Last editedApr 20222 min read
Geographical pricing, otherwise known as location pricing, refers to the practice of altering prices according to the geographical location where products are sold. In this article, we’ll run through a definition of geographical pricing, as well as the advantages and disadvantages of implementing it in business. Find out everything you need to know, right here.
Geographical pricing definition
With geographical pricing, the prices of products vary based on location. A geographical pricing strategy may be motivated by a desire to recuperate shipping costs, which tend to increase when delivering further afield. Alternatively, it might be due to products being considered more valuable in certain regions compared to others.
Occasionally, regulations and obstacles in particular regions can make production or delivery costs higher, meaning prices have to increase accordingly.
Geographical pricing advantages and disadvantages
With a clear idea of what location pricing is, let’s get into the pros and cons of the pricing strategy.
Allows you tailor prices to locality
Using a geographical pricing strategy allows you to tailor prices according to different markets and localities. It takes into account local consumer interest, needs and demand. This means you have the opportunity to avoid making a loss on products by making prices lower in regions where people are willing to pay less, while taking advantage of being able to increase prices in areas where your products have higher perceived value.
If you are able to implement a thoughtful and effective location pricing strategy, you may see significant increases in revenue and profit.
Can help you recoup shipping costs
Some companies will implement a geographical pricing strategy in order to adapt to elevated shipping costs due to items being sent long distance. Effectively altering your prices to cover high delivery costs can therefore help you reduce your shipping costs. And lower costs leads to greater profit yields.
Can be used to increase perceived value in certain regions
When correctly implemented, a geographical pricing strategy can help give a boost to the perceived value of certain goods in particular areas. This involves charging a higher price in a region where demand is high, thereby enhancing your brand’s image. In this way, location pricing can be likened to prestige pricing strategies, which rely on creating the impression of scarcity in order to elevate value and justify higher prices.
However, be aware that prestige pricing can be tricky to get right. Selling items at too high a price relative to value can be off-putting to customers and ultimately tarnish your company’s reputation.
Can make accounting and bookkeeping more complex
Having different prices in different regions of the world can complicate accounting and bookkeeping, especially if prices are listed in a number of different currencies.
However, GoCardless can help with this, allowing businesses to collect payments in over 30 countries. Indeed, GoCardless connects Direct Debit systems across different markets and schemes so that merchants can leverage them from one, unified place.
Plus, if the affordability of cross-border payments is a concern, GoCardless offers competitive transfer rates and streamlined pricing. In fact, for a $5,000 international transfer, GoCardless is 75% cheaper than PayPal.
Have to take local regulations into considerations
Geographical pricing strategies involve having to contend with varying local laws and regulations. For example, you may have a particular price in mind as optimal in a certain region, only to find that local tax regulations require you to increase the price just in order to break even.
For this reason, selling in different locations, especially abroad, requires a lot of research to get right. Carrying out this research is essential in order to effectively navigate region-specific red tape and tax laws. This requires time and resources in and of itself which will have financial implications.
That said, a well thought-out location pricing strategy can be a great asset for any company looking towards expansion.
We can help
GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.