Franchising has become one of the most popular ways for entrepreneurs to run a business in the UK. It allows individuals (franchisees) to operate under an established brand, using proven systems and benefiting from ongoing support. However, one of the key questions often raised by potential franchisees is: who actually controls the prices of goods and services sold within the franchise? This issue is particularly important because pricing directly impacts profitability, competitiveness, and the overall customer experience. In the UK, the answer depends on a combination of contractual obligations, brand strategies, and legal restrictions.
The Role of the Franchisor
The franchisor, as the brand owner, typically sets the framework within which franchisees operate. This can include brand guidelines, marketing strategies, and operational procedures. In many cases, franchisors also influence pricing, particularly where consistency across the network is considered essential. For example, fast-food chains or retail outlets often want customers to see the same menu prices nationwide. This creates a unified brand identity and avoids confusion.
However, franchisors in the UK must tread carefully when it comes to price control. The Competition Act 1998 prohibits certain types of anti-competitive practices, including resale price maintenance. This means franchisors cannot legally force franchisees to sell at a fixed price. They can, however, recommend retail prices (known as RRPs) and provide strong guidance on pricing strategy. In some cases, franchisors may also run national promotions or discounts that franchisees are expected to participate in to maintain brand alignment.
The Franchisee’s Discretion
On the other hand, franchisees are legally independent businesses. While they operate under the franchisor’s brand, they retain responsibility for managing their own profit and loss. This includes making decisions about costs, staffing, and, importantly, pricing. In practice, this means a franchisee often has discretion to adjust prices within certain limits. For instance, if operating in London where overheads are higher, a franchisee may charge slightly more than a counterpart in a smaller town.
The level of control a franchisee has over pricing usually depends on the franchise agreement. Some agreements give wide flexibility, while others impose tighter restrictions. Where a franchisor’s brand identity is heavily dependent on price perception, the franchisee may find their discretion limited. By contrast, in service-based franchises where pricing can be tailored to local demand, franchisees often have more freedom.
Legal Considerations in the UK
UK competition law is a crucial factor shaping pricing control in franchising. The law aims to promote fair competition and prevent practices that could harm consumers. Resale price maintenance, where a franchisor sets a fixed price that franchisees must follow, is generally prohibited. Instead, franchisors may issue recommended price lists, but the final decision must rest with the franchisee.
That said, franchisees who deviate significantly from recommended prices may face indirect consequences. For example, they may find themselves out of step with national advertising campaigns, leading to reduced sales. In addition, some franchise agreements include clauses requiring compliance with system standards, which may indirectly influence pricing decisions.
Balancing Brand Consistency and Local Flexibility
The relationship between franchisor and franchisee in pricing is ultimately about balance. Franchisors need consistency to protect brand reputation, while franchisees need flexibility to reflect local market conditions. Striking this balance is essential for long-term success. Too much control from the franchisor risks alienating franchisees and potentially breaching competition law. Too much freedom, however, could undermine the brand’s image and confuse customers.
Conclusion
In the UK, control over the price of goods sold by franchisees is shared, but not in equal measure. Franchisors can recommend and strongly influence prices to protect brand integrity, but they cannot legally impose fixed prices. Franchisees, as independent business owners, retain ultimate responsibility for setting their own prices, albeit within the framework of their franchise agreement and brand expectations. This balance between brand consistency and entrepreneurial independence ensures that franchising remains both legally compliant and commercially effective. For anyone considering buying a franchise, understanding where pricing control lies is essential for making informed business decisions.