Sell Global, Price Local – Pricing for Global Vendors

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.

 

How Pricing Factor affects your E-commerce sales

Last updated on August 22nd, 2018 at 11:41 am

We all have been in this situation. You went to buy a shirt from a shopping mall and then your eyes catches a flattery white cotton fabric shirt, you run your fingers across the shirt hold it up to your frame.

 Then you look for the truth that always keeps hiding inside the shirt (the price tag). Slowly you reach for it and twist it around to see the price. OHhh Noooo!!!. Maybe after some quick mathematics calculation (I’ll download “Avengers Infinity War” movie rather than going to the theatre”) you go through the details like color, body fitting, and size.

This is a very common offline behavior we do while going for shopping physically. It won’t be wrong to say that the same process is followed by us when we go for online shopping.

Yeah in online shopping no price is hidden inside your shirt, it’s clearly stated right next to the product you’re looking. If 50% is the users need for the product then another 50% is the price that will make the product more charming to be bought.

Today in this article I will be going to discuss what pricing factor is and how it affects your growth in E-commerce business. So let’s roll onto it.

According to PWC research here are some prime reasons why customers visits an ecommerce website:

  • ‎61% to compare pricing
  • ‎23% to participate in promotions
  • ‎41% to look for coupons

Smart Margins

The idea of setting prices of your products low is a total myth. In fact, you lose the price battle if your pricing is too low. If you are dropping your costs to a point where you are losing money, you should consider finding a healthier source, or alter your product offerings to include more profitable things.

Setting up your profit margin with respect to that it won’t affect your customer’s buying is a pretty complex thing. When you consistently keep your products price low your existing customer will always expect the lower price for your product, even when it is unsustainable to your business. As a result, you could lose those customers over time.

There are tools available to measure what price your competitors’ sets for a product. One of them is by “Pricing Lab” which monitors and updates prices automatically in real time.

 

Cost-Based Pricing

It is the easiest way to calculate what product should be priced at. This has two variants :

i) Full cost Pricing

ii) Direct Cost Pricing

-Full cost pricing takes into consideration both variable, fixed costs, and profit %.

-While Direct-cost pricing is variable costs + profit %.

Cost-based pricing is one of the most intuitive ways to set a price. Simple logic is that after calculating the costs of a product for your company, you just have to apply the profit margin you want to achieve. That way if cost of the product is 50 and the margin you desire is 100%, you have to price it at 100.

With cost-based pricing, there’s always a sense of relief attached, as you know that you are covering your costs and gaining some profit on all the work that you are putting in.

 

Dynamic Pricing

It is a pricing strategy in which prices are changed in response to real-time supply and demand.

Dynamic Pricing allows retailers to remain competitive 24*7 by price monitoring and changes, boosting profits by 25% on average.

This strategy is an old practice. In the year 2000, Amazon was experimenting with dynamic pricing: Whenever a user tries to view the same product even after deleting their cookies and web-history they were shown different pricing every time for the same item.

This was mostly used for loyalty purposes, existing customers were recognized and offered a better deal. The result, a feeling of being ‘special’ and an increased loyalty to the business.

 

Penetration Pricing

This pricing strategy is mainly used when launching a new product or service. Penetration pricing includes offering a very low price during its initial offering. The prices are intentionally set low to attract the new customer. Lower price helps to lure customers away from competitors.

Penetration Pricing strategy helps the retailers to make the customer aware of their new product in the market. The price entices the customer to try the brand new product.

Because of the low pricing your branding among initial customers who will then share your products review/feedback with other possible customers.

 

Psychological Pricing

“Odd” pricing tends to win more than “Even”. The ‘9’s magic is one of the most widely used and oldest pricing practices. Ending prices with .99 or .97, or a bit less than a round number, is a market psychology tactic that deeply affects shopping decisions.

It is found that the consumer perceives this odd price as being significantly lower than they actually are, as they tend to round them to the next lowest unit. For example:

As you can see in the above image that Amazon’s India site is also following the same practice of ‘9’.  All the pricing of the product listed there is odd or either ending with ‘9’.

Products pricing with 3.99$ got more chance to be sold than 4.00$ because mostly it is seen that value on the left (before the point) is what buyers interpret in their mind as the final pricing.

William Poundstone in his book Priceless, listed eight different studies on the use of charm pricing and found that on an average, they saw an increase in sales by 24% when they decided to use “Odd” pricing.

 

Smaller Fonts

No one wants to see the big large price in front of their eyes.

Research says that prices that are shown in smaller fonts convert better than larger font under the same display value.

                       Small font = small price (9.99$)

                 Large font = large price (9.99$)

Presenting the lower sale prices in comparatively small font resulted in more favorable value assessments and bigger purchase likelihood or choice than presenting the lower sale prices in relatively large font.”

 

Few Tips

  • Your buyers are experts to recognize the pricing. So try, to set the prices of your product as precise as possible. They even know the small difference between your products, and will understand why one costs 49$ and other 47$.

However, if you feel they are not that expert in pricing, do not make things difficult and set it at 50$  😉 .

  • As 99 is shorter and better than 100, the same way a price whose pronunciation is shorter seems lower to your buyers than a price pronounced longer. Twenty-five-twenty-eight dollars ($25.28) is worse than twenty-six-one dollars ($26.01).

 

  • As any startup is aware of the fact that, costs depend on sales volume. Sales volume depend on prices you set. Because your costs will change as you scale, pricing based on cost alone is a hazardous practice.

However, pricing based on cost also ignores something important, which is the value you create for your customers.

 

The Conclusion

 You first need to manage your focus on e-commerce pricing as it would mainly depend on what stage is your e-commerce currently.

If you’re just a startup, keeping low cost will probably have the biggest impact. But once you start getting bigger (increased visitors, a high number of sales) you can start working on customer retention.

In order to escalate your conversion rate you need to master your pricing strategy and your brand will be more efficient.

Wishing you all the best and good luck in your hunt for the right price !!