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Zone Pricing

Disciplines > Marketing > Pricing > Zone Pricing

Description | Example | Discussion | See also

Description

A way of pricing products is to do so based on the creation of zones in which each separate set of customers are located. This is most typically done using geography and local markets.

Pricing is then set in each zone, based on the local conditions in the zone, including competition, captive elements and the potential for premium pricing. Another consideration is to price within zones based on your costs associated with the zone, such as shipping and storage.

Example

A company sells it products for a relatively high price in a small town where there is little competition, and for lower prices in cities where customers have many alternatives.

A company uses locally delivered vouchers for one of its products in an area where people are unable to pay higher prices.

Discussion

Zone pricing is based on the principle of charging what each market will bear, for example using lower prices in low socio-economic areas and higher prices when you have little competition. It may also be used to more realistically represent your actual costs for each zone.

A way of making it seem like there is a single price everywhere is to have the same 'recommended retail price' but allow individual retailers to discount differently depending on the zone. In the same way, you can use vouchers, sales and other means to adjust real local prices.

Zone pricing only works when customers are unable to pay pricing from other zones. The internet can cause real problems for this, for example when you are pricing differently in different countries and a person in one country can order it from another country. This can cause them issues such as import taxation, warranty voiding and delivery delays, but if the price differential is high enough they may well be prepared to put up with these inconveniences.

The best time to use zone pricing is when the people in each zone know nothing about the product being sold in another zone. One way to manage this is to have different packaging and even branding in the different zones so customers do not recognize the alternative source.

You can use the principle of zone pricing based on any criteria by which you can separate customers, for example pricing for small companies or large companies.

See also

The Black Art of Pricing, Discountable Pricing