.
• Joint promotions are governed by separately disclosed campaign arrangements, rather than broad clauses giving head office unlimited power to change prices.

These are principles for designing the framework, not standard clauses that eliminate legal risk simply by being adopted.

3. Confirm participation and costs before each promotion

A brand-wide offer may leave franchisees bearing discount costs, extra staffing costs and increased material usage at the same time. Promising marketing support during recruitment, only to require outlets to absorb all promotional costs after signing, is likely to cause disputes.

Joint promotions should have clear information and a defined confirmation process. Before each launch, give franchisees details of the products involved, campaign dates, eligible channels, offer terms, allocation of discount costs, and how subsidies will be calculated and settled. Where participation is voluntary, outlets must genuinely be able to decline. Head office should not describe a campaign as voluntary while using supply stoppages or reduced support to compel participation.

For a buy-one-get-one-free offer, for example, stating that ‘head office will subsidise part of the cost’ is not enough. Specify whether the subsidy covers ingredients or materials, is a fixed amount, or is calculated per qualifying transaction. Also address returns, cancelled orders and repeated use of offers. Before agreeing to participate, outlets should be able to estimate their actual cost per transaction.

Advertising must also reflect which outlets are participating. If some franchisees are not taking part, the offer should not be advertised as ‘available at all outlets across Taiwan’. Restrictions must be clearly presented. If head office intends to require participation or prescribe promotional prices, the competition law risks need separate assessment. A short-term promotion is not automatically exempt.

4. Disclose arrangements before recruitment and check actual practice after opening

The Taiwan Fair Trade Commission’s Guidelines on the Business Conduct of Franchisors are an important regulatory reference for franchise recruitment. Under these guidelines, head office should provide material franchise information ten days before entering into a franchise or preliminary franchise relationship, or within a period considered reasonable in the individual case or agreed by both parties. Fees payable during operation to head office or its designated parties, including marketing and promotional fees, are among the disclosure items requiring attention.

Cross-check the operating restrictions and financial obligations associated with pricing and promotions against both the disclosure documents and the contract. Do not wait until a franchisee has paid before adding requirements through group messages. Failure to meet relevant requirements in the guidelines may breach Article 25 of the Fair Trade Act where the conduct is sufficient to affect trading order. Price restrictions themselves must also be assessed separately under Article 19 and other relevant provisions.

After outlets open, head office should regularly review point-of-sale permissions, field supervisors’ messages and promotion notices to ensure there is no gap between autonomy promised in documents and uniform pricing demanded on the ground. Keep records of how franchisees’ pricing objections are handled, and prevent supervisors from independently threatening to withdraw supplies or support.

Practical takeaway: Before launching a franchise programme, prepare a pricing authority matrix, a promotion participation confirmation form and a discount cost-sharing calculation, then test whether the systems genuinely support them. Clearly separating recommendations, obligations and costs will do more to sustain trust across the franchise network than a blanket instruction that ‘the same arrangements apply across the brand’.