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Not sure if this is the right place for this question.

Assume I produce a grocery item that I want to sell across the country. If I sell my product to a grocery nearby, my shipping cost will be less than if I were to sell the product to a grocery in some remote part of the country.

Assume further that the suggested retail price of this product should be about the same across the country, or it won't sell.

What's the proper way to handle a pricing strategy in this situation?

  1. I sell the product at the same price to all groceries, but they have to pay for shipping. Then it's up to individual groceries how to price the product. If they were to follow the suggested retail price, groceries near the manufacturing plant would make more money than groceries further away from the manufacturing plant due to their higher cost of shipping.

  2. I sell the product at the same price to all groceries and include the average shipping cost in my selling price. So, nearby grocery store would pay the same as remote grocery store. The risk would be if suddenly there is an abundance of orders from remote grocery stores -- and the included average shipping cost doesn't cover my shipping expenses.

  3. I sell the product at the same price to all groceries and include the highest possible shipping cost in my selling price. Little risk to me and great for remote groceries, but nearby groceries are penalized.

Of course, the above options are an over simplification. For example, with regards to #3 - it's possible a competitor near my manufacturer could product a similar product at the same price point, then start selling to nearby groceries and only charge the shipping cost to that nearby grocery. Their product would then be the cheaper option and I would lose a customer.

What's a good strategy for the above scenario? What strategies did I miss?

EconomicsNewbie
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  • This seems like a business question without a specific framework and no possible definitive answer.
    • – Giskard Feb 11 '20 at 05:10
  • What do you mean by "proper way"?
    • – Giskard Feb 11 '20 at 05:10
  • I guess "proper" would refer to whichever approach returns the best outcome. I'm thinking game theory. – EconomicsNewbie Feb 11 '20 at 05:15
  • I am sorry, but I think you may not know what game theory is. – Giskard Feb 11 '20 at 05:18
  • Possibly. Open to any ideas and suggestions that could result in best outcome. – EconomicsNewbie Feb 11 '20 at 05:37
  • I don't think this is the right place for this question. If the question is about how differences in prices for the same product at different locations can arise (or do arise), it would be relevant here. If the question is about how you can price your products, it is not relevant here. It is not businessadvice.stackexchange.com. – user253751 Feb 11 '20 at 12:55
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    @user253751 I judge this to be on-topic since economic considerations can be relevant to pricing strategy (albeit other considerations may also be relevant). I don't think a request for business advice is necessarily off-topic, though many such requests would be. – Adam Bailey Feb 11 '20 at 13:42
  • Have you considered hiring a distribution company whose job is to do this? – user253751 Feb 11 '20 at 15:14
  • @EconomicsNewbie what would be best outcome here would depend on the parameters. With the current set up the answer would be just it depends. For example, to provide at least some slightly less vague answer one would have to at least know what’s the market structure here so the situation can be set up as an IO problem or some more info so it can be turned into game. But even there without actually putting some value on model parameters you probably won’t get definitive answer... – 1muflon1 Feb 11 '20 at 17:26