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Can a franchisor dictate the pricing of everything at a franchise location?
Alan Wilkinson writes:
The short answer is no. The interesting bit is why a franchisee should actually follow the franchisor’s recommendations.
A franchise is an independent business which trades using the brand and know-how of the franchisor. The franchisor has a proven formula for operating their business, and will have learned a lot of lessons along the way. What works, what does not, and the best price point for their product or service. They will know their position in the market, and will have developed systems and procedures around maximising profits based upon this market positioning.
It should not simply be assumed that increasing price will increase profits. This can be the case, but at what cost? Maybe a good margin on this job, but on the back of this, setting a higher price will mean less jobs in the future.
A franchisor can, if they so choose, set a maximum price, but they cannot set the price for a product or service. Depending upon the offering, prices can and do vary according to location. As a franchise network matures, and the brand has franchisees in different geographical locations, often patterns emerge of higher and lower price points. This can be affected by North/South, or urban/rural.
Although a franchisor cannot set prices, a franchisee would be well advised to follow their guidance, as this will have been learned by valuable experience.
Alan Wilkinson is head of franchise development at The Franchising Centre and has been in franchising for over 25 years.
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