Pricing Strategy Theory
Setting Prices by Country
Setting Prices by Country
More and more companies sell outside their home country. Not only has it become easier and cheaper to reach markets around the world but often a specific customer segment in Germany has more in common with a specific customer in France or UK rather than between two different customer segments in Germany. This means there is a good business case for selling abroad, for both small as well as large corporations.
When pricing internationally, there are some common pitfalls and challenges that most companies face:
- How to proactively set prices by country? How do I optimize my prices?
- If in an established business, prices often differ by country/region. This is not necessarily a bad thing but can lead to problems with customers who might exploit those price differences if they can.
- How to deal with currencies: should we price in one single currency (the “home” currency e.g. USD) or should we price in local currencies?
- Who should decide prices: Headquarters or local organizations?
- How to communicate prices in different markets when the customers and market conditions differ? When value perceptions or competitive situations are different?
While there is obviously not one single answer to fit all corporations, some best practices and ideas do exist. In this article we are looking at how you can proactively set prices by country and manage different market conditions.
In industries with truly global customers, pricing is about managing that these customers are able to either get their global supply from one point or demand harmonized prices in different countries: Here it is often important to be able to provide or communicate some sort of “harmonized” price to the global customer, as they will compare the prices they pay around the world and strike down any (considerable) differences. But it doesn’t always mean having the same net net price in B2B; differences can still exist. The answer lies in geographical clustering/segmentation as well as using the full price waterfall to differentiate discounts. Often, global customers can be swayed by that there ARE regional differences and thus net net prices are permitted to differ between regions. Also, you can use discounts and rebates to provide different net net prices by only offering specific discounts locally/when the customer does something for you locally.
In markets where local decision making is important: Here the best practice model is often to introduce an internal price corridor, where local organizations are allowed to price a certain product inside a corridor of a maximum price and a minimum price. As long as they stay inside that band, they have (nearly) full freedom, but they need HQ permission to go outside the corridor. And in complex organizations there can be several corridors per product or product category.
In markets where some degree of centralization is needed, but also leaving degree of adaptability to local conditions, a more and more prevalent model is to make a “Price Build-up” model, where various building blocks, including country factors, are combined into a calculated theoretical price per market. Example: CountryPrice = Factor 1 + factor 2 + factor X etc. As the factors vary, the final price varies too. Factors can then cover all kinds of situations but for international pricing typically involve topics such as competitive level, strategic importance (e.g. emerging vs mature) etc.
Stratinis has substantial experience in helping all kinds of companies manage their local and international prices, with numerous projects both as strategic advisors and software implementers. Please get in touch to learn more about how we can help you.