Page 133 - Marketing the Basics 2nd

price 125
a high premium for the privilege of going over to London or Paris for just a day or two.
GEOGRAPHICAL PRICING
Geographical pricing is employed when a company sells the same product in different locations. Because the product must be deliv- ered to different places, the logistical cost is directly proportional to the distance. As such, the producer must charge a higher price for goods that are furthest from the plant. However, the price the producer charges its most distant markets is tempered by the price of substitutes in the local market and the potential for arbitrage, where a third party decides to buy the product in the cheap market and resell it in the more expensive one. In some cases trading does occur, we call this grey marketing, which refers to the flow of goods through distribution channels other than those authorized by the manufacturer or producer. This, unlike black markets, is not illegal but often intensely disliked by the manufacturer because it reduces profitability. Frequently this occurs when the price of an item is significantly higher in one country than another. Electronic goods and pharmaceuticals are two common products where this occurs. Entrepreneurs will buy the product where it is available cheaply, import it legally to the target market and sell it a price which provides a healthy profit but which is below the normal market price there. This is a particular problem when the price is higher in another country not because of price gouging but simply because it is more expensive to do business in the one country. For example, London is expensive, retail rentals, office space, eating out and simply just living. It is only fair that firms who sell there charge more than lower cost Greece. It does cost Nikon profit, though, when a Brit on holiday in Greece picks up a Nikon camera there at a lower price and brings it back to London and expects Nikon to honour the warranty in his home country.
OTHER MARKETING-MIX ELEMENTS
Because markets are not perfectly competitive, information plays a vital role in the decision-making process. As such, consumers will pay a premium for products that are of good quality and well