What is Geographical Pricing?
Businesses change the cost of their goods and services based on the customer’s location. This is called geographical pricing. Customers in different areas may be charged different prices when businesses use location-based pricing. This is because prices can change based on supply and demand, shipping costs, competition, and the buying power of customers. With geographical pricing, the goal is to make as much money as possible while being competitive in all areas.
In some cases, geographical pricing could mean charging more for goods or services shipped farther away. In other situations, a company may set multiple prices and charge customers based on where the item is sent. Geographical pricing can include deals or discounts only available in certain countries or areas.
Companies may also use geographical pricing methods to figure out sales taxes in different ways in each area where they do business based on the tax laws and rules in that area. For instance, a company that conducts business globally might be required by law to impose various sales tax rates in each location where it operates. By learning about these local rules and changing their prices to reflect them, businesses can ensure they follow the law, set competitive prices, and make the most money possible in each region.
Synonyms
- Geo-location pricing
- Location-based pricing
- Price localization
- Regional pricing
Different kinds of geographical pricing
When companies set prices based on where their goods are made or where their customers want them shipped, knowing the different types of regional pricing can help them make intelligent choices. That being said, here are five different kinds of geographical prices and what they mean.
- Zone pricing means splitting an area into separate zones and charging different prices for each zone based on how far it is from the company’s main office, how much freight costs, and how the market is doing in each zone.
- Setting the same price for all customers, no matter where they live, and covering the shipping cost is what uniform shipped pricing means. Customers in faraway places may be more likely to buy from the company using this geographical price.
- Freight-absorption pricing evens out the price for people who buy in bulk and people who buy smaller amounts. It does this by adding the shipping cost to everyone in a particular area’s total price.
- Free on-board origin (FOB) pricing lets buyers and sellers manage their costs and risks when they deal internationally. The seller is responsible for all the costs of getting the goods ready to be exported, like packing, putting them onto the ship, clearing customs, and ensuring that all the paperwork is in order. Once the things are loaded onto the ship, the buyer takes ownership and is responsible. The buyer is then responsible for paying for any extra costs related to shipping, such as insurance, port fees, customs charges, and shipping fees.
- Businesses often change their prices because of differences in exchange rates, import fees, taxes, and shipping costs that come with business across borders. This is called “international pricing.” Companies can keep their profit margins while still giving competitive prices in global markets when they use international pricing.
Things that affect pricing strategies based on location
Geographical pricing is used in many fields, like retail, manufacturing, furniture shops, software as a service (SaaS), and car dealerships. With this approach, companies can set more competitive prices where people are more likely or able to buy their product or service.
Demand, competition, the cost of transportation, foreign exchange rates, taxes and tariffs, the availability of resources, and local economies all affect prices in different places.
Ask for
Demand, or how much people are willing to pay for goods and services, affects price changes in various areas. Companies often lower their prices in places with low demand to stay competitive and keep their market share. Companies may, however, raise prices in places where people want their goods or services more.
Race to Win
Another thing that affects geographical pricing tactics is the level of competition. When setting prices for their goods and services, businesses need to consider how much competition there is in different areas. In areas with a lot of competition, businesses may need to lower their costs to stay in business. On the other hand, businesses in areas with less competition usually charge more for the same goods or services.
Costs of transportation
The cost of moving goods also affects choices about where to set prices. When companies figure out how much to charge customers who live far away from their factories or distribution centers, they often look at how much shipping costs. When transportation costs are too high, companies may decide not to serve specific areas and instead focus on areas where transportation costs are lower and easier to handle.
Rates of tax and duty
When businesses set final store prices, they must consider any extra taxes or fees for selling in specific markets. Tariffs and taxes also affect geographical pricing decisions. The availability of resources like labor and raw materials can also affect geographical pricing strategies. This is because these resources affect production costs, affecting pricing choices.
Conditions of the economy
Lastly, when setting regional pricing policies, it’s essential to consider how the local economy is doing. This is because economic changes can affect how much people spend, affecting how much things cost in different areas.
Pros of setting prices based on location
Geographical pricing strategies are suitable for companies in several ways.
Greater adaptability
One of the best things about geographical pricing tactics is that they give businesses more freedom. Companies can change their prices based on where their customers are located and react to changes in the prices of rivals and customer tastes in a particular area without changing prices for all customers. Because of this, geographical pricing strategies help businesses get better at running their businesses and meeting customers’ wants in every area they serve.
Maximized Sales
It also helps businesses make the most money possible by letting them set prices based on area cost structures or demand patterns. For instance, many businesses charge higher prices for goods in areas with high demand because there aren’t many of them. On the other hand, goods may be priced cheaper in areas where competition is high and demand is low. Businesses may also consider that transportation costs can be different in different areas when setting prices.
Customer satisfaction went up.
One more benefit of geographical pricing methods is that they make customers happier. Using geographic pricing can make customers think that its costs are fair and reasonable, no matter where they live or shop. This sense of fairness can help a business gain the trust of its customers and keep them coming back.
Cons of Using Geographical Pricing Strategies
This method can be helpful in many ways, but it also has some problems you should consider before using it.
Level of difficulty
One problem with a geographical pricing approach is that it is hard to set up and keep up-to-date. It needs in-depth study, data analysis of each region, and knowledge of the laws and rules that apply there. Businesses also need to keep track of how these things change over time so they can change their prices to reflect that. This extra complexity can make it more expensive to run the business and make it less profitable.
Customers Are Not Happy
If you don’t handle geographical pricing strategies well, they can make customers unhappy. Because of where they live, customers may notice that they are paying more than others and feel they are being ripped off financially. In the same way, businesses must make sure that all regional markets are treated equally when setting price differences. They could lose customers in specific markets or areas if they don’t.
Needs for Technology for Geographical Pricing
Geographic Information Systems (GIS) are complex tools companies use to determine which products should have different prices based on where they are sold. Businesses can use GIS to determine what factors, like economic situations and local demand, affect prices in different areas. Location-based software might also have tools for seeing how sales change over time and space, which helps businesses find growth or expansion chances.
Price optimization software is another essential tool for setting prices based on location. Price optimization software is a digital pricing solution that lets businesses change prices automatically based on customer profiles and market situations. This makes it easier and faster for businesses to make the most money from different areas while keeping prices low.
With real-time analytics tools, businesses can look at how customers act in more detail than with location data. These platforms can bring together transaction data from different sources, like credit cards and loyalty programs, along with specific geographic data about each sale or contact with a customer. By combining these two data sets, businesses can learn more about where customers buy things and better target sales or discounts in those places based on what customers want and need.
Companies can monitor success metrics like conversion rates, average order value, customer lifetime value, and more with web analytics tools. Businesses can use these insights to make intelligent choices about their pricing to predict better what customers want, make the most money, and keep a good image with customers.
Lastly, regional pricing data are synced with other business software like billing software, customer relationship management (CRM) software, and configure price quote (CPQ) software to ensure customers get correct quotes and bills for their orders. These solutions must handle multiple currencies for pricing so that customers are charged the right amount for where they live.
