You can have your same targeted customer at two different geographical locations. But two other locations will always have a separate case for purchasing a product. There are significant differences in interest, needs, and buying power between the two local people. Thus, Geographical Pricing has been introduced in the business field. It teaches businesses and companies to successfully sell their products based on different geographical locations.
This guide has mentioned everything you need to know about geographical pricing.
What Is Geographical Pricing?
Geographical pricing is a business strategy. It means setting up the pricing on the basis of a consumer’s geographical location. Various factors about the geographical area affect the pricing range. It consists of shipping costs, taxes, manufacturing expenses, and how many consumers belong to that location. As the markup pricing gets different in different location.
For instance, a business needs to sell its products and services at a lower price at a place where shipping prices are higher or where many other competitors also have higher pricing.
Understanding Geographical Pricing in Marketing
When your companies have to transport the goods to different market locations, you can use geographical pricing marketing that showcases the extra shipping costs. If your target market is closer to your manufacturing department, the shipping cost will be lower. Pricing will also be lower if your goods enter a crowded market with various quality options.
Under this model, you can offer your products to more customers at distant locations. All you need to do is to impose some shipping charges. It makes the market more competitive. But, higher shipping charges often lead the local customer to refrain from purchasing products.
The pricing of your products and services also depends on whether you’re the Price Taker or Price Maker. A price taker refers to a company or an individual who has to set its pricing according to the market. In contrast, a Price Maker is a company with a significant market share that can set up its pricing in the market. But setting a price according to a competitor’s price is called competition pricing.
Types of Geographical Pricing
There are three types of geographical pricing in the market mentioned below:
Freight-absorption Pricing
Freight absorption pricing refers to a strategy where companies bear the shipping costs for the consumers. This satisfies a customer’s urge to buy the products at no or low shipping cost.
However, the warehouse and manufacturing plant take care of the shipping arrangement. While the manufacturer and retailers also cover such shipping expenses.
Many businesses offer their customers to receive their parcels faster with this pricing type. It requires the customers to some extra money.
Zone Pricing
Zone pricing depends upon the zone of a customer. Simply, such businesses develop distinct prices for different zones. They draw concentric circles on a map. And, then place their warehouses or factories in the middle somewhere. It eases the companies to ship the products quickly and at lower possible costs.
Once the companies draw their concentric circles, they start creating the boundaries on the map. It represents varied geographical pricing zones. Factors affecting prices in disparate geographic locations also impact its boundaries. It includes shipping costs, population density, and transportation infrastructure.
For example, gasoline-based organizations or industries mostly have zone-based pricing strategies. Thus, the gasoline pricing at the station is different. It mainly depends upon geographic factors. It includes physical distance from the oil source, traffic patterns, and also how many registered motor vehicles that area consists of.
Basing Point Pricing
Companies implementing the Basing Point Strategies have to calculate two different costs. The first cost means the primary expense of the consumer while ordering the product. The second cost refers to the freight or the shipping price. It is imposed on the consumer based on their geographical location.
Thus, the closer the customer is to the manufacturing plant or warehouse, the lesser the shipment cost he has to pay. For instance, a China-based and a US-based customer ordered a product from a US warehouse. Then, the seller will charge the exact product pricing from both buyers. In comparison, China’s customer has to pay more shipment charges.
Geographical Pricing Strategy
Geographical Pricing strategy significantly refers to localized prices. Localized prices directly or show the local currency and demand. We have mentioned three geographical pricing strategy examples to understand them more clearly.
- All the prospects are more likely to buy any product in their local currency. Thus, you can sell the customer in the pricing manner they are used to. It makes the process straightforward for them.
- Using the concept of localized demand, you can know the demand for specific products and the capability of that geographical area. This is how you can productively use geographical pricing.
- You can also imply this method even if you’re targeting any product to other parts of the country. All you have to do is understand their local currency and demand. Then showcase the pricing and other factors based on that geo-pricing method.
Geographical Pricing Advantages and Disadvantages
We have mentioned some of the distinct geographical pricing advantages and disadvantages here:
Advantages:
- Reduce Operational Costs: Geographical pricing helps companies lower shipping costs.
- Expand Into New Markets: Geographic pricing helps the companies to enter into new target markets of another country.
- Improve Customer Trust: Geographic pricing teaches us how to set up the pricing and shipping charges based on the localized market. Thus, it takes care of the customers and encourages them to trust you and become your loyal customer.
- Optimize Profits In Various Regions: With the varied geographical locations, companies also vary their prices. Thus, it increases the profit margin of the companies.
Disadvantages:
- Makes Accounting and BookKeeping complex: Charging different prices based on other geographical locations increases your profit margins. But, it also complicates the accounting and bookkeeping process. Thus, it becomes a little trickier for the companies to keep their books in a particular order.
- Consider Local Regulations: Local laws and regulations often impact geographical pricing strategies. You would have noticed that sometimes you have to increase your price to cover the locally imposed rules and regulations.
One of the biggest hindrances in setting up the proper geographical pricing is that you must deal with various local laws and regulations.
Geographical Pricing Examples
We have mentioned some top-notch geographical pricing examples here. They will help you better understand the concept of geographical pricing.
Zone Pricing Example
Zone pricing is based on the shipping distances. Suppose, a company manufactures the products in San Diego, California. And, it sets up three separate zones across the US – West, Midwest, and East. It will cost only $10 shipping cost for the West Zone, $12 for the Midwest Zone and $14 for the East Zone.
FOB Pricing Example
The FOB pricing model is about including the shipping charges in the product’s buy price. Thus, the shipment cost becomes the liability of the company, not the customers. It occurs when the company works on the FOB Pricing model.
Freight-Absorption Pricing
Freight absorption pricing is one of the most innovative ways to sell the consumers. Because the company owns the liability of the shipment charges here. It also presents the scenario in a different way to the customers. They will see the shipping charges on the screen but will see them deducted as a discount.
Final Words
Geographical pricing is the best method to set up the pricing at different locations. Thus it increases your profit margins significantly. We hope you like this guide. And, it also help you find everything you need about geographical pricing.
Frequently asked questions
How do geographical prices differ from geographical costs?
Geographical prices refer to how much customers may pay in various regions. Geographical costs, meanwhile, are the expenses that a business pays to deliver their goods to various markets, such as delivery or freight fees.
What is geographical pricing in marketing?
When your companies have to transport the goods to different market locations, you can use geographical pricing marketing that showcases the extra shipping costs. If your target market is closer to your manufacturing department, the shipping cost will be lower.
What is a geographical pricing strategy example?
Here are some geographical pricing strategy examples:
- Zone Pricing Example
- FOB Pricing Example
- Freight-Absorption Pricing
What are geographical pricing advantages and disadvantages?
Some of the distinct geographical pricing advantages and disadvantages here:
- Advantages:
- Reduce Operational Costs
- Expand Into New Markets
- Improve Customer Trust
- Optimize Profits In Various Regions
- Disadvantages:
- Makes Accounting and BookKeeping complex
- Consider Local Regulations