Geographical pricing refers to the location at which the price is applicable. Geographical pricing strategy is influenced by a number of factors such as the location of the company’s plant, the location of the competitors’ plants and their pricing strategies, dispersion of customers, extent of transport costs, demand and supply conditions and competitive environment. In geographical pricing, there are generally two methods of price basis which are stated in the offers or quotations submitted by a seller to a buyer. These are:
- Ex-Factory: “Ex-factory” means the prices prevailing at the factory gate. When a seller quotes to a buyer “ex-factory price’, it means that the freight and transit insurance costs are to the buyer’s account. In other words, the seller will charge the costs of freight and insurance to the buyer. The more distant customers landed costs are higher because of freight cost.
- FOR Destination or FOB Destination: When a seller quotes to a buyer “FOR destination or FOB destination” (free on road/free on board destination), it means the freight costs are absorbed by the seller or included in the quoted prices. However, transit insurance costs, which are small amounts, are generally absorbed by the seller, but sometimes the goods are dispatched under the open insurance policy of the buyer. In this method of price basis, all the customers get the product at the same price irrespective of their locations from the seller’s factory premise. If the quotation or the price list is on FOR destination basis, generally the industrial marketer estimates the average freight and insurance costs and adds the same to the basic product prices. Absorbing these costs is rarely done by a seller; it is done only in an intense competitive situation to get business from a particular customer.