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Written by Harrison Rose Chief Customer Officer
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07 May 2019  |  Expanding Internationally

SaaS Localized Pricing: What You Should Know Before Selling to New Regions

7 minute read

When expanding to new territories, local taste and requirement take the fore in your market research. You test out the markets to see if there’s a need or desire for your product, you adapt your product where necessary and you make sure to translate it into the necessary languages… but pricing can get left behind. We look at the importance of localizing pricing and why you’re missing a huge opportunity to scale your business if you’re just converting your prices to local currencies.

We know what you’re thinking. Surely the US Dollar is a universally accepted currency? While it may be a good universal price benchmark, customers are put off when prices aren’t in their native currency.

If you’re shopping in the US on a site that prices every item in Euros, you’re not only inconvenienced by the currency conversion process to understand what you’re really being charged, concerns will also arise about the bank charges involved when converting your payment into the correct currency and whether the exchange rate is decent enough to make the purchase.

Showing a price in the wrong currency can have a negative impact on a buyer’s purchase decisions, but that’s not to say that directly converting the cost to your buyer’s currency is ideal either. Exact conversions will vary day to day based on the exchange rate, which could lead to confusion and frustration for customers, and it’s also important to be mindful of price perception and what kind of figures encourage customers to click that ‘Pay Now’ button.

Tackling True Localization Before Supporting Every Currency is Key

It’s not just about currency conversion - localizing your pricing is all about understanding the markets you’re selling to and using this information to shape your pricing.

Patrick Campbell, the founder of ProfitWell, a SaaS pricing analytics platform, describes the two different types of price localization in a recent blog and what differentiates them:

1. Cosmetic Localization . Considered to be the bare minimum a company should be doing with their pricing, this is the straightforward process of ensuring prospects are seeing prices in their own currency - and ideally in a visually appealing way with pricing psychology in mind. For example, a product sold at $10/month in the US would be advertised at £6/month in the UK.

2. True Localization . This is the practice of charging a price based on willingness to pay in each market, making sure your pricing aligns with different buyer personas in different regions. It’s Localization 2.0, where you research the markets in which you’re selling to determine how best to price your product in the region. You have a granular strategy for every location where you’re acquiring customers and are considering Purchasing Power Parities (PPPs), defined by the Organisation for Economic Co-operation and Development as “price relatives that show the ratio of the prices in national currencies of the same good or service in different countries”. In short, you’re taking in factors such as cost of living and inflation when pricing in different territories.

localized-billing.jpg

Fred Wilson and Jason Li use the Big Mac index to illustrate the fundamental principals of Purchasing Power Parity, using the famous hamburger as a benchmark to compare pricing in different regions.

Cosmetic localization enables potential customers to view prices in their own currency and, while it’s seen by many as the least a company can do to expand their global reach, we’re of the opposite view. It is, in fact, the least impactful thing to consider.

“…customers won’t pay for your product in their currency - or any other - if the price is wrong”

But surely supporting the currency of all of your territories is step one in acquiring customers? This may seem the case, but customers won’t pay for your product in their currency - or any other - if the price is wrong. True localization should always come first. Look at how customers in that geography view the software you’re selling and how much they’re willing to pay for it. Once you’ve tapped into the country’s buying culture, make sure the price is pitched correctly and that it’s competitive in the region’s market.

Your priority should be optimizing your price based on region even if you can’t support a country’s currency yet. Once the price is optimized for that geography, you’re in a position to make an impact in the market while you take steps to support the local currency.

Pricing Confusion Can Increase Your Cart Abandonment Rate

Cart abandonment is an issue that faces every SaaS company and is a big problem for companies who haven’t localized pricing.

As we mentioned previously, customers viewing prices in the wrong currency are often turned away by the implication of additional bank charges and unnecessary hassle. The same can be said when a product’s language, design and payment methods aren’t adapted to the geography in which it’s being used. Carts are also abandoned, however, when the checkout process gets confusing.

A big reason for cart abandonment and a significant drop off point is when confusion arises around the type of currency being displayed at checkout. American, Canadian and Australian potential customers could all see ‘$100’ and assume that the price is in their dollars, which of course equate to very different price totals. This discrepancy has more of a negative impact than not supporting a local currency as at least with the case of the latter the customer can ascertain what the cost of the product is.

“It’s crucial to remove any confusion at the checkout”

This dollar confusion has the potential to upset customers, who will find they’re charged a very different total to the one they believed to be advertised, at worst giving your customers the impression you’re trying to deceive them on the price point and, at best, suggesting your checkout system is inept and ill-suited to catering to international customers.

It’s crucial to remove any confusion at the checkout for a higher conversion rate and happy customers.

It’s Worth Simplifying the Process

As we’ve covered, there are many things to take into consideration when localizing pricing. Not only do you need to convert currencies and languages, you also have market research to cover and local taxes to consider when setting up in new geographies.

Often the process of making things easier for the buyer comes at a cost for the seller, however. Handling exchange rates and dealing with local taxes can consume a great deal of time and attention which could be spent improving your product and growing your business. It’s therefore a great idea to simplify the process and seek out a solution that can handle the fiddly backroom work while providing SaaS-specific market insights to best price your product in new regions.

A solution such as Paddle is in a unique position. We power the checkouts of hundreds of software companies and can therefore see how different products have been priced across many different regions. Having measured the performance of these price points and the conversion data, we’re able to give our sellers valuable insight into the optimal pricing for software products in different geographies.

We take care of international taxes, meaning negotiating the difficult tax systems of emerging markets will no longer be a blocker for your business. We also offer market insight to assist your pricing localization at any stage in your company’s life cycle. It’s never too late to get localizing! Want to see what we do? Book a demo here.

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