A packet of popcorn costs more in a cinema and less in the local market. Despite this difference – which people are aware of – people are willing to buy it from the cinema. This willingness is the reason for businesses to offer the same product and services at different locations and regions at different prices. It is known as regional price differentiation.
Regional price differentiation makes it possible for businesses to earn more profit. We have all probably witnessed the high pricing of commodities in the airport in comparison to the price of the same commodity in the local market.
This is a real world practice that is possible when a customer is confined to a particular area and is compelled to pay the prices offered by the regional provider(s) if they really want the item.
But when we think about the global market and consider online marketing, the scenario is different as it is a common assumption that in global market regional differences have been made obsolete by the World Wide Web.
The issues facing internet retailers who target customers outside their local area are:
1. Regional differences are no longer important: When every website in the world is available to your customers they have the option of surfing websites in other regions and countries, getting to know the various prices offered (region wise) and ordering from the website of their choice.
2. Measuring customer willingness to pay: Knowing the amount a customer group (situated across the globe) is willing to pay region wise is difficult. The existence of online currency exchange institutions has made it possible to decide the price in local currency as well as global currency.
Also, this sometimes facilitates the buyer to acquire his desired item at a cheaper price. For example, if a buyer selects a product on e-bay which costs 100 dollars on a particular day, he may be able to get the same product cheaper from another E-commerce website.
3. Payment issues: Dealing with global distances and multiple currencies can seem daunting but surprisingly, regional pricing in a global world assisted by the internet is common sense and is possible.
Some tips and considerations for regional pricing in a global market are:
- Find out how much customers are willing to pay: The different economic situations of various regions makes it possible for people to be willing (region to region) to pay different amounts for the same products or services. This is the back bone of regional price differentiation.
- There are numerous tools available to gauge the customer’s willingness to pay. So before plunging in to an international online business do a thorough study to find out how much customers in each region will be willing to pay for the item you are selling.
- You can find this out by:
1. Revealed Preferences, whichs includes Market Data, Experiments (Laboratory experiments, Field experiments and Auctions)
2. Stated Preferences which includes Direct Surveys (Expert judgements and Customer Surveys) and Indirect Surveys (Conjoint Analysis and Discrete Choice Analysis)
- Internet shoppers accessing international portals/disadvantages of ordering from international portals:
If a customer from Germany accesses the Nokia store in the US and orders a cell phone at a lower price than they could obtain in Germany, then Nokia has problem. So in order to make regional price differentiation possible, businesses must make sure that the buyers are regionally segregated.
To do so the website can be set up to recognise the customer’s IP address in order to find what country they are in and then redirect the customer to the website for their local region.
Apart from this there are fees, shipping costs, taxes and duties which need to be added to the price. These additional costs may make customers’ in other regions opt out of ordering from the website but shouldn’t be a deterrent for local customers.
Some of the factors affecting a customers’ willingness to pay are how much they earn and the value of the product/services. If customers are satisfied with the quality of a product or a service they are less likely to go in search of a cheaper option.
Before making a purchase do you shop around and check how much items would cost if you ordered them online from different countries?
This is a Guest Post.
About the author: Amanda Kidd is a blogger who very environmentally aware. Her love towards green living leads her eco friendly life. She likes to write on Sustainable Design. But these days her interest has grown in luxury items.