Stop Pricing One Export Market at a Time

Your markets can see each other. The number that binds you is the widest gap in the set, not the price of any one market.

Here is a question that has no good answer inside the model most brands use.

A distributor asks why their landed price is higher than the market next door. You open the pricing file. Every line is defensible. Their duty is higher, their registration cost was real, their logistics leg is longer, the retail structure takes a deeper cut. Each number was calculated correctly. And you still cannot give an answer that survives the next question, which is: so what am I supposed to do about the listing my customer just sent me from across the border?

The arithmetic was right. The unit of analysis was wrong.

What the standard method optimises

Search for export pricing guidance and you will get a very consistent answer: build the price up per market. Ex-works, plus freight, plus duty, plus clearance, plus the distributor's margin, plus the retailer's margin, plus local tax. Adjust for what the market will bear. Repeat for the next market.

Nothing in that is wrong. It produces a correct price for each market considered on its own — and that is precisely the problem. It optimises each market in isolation, and the exposure you actually carry is created between markets.

You do not sell into a list of independent countries. In any region where a customer can open a marketplace app and see two of your markets at once, you are not setting prices. You are setting a set of prices, and a set has a property no single price has: a spread.

The number that binds is the widest pair

In the previous piece I argued that a parallel channel opens when the landed cost of a unit bought elsewhere falls below the official price where it is sold. That inequality does not care which two markets it connects. It will find the widest pair in your set and open there.

Which means your real exposure is not the average spread across your markets, and it is certainly not the price of the market you were looking at when you made the decision. It is the maximum gap between any two points that logistics can bridge. One market priced out of line does not create one problem; it re-prices your exposure across the whole region.

Your exposure is a maximum, not an average. Markets 4 and 5 were each priced correctly in isolation. Together they are the opening. No conversation about Market 5 alone can see this, because the problem does not live in Market 5.

Borders help less than the model assumes

The counter-argument is that borders segment markets, so the spread is safe. That is not wrong, and it is worth knowing how much protection it actually buys.

Charles Engel and John Rogers measured it directly in a study that became a standard reference: comparing like goods across US and Canadian cities, crossing an international border added as much to price volatility as putting 2,500 miles between two cities. Borders really do segment prices, and by a lot.

Charging different prices in different markets is also entirely normal and rational behaviour, not a failure of discipline. Paul Krugman gave the phenomenon its name — pricing to market — in 1986, describing exactly this: firms setting different prices across markets rather than one world price.

So the question was never may I charge different prices. Of course you may. The question is by how much, before someone is paid to close the difference. And that limit is not a matter of principle. It is a number, and it moves.

The limit is a number, and it moves. Nothing about your pricing has to change for a safe spread to become an unsafe one. The cost of moving goods between your markets falls on its own, and the line comes to you.

This is the part that catches experienced teams. The spread you set three years ago was defensible when it was set. Nobody re-approved it. It became exposed without anyone making a decision.

Build the corridor, not the price

The practical move is to stop treating each market's price as an independent output and start treating the band as the thing you manage. Decide, once, which layers are allowed to differ between markets and which are not.

Legitimately different — and defensible to any partner who asks

Duty and local tax. Inbound logistics. Product registration and compliance cost. Retail structure — what the trade takes in that market. These are real cost differences and every partner understands them, because they pay them.

Should not differ

Your ex-works price for equivalent volume and terms. Promotional depth beyond a stated cap. These are choices, not costs, and a partner who discovers they differ will read it as ranking rather than economics — because that is usually what it is.

The corridor is what is left after the costs. When a partner asks why their price is higher, a build-up like this answers it without a negotiation — every differing layer is something they pay too. The layer that would start an argument is the one you held flat.

Holding it when a market asks for an exception

The corridor survives or dies on exceptions, and exceptions are never wrong on their own terms. A market asking for a lower price has a real reason — a competitor moved, a retailer demanded it, the currency went the wrong way. Judged alone, the request is usually justified. Judged against the set, it is a different question.

Two rules make that second question askable.

Price the exception in corridor width, not in percent. "Three points" sounds small. "This widens the gap to Market 5 from thirty-four to forty-two" is the same fact in the unit that actually governs the outcome, and it is the unit your partners' customers are shopping in.

Make the requesting market name who absorbs it. Not as a punishment — as the missing half of the proposal. If the answer is "nobody, it just widens", the decision belongs one level up, because it is a regional decision wearing a country's clothes.

Exceptions are regional decisions. Three points in one market is not a three-point event. It is an eight-point widening of the pair that a trader will actually use, and it lands on a market that was not in the conversation.

The five-line version

IF YOU READ NOTHING ELSE

01  Per-market cost build-ups are correct arithmetic on the wrong unit. You are setting a set of prices, not a price.

02  Your exposure is the widest pair in the set, not the average spread and not the market you were looking at.

03  Different prices per market are normal. The limit is the cost of moving a unit between them — and that cost keeps falling on its own.

04  Let costs your partner also pays differ — duty, freight, registration, trade structure. Hold the ex-works layer and the promo cap flat.

05  Price every exception in corridor width, not in percent, and make the asking market name who absorbs it.

Your turn

Put every market's landed or official price on one line. Which two are the widest pair? If nobody in your organisation can produce that line today, that is the finding.

For that pair: what does it cost to move one unit between them right now? Compare it with the spread. Which side of the line are you on?

Is your ex-works price genuinely identical across markets for equivalent volume and terms — or does it quietly reflect who negotiated hardest?

The last price exception you granted: what did it do to the widest pair? If that number was never calculated, the decision was made without its main consequence in the room.

Sources

• Charles Engel & John H. Rogers, "How Wide Is the Border?", International Finance Discussion Papers 498, Board of Governors of the Federal Reserve System, 1995 — for the finding that crossing an international border adds as much to price volatility as 2,500 miles of distance.
• Paul Krugman, "Pricing to Market when the Exchange Rate Changes", NBER Working Paper 1926, May 1986 — for pricing to market: firms setting different prices across markets rather than a single world price.
• The arbitrage bound on that spread is standard economics and is not attributable to any one author.

Cases are drawn from real appointments with countries, companies, brands, individuals and proprietary figures removed; only the structure remains. The market numbers in the charts are illustrative. This is not legal advice.

Written from the brand side of this table — twenty-two years appointing and managing distribution partners across Asian markets, across categories and price tiers.

Previously in this series: How to Evaluate a Distributor Before You Sign · Exclusive or Not · When to Stop Selling Cross-Border and Set Up Locally · What to Do When Your Distributor Asks for a Lower Price · When Is a Market Ready for a Local Launch? · Marketing Money in a Distribution Agreement · When Your Distributor Stops Paying · The Month-Seven Test · How to Manage the Distributors You Never Visit · Parallel Imports Are a Price Gap, Not a Piracy Problem