Geographic pricing is a selling strategy that involves consideration of the average cost of goods in a given geographic area as well as the expenses incurred to transport those goods to the point of sale. Using the data related to the location and the amount of cost involved in providing goods to that area, the manufacturer or seller will determine a unit price that covers all expenses and also allows for the generation of an equitable amount of profit. As with any type of pricing, the final figure in geographic pricing will also be impacted by the demand for the goods in question and how many competitors are offering similar products in the area.
Geographic pricing is considered a form of variable pricing, that is also influenced by the concept of rational pricing. In order to be effective, the pricing set must account for all costs associated not only with the production process but also storage costs prior to shipment and the shipping expenses incurred to move the goods from the point of production or storage to the buyer. At the same time, the pricing must also consider the cost of living in the geographical location in which the buyer resides and the unit price that is most likely to attract consumers while still allowing the seller to earn a profit from the venture.
Transportation costs are often a major influence on geographic pricing. Simply put, the more care required during shipment coupled with the amount of distance involved in shipping the goods will make a significant difference in the price. This means that oranges grown in Florida will typically sell at a lower price in the state’s capital city of Tallahassee, but will cost more when shipped to Detroit, Michigan for sale.
A practice known as zone pricing will also have some impact on the geographic pricing assigned to a given good. The idea is to determine what others operating retail and other types of buying centers in the area are charging for the same or similar products. This provides some insights into the type of retail price which must be assigned in order to be competitive with other offerings and motivate consumers to purchase the goods. This practice makes it easier to find the balance between covering expenses and making profits off each unit sold, while still charging geographic pricing that is likely to be looked upon with some degree of favor by customers.