Last updated on June 4th, 2018 at 01:18 pm
There is no such thing as a “small business”. The reach of your business is limited only by your imagination. Thanks to e-commerce, a business no longer conforms to geographical borders. Every business has the potential to reach billions of customers from any nook and corner of the world.
Today’s marketplace is a global frenzy of international customers, online retail and cross-border shipping. While this opens up tremendous opportunities for enterprises, it comes with its own set of challenges. Businesses are finding themselves in a hyper-competitive environment.
Because of the international nature of business operations, decisions regarding matters – such as pricing – severely affect the bottom line. Sellers targeting international customers need to devise intuitive pricing strategies to maintain a substantial profit-margin. This needs to be done without losing the interest and trust of customers.
Read on to find out how your business can develop a rewarding pricing strategy to achieve international success. You will find this particularly useful if you are contemplating international selling on Shopify.
The advent of International E-Commerce
Increasing internet penetration and digitization of payments has made consumers more comfortable with online shopping. Statistics by Statista.com show that online shopping is among the most popular online activities. In 2017, ecommerce retail sales world
wide were as high as USD 2.3 trillion. By 2021, it is projected that ecommerce sales will amount to around USD 4.88 trillion.
Global B2B ecommerce sales are even better positioned – projected to exceed USD 7.7 trillion this year. A massive portion of consumers are making online purchases from businesses located outside their home country.
Power the Pricing Strategies
Deciding the right price for a product in international markets isn’t simple because pricing structures vary across countries. Businesses need to choose the right pricing strategy, such as dynamic pricing or VAT inclusive pricing by considering various factors that are unique to each international market.
Business revenue is directly influenced by the price at which a particular product is sold. If the price is unreasonably high, the product will not sell. If it’s too low, exporting it may not render enough profits and may in fact, result in a net loss. In either case, the business’ bottom line is at risk.
Elements of a Winning Pricing Strategy
When setting the price of a product for international markets, you need to consider the geography, culture, attitudes, market forces, local businesses, and purchasing behaviors of consumers. It is possible to come up with a winning pricing strategy if you make the following considerations carefully:
- The perceptions and preferences of foreign consumers.
- The problems posed by the foreign country’s laws.
- Whether the quality justifies the export price set for the product.
- Whether the demand for the product is dependent on the price.
- Whether the government will raise any red flags regarding the product pricing.
- The competitiveness and flexibility of the pricing as per market segment.
- The pricing options available in case the incurred costs for the product change over time.
- The discounts that can be offered to international customers.
- The type of market positioning the business is trying to convey through its pricing.
Many Countries, Many Prices
The products of most successful brands have different prices in different countries. For instance, the Nike Epic React Flyknit running shoe that costs USD 150 in USA has a selling price of INR 15,995 (USD 238.95) in India. The same shoe costs SAR 699 (USD 186.40) in the Kingdom of Saudi Arabia and HKD 1,299 (USD 165.55) in Hong Kong.
So, while the shoe is a good bargain in the USA, it may not be the same in India. Such price differentials are a result of many factors like differences in the costs of production and transportation in different countries, differences in degree of market regulation, and variation in tax rates.
Many international sellers practice dynamic pricing, which means they set flexible prices for products according to the customer’s perceived paying ability. Dynamic pricing for international sellers helps to increase sales if they are able to offer the right price for the right product at the right time to the right customer in the right country.
When a product is sold in different international markets, their prices may escalate or drop. The escalation in price may be a result of a longer distribution chain or because the product is sold in small numbers which does not facilitate economies of scale. A drop in price may occur in cases where a local government regulates the pricing, making the market more profitable.
Whatever be the case, setting the proper price for each country ensures that the product is favorably positioned for each economy. It also caters to the needs of different segments of consumers and ensures revenue. Many apps for international sellers on Shopify such as the Multi Country Pricing app make it easy for sellers to adjust their pricing for different countries without creating new storefronts.
What influences the International Pricing?
The price differences across countries are not always in the hands of the manufacturers or sellers. Many other factors influence price differentials in different markets. Here is a round-up of a few such key influencers:
1. Taxes and Duties
Local taxes and import duties make a big difference to the pricing of a product. For instance, automobiles and electronic products are expensive in Brazil because of the high import duty of up to 60% levied in the country. On the contrary, Japan is a cheaper place to shop because of the lower import duties and local taxes.
