How to develop an international pricing strategy

Thinking of expanding and operating in other countries around the world? Here’s everything you need to know about developing a top international pricing strategy.

Technology has opened up the door to a whole host of opportunities for businesses in recent years. Whether you’re a small independent retailer or an established large company, everyone has the ability to sell in every time zone.

However, if your business is thriving in one country, it doesn’t necessarily mean that you’ll enjoy the same success in a neighbouring one too. In order to achieve this in other markets around the world, you need to globalise and create a strategy tailored to suit every target audience.

Establishing a price

The first thing to understand before you create your international pricing strategy is considering the strength of the currency in each country or territory you plan to operate in. This will then allow you to adapt the price of a product or service depending on the country’s level of wealth and growth.

For instance, when Apple first released the 128gb iPhone 7 Plus, they charged around £819 in the UK but only £660 in the United States. The difference in prices boiled down to the current exchange rate, shipping costs and tax implications in the UK. Like thousands of other brands around the world, Apple takes various factors into account before developing their international pricing strategy.

Trying to set a fair and attainable price across different countries is challenging. It can also have a huge impact on whether your business will float or sink.

Before launching your goods or services abroad, you need to consider the 4 C’s:

  • Company – costs and goals.
  • Customers – their level of price sensitivity, the certain segments they come under and their preferences.
  • Competition – the structure of the market and how intense the competition is from other businesses in the same industry.
  • Channels – how and where you are planning to distribute your goods or services.

Once you’ve got to grips with these 4 C’s, you’ll start to form a better picture of how to set your prices internationally.

Further elements to factor in

You should always assess a country’s governmental influence on pricing before setting a strategy. For some countries, their government monitors and sets pricing on products and services of non-domestic business entities, which could impact the outcome of your international strategy.

Furthermore, it’s vital that you carry out a full analysis of the target market to establish whether there’s a demand for your business or not. If you’re unsure, you might want to consider focusing on a different country or lowering the price of your service or products even further.

Penetration pricing is a good way of testing the market and sparking interest in new countries. This term is used when a company issues a good or service for a low cost from the outset to earn a market share. Once a company has achieved this, they can increase prices elsewhere or upsell. Sky TV used this method by offering free telephones or satellite dishes for a small cost to encourage more sign-ups. Once they attained a bigger audience, they started to increase their rates and offer different packages for more money.

Penetration pricing is particularly useful if you’re looking to sell an ongoing service like consultancy or accounting.

Covering every angle

If you want to ensure your international pricing strategy is a success, you should consider every possible avenue.

For starters, evaluate your existing pricing strategy to see why it works, what the margins are, the Cost of Goods Sold (COGS) and whether your offering falls under the premium or lower-cost bracket. You can then use this information to form the basis of how your international pricing strategy is going to work in particular countries. For example, will you incur additional costs via tax, shipping etc. that will impact your COGS? And will you need to bring in more resource to cater for the new audience?

Conducting a review of the current state of the country’s currency can also give you a clear understanding of how much you need to charge.

Tax rates in the country of operation can also chew into any profits, so be sure to work these out as well.

If you’re looking to move into more than one country, you’ll need to think about whether you wish to standardise or adapt your pricing for every market. Again, to reach a conclusion, this will require a high-level of research and analysis.

The final point to remember is to select your International Commercial Terms (“Incoterms”). These guidelines will enable you to assume the risk and costs for different elements of the shipping process to other companies. In turn, this will safeguard you in case a product is damaged on delivery. Obviously, this only applies if you are selling a product.

Conclusion

However you decide to develop your international pricing strategy, just remember to be thorough. If you get these basic fundamentals right from the beginning, it should set your business up for a prosperous future in different markets.

For further guidance on international pricing, feel free to get in touch with our expert team.