What is zone pricing

What is zone pricing and should you use it?

What is zone pricing?

Zone pricing is a pricing strategy where businesses dynamically price their products based on the zone the customer lives in.

Zone pricing doodle

Currently, zone pricing is being used by large companies to combat cross-border shopping. For example, Amazon prices their books differently for customers based on their country.

However, zone pricing has many other applications outside of combatting cross-border shopping.

Zone pricing is a perfect strategy for the real-time and significant data era. It enables businesses to create more targeted offers and promotions based on where customers live and how they behave online.

How does zone pricing work?

It works as follows: A company sets up a predefined set of zones. Every zone has a unique price range. The price range is currently set up by national boundaries such as borders and rivers. For example, Norway has a low-price range of $0 – $100, and Sweden has a high-price range of $100 – $200.

When someone visits the site, the website identifies their location based on their IP address. If the customer lives in Sweden, the website now knows that this customer has a high price range assigned to his zone.

IP address

In other words, zone pricing is dynamic price discrimination.

This means that if someone wants to purchase a product from ebay and lives in the low-price range zone, he will see prices as usual.

However, if someone visits ebay from a high-price range zone, he will see higher prices.

Is price discrimination legal or ethical?

No pricing

Price discrimination is legal as long as it’s not based on discriminatory factors such as gender, race, or sexual orientation.

In the case of zone pricing, the prices are set based on location, which is not a discriminatory factor.

For example, people pay different food and drinks at a football game. This is discrimination based on time. Since the prices are determined by how much demand there is during a specific time. Another reason could be that some seats at a stadium offer a better view than others.

This means that zone pricing does not violate any laws or regulations.

However, there are ethical aspects of using zone pricing that businesses need to consider before they implement it on their websites.

Why should you want to discriminate in pricing?

The main reason why many companies use zone pricing is to combat cross-border shopping.

In the past, companies could not discriminate between customers based on where they lived since all consumers were United States citizens and had equal rights as US citizens.

However, with the rise of online shopping, it has become possible for people from other countries to buy products from US companies without paying extra taxes. This means that people from different countries are incentivized to order products from the United States because they save money on taxes if they purchase goods in bulk.

World map

Many consumers live outside of the US, especially in Sweden, where only 1% of households have a broadband connection. In comparison, 69% of households have a broadband connection in Japan, where zone pricing is now used.

This means that US companies are losing business to foreign competitors because these consumers are shopping on international websites instead.

If a company implements zone pricing, it will incentivize customers who live in the high price range zones to purchase their products since they will be charged less if they shop from US-based online stores.

Should you use it?

You might be wondering if zone pricing is the right thing for your company to do?

The answer will depend on what kind of business you’re running.

For example, if you run an online store that offers goods such as smartphones and tablets where the price difference between models is slight, it will not be worth using zone pricing to target customers in countries with different price ranges.

However, implementing a zone pricing strategy might be a good idea if you offer laptops or expensive items.

Another thing to remember is that if you decide to use zone pricing, it might not be easy changing the prices of items on your website since you might have many products where the price is already listed in USD.

However, if implementing zone pricing will benefit your business and increase sales, then using it can be a good investment.

Conclusion:

In conclusion, zone pricing is dynamic price discrimination. Companies use zone pricing to combat cross-border shopping where consumers from other countries are incentivized to purchase goods. Zone pricing may not be ethical since it does discriminate between consumers based on geographical location. If implemented, zone pricing can benefit businesses by increasing sales and benefitting company goals.

Companies use zone pricing to combat cross-border shopping where consumers from other countries are incentivized to purchase goods. #zonepricing Click To Tweet

I hope that this article has helped you understand what zone pricing is and why businesses do it.

If you have any questions, don’t forget to comment.

Thanks for reading!