The price paid by customers for a product not only depends on the local taxes in the country to which you are exporting but also on the taxes in the country you are exporting from. For instance, if you are exporting from a country that levies VAT to a country that does not have VAT but levies sales tax, you will be taxed doubly because the exporting country will charge VAT while the country to which the product is imported will charge sales tax.
To ensure that your business remains profitable, you need to consider these tax differences across countries and set up a tax inclusive pricing. In countries that have a considerably higher rate for VAT, you can consider a VAT inclusive pricing as well.
2. Transportation and Shipping Costs
The costs of transporting and shipping a product also influence the final price of a product. If the country you are exporting to is far and the cost of shipping to that country is high, you may not be able to achieve a favorable profit margin. You should thus consider a shipping inclusive pricing while setting the prices of your products.
3. Size of Market
Another key factor that influences international pricing is the size of the local market. If the country you are exporting to is small, you may have to set a higher price to break even. If the country is fairly large and you can export a large number of products to achieve economies of scale, you can set the price with a lower profit margin for each product. You can experiment with not just country based pricing but also with region based pricing because the size of market varies drastically across regions.
4. Exchange Rate
One of the major disparities in international pricing occurs because of differences in the exchange rates of currencies. Similar products will be charged differently in different countries because of the different value of each currency that affects every part of the distribution chain. Moreover, since exchange rates keep varying over time, you may have to adjust the country based pricing.
5. Seasonal Fluctuations
Fluctuations in demand and supply also influence pricing. For instance, if you are selling a product for a festive season, you may experience an increase in the demand for your product. At such a time, you may lower the price to make a large number of sales and achieve economies of scale or escalate the price to make a larger profit per sale.
At the same time, you will also need to take into account the changes in transportation costs which also vary seasonally, especially if you maintain a region based pricing.
6. Pricing by Competitors
You will also have to consider the prices of other competitive products in each country. If the market you are targeting is large, you may have more competition and as a result, you may have to set a lower price.
A consumer searching for a product online is likely to compare the prices of various sellers and if you are charging exorbitantly higher than your competitors, you may not be able to make a sale.
Also, if you list a shipping inclusive pricing for your products, you may be at a disadvantage because your price would turn out to be higher than products sold by local sellers. Adjust your pricing competitively such that it does not offset your profit margin even if you include transportation costs.
Serve Global, make the price Local
Selling products internationally is profitable. However, you need to ensure that you are offering a localized online experience to your customers. To create a localized experience, you will have to translate marketing collateral and storefronts into native languages. You will also have to list the products in local currencies and enable checkout in multiple currencies. There are several apps for international sellers on Shopify that help sellers carry out these tasks with ease.
How much is SAR 500 or GBP 800?
According to a survey, 92% of the surveyed customers prefer to shop and make a purchase on sites that list the products in their local currency. If you are not listing products in the local currency, you will lose sales.
This is because a customer will fail to trust your site and will be rather comfortable buying from another site whose currency he is familiar with, where he will be spared the math of converting prices from one currency to another.
When viewing products listed with a foreign currency, he may be confused about the final price he will be charged in his local currency after exchange. If this isn’t reason enough, another important rationale to set the price in the local currency is that you will be able to compete with the local prices of similar products instead of the price being randomly based on the foreign exchange rate. Thus, dynamic pricing for international sellers is a suitable option if the business caters to diverse economic markets.
Also, it is wise to set a tax inclusive pricing for your products to balance the taxes incurred from currency exchange. If you are an international seller on Shopify, you can use the Shopify Multiple Currencies Converter app to display prices of products in local currencies.
Who Buys in Japanese Yen when living in USA?
It is estimated that 13% of online shoppers abandon the shopping cart if the price is stated in a foreign currency. It makes sense because you will not be comfortable paying in Japanese Yen when you live in the USA, for example. Moreover, the customer’s bank will charge him a transaction fee for making a purchase in a foreign currency. Thus, your business may suffer because of mismatched costs and revenue, thus harming your profit margins.
If your customers cannot checkout in their preferred currency, your business will suffer. Enabling checkout in multiple currencies helps achieve better conversion rates. Sellers on Shopify can use the Multi Currency Checkout App to checkout in local currencies.
Setting prices for an overseas market may get complex. However, with the right insight and tools like multi-currency checkout and converter apps, you can win a fair share of the market. If you are a global seller, think local.
If you offer a localized online shopping experience and set the pricing by taking into account differences in local taxes, regulation, shipping costs, competition, cultural and market factors, your international business will grow by leaps and bounds.