A geographical pricing strategy sets different prices for the same products according to the buyer’s geographical location. This tactic allows e-commerce businesses to improve their adaptation to each market’s needs, increase user satisfaction, and maintain their profit margin. From Minderest, we explain how to implement geographical pricing in your business so that you can assess the suitability of incorporating it into your overall pricing strategy.
Contexts in which to apply geographical pricing
Firstly, a geographical pricing strategy can be applied according to consumers’ willingness to pay in a particular region. In other words, according to the maximum price they are willing to pay for items of the same category. In this way, the price of the same product changes according to users’ expectations in each region or country.
The maximum price that customers are willing to pay also varies according to their salary, social class and needs. For example, despite being an international chain, the price of McDonald’s is higher in northern Europe because of the higher purchasing power in these countries. Therefore, it is essential to carry out a market study to determine the target market type of each region before setting prices.
On the other hand, e-commerce businesses can also modify prices according to demand and competition in different geographic areas. Therefore, prices will be more reasonable in a highly competitive market than in regions or countries where your products are exclusive or where you have very few competitors.
Price adjustments based on shipping costs
Geographical pricing can also be applied to offset shipping costs to regions further away from the production location whether it be manufacturers, logistics centres, or end sellers. Thus, an increase in the retail price allows the same shipping costs to be maintained for the customer, and the same profit margin for the e-commerce business. Otherwise, high shipping costs can lead users to shop locally or at closer stores.
The online store also benefits from the prestige of distribution across multiple regions or countries, as well as the possibility of having a greater volume of potential customers.
The importance of monitoring competitors’ prices
When implementing a geographical pricing strategy, it is also crucial to know competitors’ prices in the regions where you want to start selling or improve your positioning. Given the benefits of this pricing strategy, your competitors may also apply it nationally or internationally. Therefore, you need to know their prices to offer customers a competitive and attractive alternative.
With the help of the most advanced pricing tools, you can monitor competitors' prices and segment them by postcodes. This will provide an overview of the changes applied by each company in each region. In turn, the tools collect information about shipping costs and delivery times for each competitor. This data is key to optimising customer service and ensuring a better shopping experience. This allows you to define the geographical pricing strategy best suited to your e-commerce business and your potential customers.