If you’re selling internationally you want to be making sales and making a profit, right?
And while many businesses work hard to understand how to price correctly at home, most don’t put in the same amount of effort when it comes to international markets. That’s why an awful lot of exporters price too high and lose out to brands which are already established in-market. Or price too low and don’t make enough to cover the costs of an international operation.
Here are seven things most exporters are getting wrong when it comes to pricing for international markets.
Incomplete cost understanding: The achilles heel
The uninitiated often fall into the trap of not fully grasping the total costs involved in international operations. It’s not just about how much it costs to produce your product; there are a myriad of expenses like international trademarking, market research, overseas travel, alterations to packaging and labelling and compliance that demand attention. These are the ‘fixed costs’ of selling internationally – general costs that aren’t specific to an individual contract or shipment. Ignore these and you wind up with a skewed pricing strategy.
It’s up to you to decide how much you recover of these costs per unit or per order, but you should factor international overheads into your price before you start adding shipping costs and duties.
Flying blind through the competitor landscape
Before you set a price for products in international markets, it’s important to understand the competitive landscape and how your competitors price their products. From a brand positioning perspective, you need to know where you sit within the market in relation to your competitors. e.g., premium vs economy, as this will influence the prices you are able to charge.
In my experience, most exporters don’t have a good grasp of the competitor landscape and the majority don’t even get as far as visiting a supermarket or retail outlet in their target market to see what similar products are selling for. They get a nasty shock when it becomes clear down the track that their expectations are way out of line with the reality of local market trends.
Cultural context oversights: Lost in translation
You also need to get a handle on the value your product represents to the customer in an international market and what this might mean for price. This comes back to understanding the local culture and your target customer’s perception of your brand versus your competitor’s brand. Again, most companies barely scratch the surface of the culture they’re selling to and would be hard pressed to tell you anything meaningful about how customers in the international target market perceive their product.
On the other hand, if you want an example of a company that knows everything there is to know about pricing on value in multiple international markets, you can’t go past Starbucks.
A quick bit of pricing theory: value-based pricing is the method of setting a price by which a company calculates and tries to earn the differentiated worth of its product for a particular customer segment when compared to its competitor – i.e. what does that customer believe the product is worth vs how much it costs to product the product.
Starbucks focuses on selling the Starbucks experience and not just a cup of coffee and it deploys huge price variations due to market positioning in different countries. In Russia, Starbucks positions itself as a luxury high-end coffee house, whereas in the US, the target market is “Regular Joes”and Starbucks’ US prices are relatively low compared to Russia.
Customer willingness to pay: The blind spot
Assuming that customers across borders have uniform willingness to pay is a classic error. International markets vary in their purchasing power, and not acknowledging this increases the risk of a pricing misfire.
To formulate a GTM strategy that makes sense, you need a detailed understanding of your target customers and how much they are willing to pay for your product.
If you don’t know, you need to find out.
Distribution channel complexity
Complex supply chains might seem like just another fact of life that you have to accept, but the reality is that the number of parties in your supply chain will also affect cost and therefore, price.
How many organisations are involved in your global supply chain – agents, importers, wholesalers, retailers? What does each one cost you? The more companies are involved, the higher your costs will be.
This level of detail might be a pain to get to grips with, but it’s one of those things you can’t afford to ignore. If you’re glossing over supply chain structure and costs, there’s a real possibility that you’re paying more than you have to and leaving margin on the table.
Neglecting currency rates: Risky business
Government control oversight: Regulatory pitfalls
And lastly, government controls.
It’s easy to assume that government regulations overseas will work more or less the same way as at home … but they don’t and that adds complexity to the pricing equation.
For example, in the UK, there is a national minimum wage enshrined in law, so regardless of the size of your business, you would need to factor this in for UK workers – and make sure that you are remunerating them correctly for holidays and sick leave. This is not the case if your team is based in Vietnam, where labour protections and minimum wage requirements are much less stringent.
In short, there’s a quite a bit to think through as you set your international pricing … but you can increase your chances of getting it right by not getting the ‘7 Cs’ wrong.