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What is Geographical Pricing Strategy?
Geographical pricing is a distinct pricing strategy that depends on adjusting the prices of a particular product or service depending on the specific geographical location of the buyer. Often, geographical pricing reflects aspects like the cost of shipping, market competition, local taxes, and a customer’s willingness to pay for a particular product. In such a case, geographical pricing helps companies to improve the given profit margin and maximize revenue. Besides, geographical pricing is a great tool for boosting sales in low-cost markets.
Companies across various industries use geographical pricing strategies to adapt them to particular shipping destinations. Often, products like gasoline are fully priced based on geographical pricing factors. In addition, companies operating in an agricultural industry often use geographical pricing. To illustrate, produce like avocados is far cheaper in places close to avocado plantations. Even in the software development market, some businesses sell products based on the insights got from geographical pricing.
Geographical Pricing Strategy Examples?
Regarding particular examples of geographical pricing, it is crucial to speak about its several core types. These include zone pricing, FOB pricing, and Freight-Absorption pricing. Starting with the zone pricing example, let’s explore the following factors. In the zone pricing strategy, the approach directly depends on shipping distances. A company might manufacture a product in a particular region and then set particular zones across the country where the product will be shipped and sold. In such a case, depending on the distances and transit costs, there will be a different prices for the same product in different zones. Zone pricing directly depends on distances to zones.
When speaking about FOB pricing, one should offer the following example. In this scenario, the business sells a product shipment to a storefront in Chicago. With FOB pricing in charge, the storefront owner would assume the shipping costs as a part of the purchase. In such a case, this example of the geographical pricing strategy correlates to the cost-related responsibility for shipping lying on the shoulders of the buyer. Namely, such a cost of shipping is integrated into the end-products price.
Finally, there is an example of Freight-Absorption pricing as distinct geographical pricing. For instance, consider a manufacturing company trying to expand its production area. It tries to go past the zone in which the product is predominantly shipped and sold. The manufacturer needs to adopt a Freight-Absorption pricing strategy to get to the new area. While in the previous example, the buyer covers the shipping costs. In the example of this pricing strategy, the manufacturer covers the shipping charges while also assuming the corresponding liability for the product being in the shipping cycle.
The Power of Geographical Pricing Strategy
The aforementioned instances establish the foundation for geographical pricing. Yet, the pricing strategy is significant because it grants products sold at localized prices. When it comes to localizing geographical pricing, the pricing strategy should be dictated by local demand and currency. In such a case, one should add that geographical pricing properly used offers a competitive advantage. Why? Because customers are more inclined to buy products with a price in currency, people are used to it. It makes the entire purchasing cycle easier and more appealing.
Besides, geographical pricing offers massive insights into local demand and pricing. With the pricing strategy, you can better grasp consumer psychology linked to a particular geographical area. As a result, equipped with geographical pricing, companies can make more accurate pricing decisions. Businesses do not spend much on pricing, which leads to losses. If your company is scaling, using the localization offered by geographical pricing is something that will support the natural growth of your company.
Geographical Pricing Advantages and Disadvantages
Geographical pricing offers a range of benefits, as well as have particular drawbacks. Starting from a positive note, one should consider the following pros brought by geographical pricing:
- Local appeal. Particular geographical pricing strategies allow companies to avoid using one-fits-all solutions. In such a case, getting more localized insights into consideration ensures greater pricing and marketing strategies accuracy.
- Dealing with shipping costs. Based on the examples presented, one can see that geographical pricing help companies deal with shipping costs. These are designed to hello businesses leverage the shipping costs and recoup the potential losses while integrating the cost of shipping into the end-products total price.
- Boost the product’s perceived value. When geographical pricing is delivered properly, it ensures that the product’s perceived value is boosted in the areas at which geographical pricing was directed at. For instance, a higher price in a region with matching demand enhances brand perception.
Keeping the aforementioned aspects in mind, one can suggest that geographical pricing presents many viable benefits companies can use. However, one should not forget the potential drawbacks of geographical pricing. These are the following:
- Complicating bookkeeping and accounting. Having different pricing strategies for different regions requires a lot of paperwork. Keep in mind that local prices can even be in different currencies. When a high degree of variability is involved, bookkeeping becomes a challenging task.
- Local regulations. When dealing with various geographical locations, one should consider the factor of local rules and regulations. Geographical pricing always deals with local laws. There can be situations when accounting for regional taxes and regulations might force a company to boost the price of an end-product. Besides, if a firm does not adhere to local laws, it can result in litigation and bring a massive financial burden.
The aforementioned aspects constitute the drawbacks of geographical pricing. While there are not many of them, they can make the experience of adopting geographical pricing a daunting task.
Geographical pricing is a strategy of setting a product price based on various geographical factors specific to a particular region. It helps companies boost the value of products and appeal to specific customers. Adhere to local regulations and deal with your bookkeeping to take the most of geographical pricing.
Find answers to some of the most common questions people have regarding the use of Competera.
What are 5 types of geographical pricing?
When it comes to various kinds of geographical pricing, one should indicate the following: zone pricing, Free on Board (FOB) pricing, basing point pricing, uniformly delivered pricing, and freight absorption pricing strategies.
Why is geographical pricing important as a pricing strategy?
The significance of geographical pricing lies in its ability to tailor pricing strategies to different markets and locations. It takes into account numerous geographical factors and makes the pricing tailored to the needs of particular customer groups.