What is price localization?

price localization

Price localization is more than just currency conversion or slapping a new price tag on your product. This strategy takes cultural and economic differences into account, helping you price your product like a pro in any market. Intrigued? Keep reading as we discuss the benefits of localizing your prices and outline the essential steps to craft your strategy.

What is price localization?

Price localization is a strategy businesses use to adjust the cost of their products or services for different markets. This strategy recognizes that factors such as currency exchange rates, local economic conditions, and consumer behavior can vary significantly across different markets.

Types of price localization

There are two main approaches to price localization. The most basic form is cosmetic localization, which involves simply displaying the price in the local currency. It’s essentially a conversion from your original price to the target market’s currency using the current exchange rate. For instance, if your product costs $10 in the US, you might show it as £8 in the UK.

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Then we have true localization (or market localization), which goes beyond just currency conversion and involves adjusting the price based on factors specific to the target market. Such factors include cost of living, purchasing power parity, competition, and customer willingness to pay. This is why some products might cost more in Western Europe than in developing countries due to factors like production costs and customer expectations.

Benefits of localizing pricing

Localizing pricing enables businesses to adapt to diverse market conditions. Adjusting your prices to local market conditions and purchasing power can make your products or services more affordable and appealing to consumers, leading to increased sales and market share.

According to Shopify, 92% of online shoppers prefer to make purchases in their local currency. The e-commerce company also reports that one of their clients in the fitness and apparel market saw a massive sales jump after enabling multi-currency. Their year-over-year sales grew by 89% and total sales increased by 122%, all within the first month!

By pricing your products or services competitively within each market, you can better position yourself against local competitors and gain a stronger foothold in the market. Plus, this strategy can facilitate your market entry into new regions by removing barriers related to pricing discrepancies or perceived affordability issues.

Localization also allows you to gather valuable data on how customers in different regions respond to various price points. You can use this information to refine your pricing strategy and maximize sales across all your markets.

Developing a price localization strategy

A good price localization strategy will help you successfully enter new markets, maximize sales, and achieve your business goals. Let the following steps guide you as you start developing your winning strategy:

1. Conduct market research and analysis

First, you need to identify the specific markets you want to enter, and here is where you should consider factors like market size, growth potential, and cultural similarities. Develop buyer personas for each target market, understanding their demographics, needs, and willingness to pay.

Research the pricing strategies of your competitors in each target market. You need to analyze their product offerings, pricing tiers, and any promotional discounts they might be running. How do your competitors’ products compare to yours in terms of features and benefits?

Next, investigate the economic conditions, purchasing power parity (PPP), and cost of living in your target markets. Prices of raw materials, labor, and distribution can vary significantly between countries, and so does the cost of living. You need to factor these costs into your localized pricing strategy.

2. Collect data

You can use various methods to collect data. One is checking the historical sales data, if applicable. Do you see any patterns in sales volume or profitability across different regions? This can inform your initial pricing strategy for new markets. In addition, you could survey customers directly about their willingness to pay for your product at different price points.

Familiarize yourself with the Price Sensitivity Meter (PSM), a survey technique that helps identify the price points customers perceive as “too cheap,” “too expensive,” “fair price,” and “ideal price,” or the conjoint analysis, another popular survey-based statistical technique used in market research.

3. Set a pricing strategy

There are three main pricing strategies you can consider:

  • Traditional cost-plus. This method involves adding your production, distribution, and marketing costs to determine a base price. It ensures you don’t lose money in any market.
  • Value-based pricing tailored to local needs. This strategy focuses on the perceived value your product offers to customers, not just production costs.
  • Competition-based pricing with strategic positioning. This approach involves studying your competitors’ pricing strategies and positioning yourself accordingly.

However, you don’t have to rely solely on one approach. It’s perfectly fine to combine elements of cost-plus, value-based, and competition-based pricing to create a localized pricing strategy that optimizes profitability and market share.

4. Choose your price localization technique

While cosmetic price localization is a starting point, true price localization involves tailoring prices to specific market factors. You can go for market-specific pricing (which adjusts prices based on factors like purchasing power parity, cost of living, and price elasticity of demand), or explore other techniques such as freemium or tiered pricing and psychological pricing.

The freemium model offers a basic version of your product for free, with premium features available for a subscription fee. This can attract budget-conscious customers and entice them to upgrade later. The tiered pricing, on the other hand, provides different product bundles with varying features at different price points. As such, it allows customers to choose the option that best suits their needs and budget.

Psychological pricing leverages the psychology of pricing to influence customer perception. With price anchoring, for example, you set a higher initial price and then offer a discount or promotion. Charm pricing means you price your product just below a round number (e.g., $9.99 instead of $10) to create a perception of a better deal. Alas, price bundling combines your product with complementary products or services at a discounted bundle price, making the overall offer more appealing.

5. Implement and monitor

After you’ve created your strategy, you need to implement and monitor it for success. Make sure you have a document that outlines your localized pricing strategy for each target market. It should include factors like currency conversion, market-specific adjustments, and any tiered pricing structures. The sales and marketing teams should understand the localized pricing strategy, so they can communicate these prices effectively to customers.

Monitor sales data for each market to see how customers respond to your localized pricing strategy. Trends in sales volume, conversion rates, and average order value provide insights into this. But you can also conduct surveys or focus groups to understand customer perceptions of your prices and identify areas for improvement. Remember, price localization is an ongoing process.

Reap the rewards of price localization with POEditor

Price localization is just one aspect of successfully entering new markets. Ensuring clear and consistent communication across all your platforms and marketing materials is equally important. This is where we come in. POEditor is a powerful localization platform that helps businesses like yours translate and manage your content across multiple languages.

Our tool integrates with popular code hosting service services such as GitHub and Bitbucket and automation tools, making it easy to translate your content and ensure consistency across all your global touchpoints.

You have the option to translate your content by selecting from our range of translation services such as Gengo and TextMaster and machine translation alternatives like DeepL, Google Translate, and Microsoft Translator. Or you can just invite your own translators to participate in your project(s).

POEditor’s collaborative features allow you to streamline communication between your teams and translators, guaranteeing everyone stays on the same page throughout the localization process. So if you want to strengthen your global presence, POEditor provides the tools and support you need to succeed.

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