Selling internationally is attractive for most retailers due to increased sales, the number of customers, and unlimited opportunities. Thanks to developed technologies, even small businesses can become participants in the international market. But you should take into account that customers from different countries may differ in their preferences. Thus, you have to tailor your offerings to different countries. Otherwise, sell the same goods but at different prices―just like such global companies as Apple and Coca-Cola do.
It’s not an easy task to set prices for international markets as a lot of issues can arise. To minimize the risk of failures, let’s shed light on all the possible challenges in pricing you can come across.
Table of Contents
- 1 Pricing for International Markets
- 2 Most Challenging International Pricing Issues
- 3 Pricing Strategies to Use When Going Global
- 4 Shopify Stores Selling Internationally
- 5 Final Thoughts
Pricing for International Markets
The key element of marketing product mix that generates cash and determines a business’s survival is pricing. It’s the most difficult decision made by merchants due to increased competition, unstable exchange rates, etc. Moreover, customers perceive products differently depending on the price. If the price is too high, it can be a cause of a negative attitude toward the item. Otherwise, if it’s too low, consumers may doubt about the product’s quality.
Multi Currency Auto Switcher
There are different types of pricing strategies according to their objectives. The situation differs when it comes to pricing for global markets. It should be unique to every country as a lot of factors such as the ROI, market stabilization, demand and competition-led pricing, market penetration, early cash recovery, company and product factors, market and environmental factors, as well as economic, political, social and cultural factors, have to be taken into consideration. Furthermore, you should pay attention to factors influencing foreign customer behaviors.
To analyze foreign market opportunities when setting prices for international markets, you have to use the following factors:
- Political factors. Laws and regulations are the main factors influencing pricing. Following them, you have to modify your products according to health and safety standards, environmental regulations, measures systems, etc. The legislative and economic frameworks are influenced by government policies.
- Economic factors. The economic attractiveness of foreign markets is determined by the level of GDP. The higher it is, the higher the demand for products is. Moreover, pricing decisions for international markets also depend on the economic environment of a foreign country. It can influence the firm’s costs, determine the demand for particular goods or services.
- Social factors. Foreign customers’ preferences, perceptions, and purchasing behavior differ in different cultures. Thus, when setting prices, you have to consider local material culture, language, education, religion, attitudes, and values, as well as the aging of the population.
- Technological factors. The technological environment of foreign markets also should be analyzed. Well-developed communication infrastructure can provide opportunities as well as challenges because the number of competitors increases.
Most Challenging International Pricing Issues
Now, let’s define what pricing issues can be faced by the firm in international marketing.
Export Price Escalation
When selling internationally, you can come across incremental costs, such as shipping, insurance, and tariffs, added duties, storing in warehouses. To meet the expenses, you have to set your prices higher than they are in the home country. But you take a risk that foreign customers will refuse to pay inflated prices for your products or services. Furthermore, you may not be able to compete with other firms with such prices. To avoid these consequences, you should either find a way to cut the export price or to position your product as an exclusive brand. You can avoid pricing escalation in international marketing by limiting to free trade zones, where there are no additional costs. Otherwise, you should find a way to reclassify your products on international markets to avoid tariffs.
One of the most troublesome issues and challenges in pricing in foreign countries can become inflation rates. Setting prices and controlling costs are imperative in countries where inflation rates are rampant. You will have to adapt your plans of action to price controls imposed by governments. Thus, you can try altering your product lines to minimize negative effects and predicting when pricing control may occur. If inflation becomes extremely costly, you might select to exit certain foreign markets. Otherwise, overcoming these pricing challenges, you will be able to gain some competitive advantages by creating higher barriers to entry for potential new competitors.
Exchange rates can also become a problem when setting prices for international markets. The reason is that they can fluctuate because of political and economic conditions. When the rates are unstable, it’s difficult to set a price strategy combating these changes. Taking rates into consideration, you should make a decision on the most beneficial currency when quoting for products or services.
Another issue connected with exchange rates is that converted prices don’t always look attractive. It can be inconvenient for buyers and even prevent them from making purchases. To make your prices look short and nice, and avoid customers’ shopping abandonment, you can round up converted prices according to one of the following ways:
- the math principle allows you to round up all the prices before 1.49 to 1 and after 1.51 to 2;
- with the greater value method all your 1.01 prices will be rounded to 2;
- and in accordance with the lower value method, 1.99 prices will be rounded to 1.
You can cope with price rounding as well as set prices in local currencies with the use of the Multi Currency Auto Switcher plugin by MageWorx.
Transfer pricing is another pricing issue faced by the firm in international marketing. It reflects the way the company handles sales transactions involving the trade of raw materials, finished products, or services. The main factors influencing transfer pricing are tax regimes, local market conditions, market imperfections, joint venture partners. When expanding your business abroad,, you may choose either market-based transfer pricing or nonmarket-based one.
When selling products at an unfair price, dumping occurs. To protect local industries, countries have had to switch to anti-dumping regulations because of the removal of trade barriers. That’s why it’s crucial to pay attention to anti-dumping laws when determining your global pricing policy. If your pricing is too aggressive, it will lead to anti-dumping measures that will hurt your competitive position.
There is a relationship between prices charged in different countries that is called price coordination. Following the laws of economics, prices should vary across regions to generate profits. Nevertheless, price differentiation can’t be too high not to lead to the creation of grey markets. Thus, when coordinating your pricing strategy, take into consideration such factors as government regulations, market integration, customers’ nature, etc.
If you want to gain rewards when conducting business internationally, you can use countertrade. It has become popular as it describes many unconventional trade-financing transactions involving some form of non-cash compensation. Among them, there are barters, clearing arrangements, switch trading, buyback, counter purchases, and offsets. Despite the fact that countertrade’s benefits may cause short-term and long-term benefits for your business, there are still potential risks involved.
Pricing Strategies to Use When Going Global
To know all the pricing issues and challenges, you can come across in international marketing, is a half a way to success. Another thing you have to do is to select a relevant pricing strategy:
- Differential pricing. According to this strategy, you may differentiate prices across different market segments that have different search costs and value perceptions of the goods.
- Geographic pricing. This strategy allows you to set prices below competitors’ in the global market as well as adopt a penetration strategy in the other.
- Transfer pricing. It involves what one subsidiary will charge another for goods or components supplied for use in another country. Firms will often try to charge high prices to subsidiaries in countries with high taxes so that the income earned there will be minimized.
Shopify Stores Selling Internationally
If you still doubt selling internationally or afraid of pricing challenges you can face just take a look at these Shopify stores that have been able to overcome all the problems and become successful.
This Shopify store, launched by a 15-year-old Cohen in London as a ‘technical fashion’ brand, has raised £730,000 selling internationally and recently entered a partnership with Reebok.
This amazing massively growing company has shipped products to 4,000+ cities in over 100 countries. It’s a great example to take lessons from.
Pricing is not an easy task even in local markets. Inappropriate pricing strategies can lead to a decrease in sales and the number of buyers. The same thing may happen in international markets. Moreover, there are a lot of extra challenges that can be faced. But knowing all the pricing issues and implementing a relevant strategy will help you gain global markets.