Price Adjustments: Geographic Pricing

The sale of some products may require marketers pay higher costs due to the geographic area in which a product is sold. This may lead the marketer to adjust the price to compensate for the higher expense. The most likely cause for charging a different price rests with the cost of transporting a product from the supplier’s distribution location to the buyer’s location. If the supplier is incurring all costs for shipping, then they may charge a higher price for products in order to cover the extra transportation expense.

For instance, for a manufacturer located in Los Angeles, the transportation cost for shipping products by air to Hawaii is likely much more than it would be to ship the same amount of product by truck to San Diego. In this situation, since the manufacturer is incurring the shipping cost, they may set a different product price for Hawaiian purchasers compared to buyers in San Diego.

Transportation expense is not the only geographic-related cost that may raise a product’s price. As in the Pricing Decisions Tutorial, special taxes or tariffs may be imposed on certain products by local, regional or international governments, which a seller may pass along in the form of higher prices.