Expanding your business to sell internationally is a big step for any company. It brings with it endless possibilities – a new market, more customers, less reliance on one country – it can be a solid business plan for many ecommerce entrepreneurs.
And, with the rise of cross-border ecommerce (the act of selling goods in other countries), the growth of the internet has undoubtedly made it easier for businesses to sell internationally. Products can be shipped in just a few days to customers all over the world, and customers expect and can expect the same experience as someone shopping within their home country.
Although the internet has empowered businesses of all sizes to sell their products to countries all over the world, the process of selling overseas comes with a lot of uncertainties – none more so than managing your global pricing.
Modern consumers are financially worse off than their parents, and they’re even more price-sensitive than older generations. So, how does this impact their shopping behavior? But more importantly, can we change their behavior? Despite the emphasis put on business value, convenience, or personalization by marketers in recent years, price is still the most important weapon, if you know how to use it…
Global Pricing Strategies: A Theoretical Understanding
Pricing strategy is a well-worn ground in the field of economics. The pricing decisions you make when you start to sell a new product – or in a new market – are a core part of your marketing strategy, and can be governed by a range of underlying principles. Crucially, pricing approaches are the overwhelming source of revenue for most businesses, so finding the correct methodology can ultimately sink or swim the viability of a given product line.
In general, then, we can identify a few key different pricing strategies you can take as part of your overall global marketing framework for products in international markets.
- Demand-oriented pricing – this aims to match price to the strict demand curve for a given product or service. This will be affected by a wide range of factors, but will most frequently be derived from a thorough analysis of the industry in which a given product is competing. If there are few competitors in a given market, then prices are likely to gravitate to the demand-driven price over a period of time, assuming a fixed sales volume within the industry as a whole. If there are many competitors, then deliberate alternative pricing strategies will need to be employed to generate demand, or capture more existing demand for given market conditions.
- Value-based pricing – this is a more directly customer-oriented approach that seeks to understand what value a customer derives from a product, and then increase that value, whether real or perceived. This asks the customer (again, directly or indirectly), “how much are you willing to pay for product X?” and meets them somewhere on that spectrum – either by matching the price to their expectations, or changing the product so that their pricing expectations change with it.
- Price skimming – this is a methodology that recognizes the costs and difficulties inherent in bringing a new product to the market – research and development, international marketing, tariffs, establishing distribution channels, and so on – and setting price levels accordingly. As the increasing pace of technological change means that the life-cycle of new products is getting ever shorter, some businesses choose to adopt price skimming strategies to maximize their return on investment before the rest of the industry catches up to the new tech.
- Penetration Pricing – this is, in effect, the opposite of the price-skimming approach. Market penetration pricing policies aim to capture a large market share of an established market by using low prices (or, at least, lower prices than their competitors) to entice a large swath of consumers to a given product. This may mean the product in question barely breaks even, or even makes a loss, in its first few years on the market. This is a strategy favored by Big Tech, with the intention of using huge amounts of venture capital to undercut other players in the market (who may have to abide by stricter workers’ rights laws, regulation, and so on) and eventually drive them out of business altogether – at which point a new, higher price can be set.
- Premium pricing – this is an age-old strategy in which higher prices are implied, by the very virtue of them being higher, to be an indicator of quality. This strategy targets wealthier consumers by offering a product that supposedly meets them at their level. It needs to be matched with a great deal of other tactics in the marketing mix to give that “premium” flavor – no-one would be willing to buy a basic McDonald’s cheeseburger if they solely increased the price to $10 and changed nothing else about the product.
So that’s the theory. But what about the practice? How can you actually put any of this into play?
A Practical Approach to Global Pricing Strategies
To a degree, these theoretical frameworks are helpful in understanding the underlying logic behind various global pricing strategies. But at the same time, simply running through an economics textbook definition of the different kinds of pricing strategies is not going to help you in the short term. Or, to put it another way, what are some tactics that you can incorporate into your strategy?
We’re going to share four tactics as part of global pricing strategies that influence shopper behavior in an international e-commerce environment. But first, let’s take a look at the modern consumer.
What today’s shopper wants
Millennials have much less discretionary income than their parents. Like all consumers, they want personalization, the perfect customer service, the fastest shipping possible, etc. But, the problem is, they want it all at the best price, and they’re not about to compromise on that – because their growing wealth disparity from previous generations means they simply can’t afford to.
However, they are willing to share personal data if they feel that it is being used fairly and safely – for example, personalized shopping experiences and personalized offers. You can therefore collect and analyze this data and integrate your findings into decision-making.
So, let’s take a closer look at 4 global pricing tactics that correspond to the modern consumer.
