Geographical Pricing

A company has to also decide how to charge its products for customers located in different parts of the country or world. Should the company take risk of losing the business of more distant customers by charging them higher cost to cover the higher shipping costs? Or should the company charge all of the customers the similar prices in spite of location? Because each customer picks up its own cost, faction of FOB pricing feels that this is the fairest technique to assess freight charges. However the disadvantage is that Peerless will be a high-cost firm to distant customers?

Uniform-delivered pricing is the conflicting of FOB pricing. Here, the company charges the similar price plus freight to all of customers, despite of their location. The freight charge is set at the average freight cost. Another advantage of uniform-delivered pricing are that it is quite easy to administer and it allow the firm advertise its price nationally.

Zone pricing falls between FOB-origin pricing and uniform-delivered pricing. The company sets up two or more zones. All of customers within a given zone pay a single totality price; the more isolated the zone, the higher the price. By using base point pricing, the seller choose a given city as a "basing point" and charges all customers the freight cost from that city to the customer location, apart from the city from which the goods are in fact shipped. If all sellers utilized the similar basing-point city, delivered prices would be the similar for all customers and price competition would be eliminated. Industries like cement, sugar, steel, and automobiles utilized basing-point pricing for several years, but this technique has become less famous today. Some companies set up multiple basing points to create more flexibility: They quote freight charges from the basing-point city nearest to the customer.

Finally, the seller who is anxious to do business with a certain customer or geographical area might use freight-absorption pricing. By using this strategy, the seller absorbs all or part of the in fact freight charges to get the desired business. The seller can reason that if it can get more business, its average prices will be fall and more than compensate for its additional freight cost. Freight- absorption pricing is utilized for market penetration and to hold on to increasingly competitive markets.