Exporter’s guide to using price localization to expand into global markets and minimize risks
Price localization is when you price your goods and services in a global market’s local currency. This can increase your purchasing power, give you a competitive advantage and help you meet cultural expectations.
In this article, we focus on the unique needs of the technology sector—software as a service (SaaS) and e-commerce—and highlight how price localization can help Canadian exporters generate revenue internationally.
What is price localization?
One of the first steps to creating an effective international marketing plan, price localization is as simple as switching to your customer’s currency, so they know exactly how much they owe for your goods and services. This is especially effective for subscription services, where currency fluctuations could result in your customers paying more every month—a risk they may not be willing to take, opting for a local competitor instead.
Geographic pricing goes one step further.
What is geographic pricing?
According to Investopedia, “geographical pricing is adjusting an item’s sale price based on the location of the buyer to reflect shipping costs, or to meet the market-clearing price in that area.”
Purchase power and consumer demand vary from country to country. With geographic pricing, companies with sufficiently high margins can generate more sales by pricing based on the local market.
Choosing the right pricing strategy
To determine which pricing strategy is best for your company, you need to determine what each target market will bear or where that market’s breaking points reside. There are differences, for example, in the price of cellphone plans in global markets. In Canada, many consumers text because it doesn’t require data, which is expensive. In Asia, data is cheap and cellular service is expensive, making messaging applications, like WhatsApp, the more affordable—and popular—option.
Similarly, some consumers will pay more for software, but there’s a limit, as Adobe found out when it raised the price of its Creative Cloud software so high in Australia that one media outlet argued it would be cheaper to fly to the U.S. to buy it.
Victoria Shnaider, chief operating officer of KidsVip, which sells high-quality toys, says price localization requires striking a balance between product accessibility for customers in other markets and protecting the perceived value of your brand.
“It’s tough when customers might be in Canada, using VPNs trying to find lower prices in other regions; this threatens to disrupt pricing integrity and customer satisfaction,” she says, adding that using services such as Shopify or Stripe can help alleviate these concerns. “These are further complemented by clearly communicating to the customer why prices differ in different regions to avoid loss of trust.”
Why do companies localize pricing?
The bottom line for using this business strategy is to help you succeed and grow in global markets.
“Price localization requires more than simply adjusting prices based on currency conversion,” says Deepak Shukla, founder of The Pearl Lemon Group, a web design and development agency in London, England. “It’s about considering purchasing power, competition and local expectations, all while managing the risks.
“Our experience suggests that the key to success lies in finding the balance between global competitiveness and protecting local market integrity. For example, adjusting pricing based on regional demand data can ensure businesses are staying competitive while avoiding issues with price undercutting,” he says.
The pros and cons of price localization
There are many benefits to price localization, but it isn’t without its downsides. Here are the key pros and cons of implementing a price localization strategy.
Benefits of price localization
Here are some of the key benefits of price localization:
- Price localization expands customer reach by offering pricing aligned with local affordability. This allows you to boost your competitiveness in markets where North American prices can be a barrier. It has the potential to attract new customers, even in competitive markets.
- Localized pricing instills confidence in your product for consumers. For example, not seeing their own currency might dissuade a U.S. customer from buying your brand. A price localization strategy that includes geographic pricing increases trust and conversion rates by aligning with local customs and expectations.
- It enhances customer satisfaction through transparency in pricing.
Loris Petro, marketing manager of a natural supplement e-commerce company, says he noticed a difference when his company changed its currency to suit global markets.
“The good thing about price localization is the confidence it gives customers,” Petro says. “Displaying prices in the local currency helps potential buyers feel like they’re dealing with a business that understands their market. When we first added U.S. dollar pricing for our American customers, we saw an immediate reduction in cart abandonment. Shoppers don’t want to guess conversion rates, or worry about unexpected charges, when they check out. Localized pricing makes the experience feel more seamless and trustworthy.”
Price localization risks
The risks and possible pain points associated with price localization include the following:
- There’s potential for VPN exploitation, which would enable domestic customers to access lower international prices, lowering your gross margins and other export key performance indicators (KPIs).
- You take on the risk of currency fluctuations instead of your international customers, which could lead to losses. An EDC Foreign Exchange Facility Guarantee can mitigate this risk.
- There are complexities in managing price consistency and expectations across global markets.
- Additional administrative or operational costs may be incurred.
When the natural supplement company experienced problems with currency fluctuations, their margins decreased because its listed prices weren’t adjusted to reflect the currency changes.
“This was very problematic during high-demand periods when sales volumes were high, amplifying the impact of even small discrepancies in pricing,” Petro says. “Customers were paying prices based on outdated rates, which meant we were effectively absorbing the difference and it started cutting into our profits.”
José Manuel Torio is a certified international trade professional with the Forum for International Trade Training (FITT) and director of marketing and partnerships at Spoonity, an Ottawa-based software company. When he found software that was cheaper in Mexico than Canada, he asked his Mexican colleague to buy it, but she couldn’t use the Canadian corporate credit card.
“The software company had put in that barrier to address that problem,” he says.
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Tools and strategies for price localization
E-commerce payment platforms such as Stripe and Shopify do the heavy lifting for price localization. Other options include Paddle, Weglot and PayPal. These automated digital systems will take care of the currency exchanges and taxes for you.
Heather Walker, director of operations for Canadian Down & Feather Company, says her company doesn’t currently use any software to aid the process.
“We may in the future, but would only use them to provide basic indicators,” Walker says. “We have not found that digital tools are able to understand our product category and industry at the nuanced and technical level required to accurately identify comparable products and brands, understand consumer perception, or understand the social, economic and political factors that affect our consumer and category.”
Petro solved their currency-fluctuation problem by implementing an automated pricing tool through its Shopify platform.
“This tool updates our prices in real time based on live exchange rates, ensuring that our margins remain protected even during volatile market conditions,” Petro says. “It allows us, as well, to add a small buffer to account for potential fluctuations between the time of purchase and settlement, which has been a huge help in maintaining consistent profitability. The automation saved us from manual updates and gave customers a transparent and seamless experience, as they could see accurate, localized pricing without any surprises at checkout.”
James Wilkinson, CEO of Balance One Supplements in the U.S., says his company works with Canadian marketing agencies that understand the local market and adjust his prices accordingly.
Price localization drives sales volume
Technolynx, a research and development consulting company in the United Kingdom (U.K.), helped a Canadian e-commerce company localize its prices in the U.K., leading to a 30% increase in sales.
George Silagadze, CEO of Photo2painting, says adjusting his prices to match the Southeast Asian markets and economies in which he was selling led to a 40% boost in conversions.
Strategic and savvy
Price localization is a good strategy to help exporters access new markets and attract customers in global markets.
“From my own experience, we knew, for sure, that without adapting the price, we wouldn’t be able to win export markets,” Torio says of his experience at Spoonity. “I would say 90% of our export deals come about in part because of price localization.”
For answers to your trade-related questions, visit Export Development Canada’s Export Help Hub. We also have a wealth of knowledge and solutions to help you succeed beyond Canada’s borders.
This content was partially created using generative artificial intelligence (GenAI).