Personalize your offer
One great advantage of online retailing is the ability to segment large audiences and target each at different prices. And this often makes sense when selling internationally. Customers differ in their willingness to pay for a product, and there’s no reason why you shouldn’t attract them at the price they’d accept.
Of course, no one likes to pay more money for an item than others. In 2000, Amazon was caught price discriminating based on the browser type shoppers used to purchase DVDs. Facing harsh criticism, Jeff Bezos had to explain it was a mistake, and the company would never discriminate based on consumer demographics.
The question is, how can you segment your audience, target them at different price points, and make sure they’re not alienated?
By personalizing your offers. If your prices/discounts are tailored for individuals, instead of large groups of people, they won’t disturb other shoppers.
Offering your discounts in the checkout process or sending them via email with personalized discount codes is a great option that can help you lever a competitive advantage over competitors targeting the same market segment for a particular product.
Shipping internationally is, of course, more expensive than shipping within your home country, and you’ll likely need to increase the shipping cost per country in international markets. Offering special discount codes or free delivery on the first purchase can be a great way to alleviate the prospect of this cost for the consumer and help them convert. By displaying them privately, you avoid the risk of alienating customers.
Offer basket-based discounts
Basket-based discounts are personalized offers based on shoppers’ purchase history and their real-time data on a website. Real-time data reveals the products an individual is interested in, yet the price is above what they’re willing to pay. Purchase history gives you a clue on their willingness to pay for a product and the previous discounts that attracted them.
Based on your findings, you can offer them products that they’re interested in with a discount that’ll likely convert the potential customer.
Basket-based pricing can add incredible value to your business for several reasons.
First of all, you significantly increase the likelihood of purchase by offering tailored discounts on truly desired products.
Moreover, you can incentivize shoppers to buy additional products to increase basket size.
Hyperlocal marketing becomes increasingly popular for a reason. Shoppers all around the world differ in their buying behavior.
Analyze real-time data to understand how your international customers differ from each other in terms of their interests, purchasing powers, consumption habits, the discounts they are attracted to, etc. Create marketing campaigns that’ll appeal to buyer personas from each hyperlocalized region.
In the long term, this strategy builds a loyal relationship between you and customers. They feel like you know them, their interests, what’ll entice them to buy. In other words, your customer retention rate improves drastically.
Compete on popular products
Don’t apply store-wide discounts. Carefully pick the most popular products in your assortment. It’s a tactic used by Amazon, where the retailer lures customers into the website by offering competitive prices for the most popular products. Boosting conversions is a short-term gain, but this strategy is advantageous in the long term too.
According to a former Amazon Business Leader, the giant converts many customers with this strategy, but its primary profits are not through these sales.
Once these customers get through the door, they subconsciously assume that Amazon is the cheapest destination for shopping. They continue shopping from the retailer, which offers a seamless shopping experience and excellent customer service, and eventually become loyal customers.
When selling internationally, how do you decide which products are in high demand across countries? There are several tactics you can pursue:
- Check out the best-sellers on popular websites
Best-seller lists on Amazon, AliExpress, Zalando, or other high-traffic local websites give you a clue of what’s popular in a country.
- Check out Google Trends
If you have a product in mind, you can observe the changes in its popularity over time and across regions with a Google Trends search.
- Do keyword research
There are numerous free keyword research tools you can use to capture trends in foreign markets. Search metrics yield popular products as well as the number of players competing on those products.
How can you offer competitive prices?
As a first step, identify your competitors. Look for other players that sell your products, or substitutes. Track their prices and make sure your prices are cheaper. Online prices change faster than you could track manually, so either build an internal price tracking engine or benefit from price tracking software.
Make use of product bundling
Bundling is another tactic that influences shopping behavior. You can implement it to unsexy products, accessory products, or slow-moving stock in general.
To create killer bundles, you need to analyze historical purchase data to find out what type of bundles would attract your customers. In case you’re wondering, bundled products don’t have to be related at all. The purpose is to gather together two or more products that hit a certain audience.
For example, McDonald’s Happy Meal contains food and a toy, two goods that have fundamentally different functions. But they hit the same target audience: children. Not to mention, this might be the best bundle idea in history.
Of course, the logic of bundling requires you to offer two or more products at a discounted price. So make sure that your bundle is competitively priced.
E-commerce is a fast-paced and fiercely competitive market that compels its players to come up with smart competitive tactics to survive. We’ve talked about four global pricing strategies that’ll influence consumer behavior. Integrate them into your own international pricing strategy and you’ll see the outcome soon.
To briefly summarize:
- Personalize your offer by creating discounts for individual shoppers through checkout offers or via email
- Basket-based discounts based on shoppers’ purchase history and their real-time data on a website
- Create competitive pricing on your most popular items to lure shoppers to your website and make them loyal customers
- Product bundling on slow-moving stock