Question

what is geographic pricing and what type of service does it offer? in 300 words

Answer 1

Geographic Pricing

Geographic Pricing is a competitive pricing strategy. It can be considered as a process of setting prices(or modifying a basic price) for goods or services based on the location that they will be made available to consumers. It is intended to reflect the costs of shipping to different locations.

Types of Geographic Pricing

1. FOB (Free On Board)

The shipping cost from the factory or warehouse is paid by the purchaser. The price in adjacent market is higher because of additional shipping fee. Ownership of the goods is transferred to the buyer as soon as it leaves the point of origin.

2. Uniform delivery pricing

The same price is set in both the zones.

3. Freight absorption cost

Company puts a higher price in the operating market to obtain the absorption of the cost.

In Geographic Pricing strategy, firms want to minimize the differences between two markets by sharing or absorbing the transportation cost between them and then to exploit economies of scale by pricing below competitors in a second market segment.

While implementing this strategy, brands should be careful. It is important not to discriminate between competing buyers in the same zone, not to make the strategy too predatory and also not to attempt to fix the price among competitors while choosing the best point of zone pricing.

Example is BP (as an example of oil and gas industry)

Zone pricing is a marketing technique widely used by petroleum companies. The company determines geographical price zones based on the demographics of a certain area and costs of transportation to the area. As a result, the petroleum companies increase the amount charged to the service station dealers for the gasoline in those designated zones, this cost is then passed onto the consumers. Consequently, the prices of gasoline in origin United Kingdom and in distant Australia are quite different.