What is Dual Pricing?

Dual pricing is a situation in which the same product or service is sold at different prices in different markets. It is usually encountered when selling into international markets. There are a number of reasons why dual pricing may be employed, including the items noted below.

Drive Out Competitors

An aggressive competitor may use dual pricing to drastically lower its price in a new market. The intent is to drive out other competitors to increase market share, and then raise its prices once the other parties are no longer selling in the market. This practice can be illegal, depending on local laws.

Exchange Rate or Tax Differences

There may be financial and tax reasons for pricing differently. For example, adverse currency exchange rates or currency retention requirements may make it more difficult to sell into a market, so the seller must raise prices to offset these costs of doing business.

Differing Distribution Costs

Distribution costs may be different in each market. For example, distributors must be used in one market, while sales can be direct to consumers in another market. Each distribution type results in different margins, unless prices are altered to generate a uniform margin in all markets. Further, a distributor may elect to alter a price; it may increase the price if it is a high-end retailer, or do the reverse if it is a cut-rate retailer.

Demand Alters Prices

Prices may be demand-based. Thus, an airline can offer one price to an early-booking customer and a higher price to someone attempting to buy a seat at the last minute.