Price Localization Guide: A Simple Way to Boost Growth & Revenue
May 26 2015
In a recent conversation with one of my thunder buddies in life, Paul Farnell (CEO of Boston’s high growth Litmus), I found out that one of the biggest growth drivers in their early success involved them simply changing their Euro (€) based pricing to Dollar ($) based pricing. As Paul explained, “3 out of 4 of our target customers were in North America and when we made the change we saw a 5x increase in conversion -- all by literally just changing the currency symbol.”
When asked why he thought Litmus saw such a drastic increase in conversion, Paul posited that “prospects just didn’t feel comfortable paying for a product in a different currency; they didn’t necessarily trust us.”
Litmus took advantage of the fact that all buyer personas behave differently, especially when it comes to their location (an often forgotten element to quantified buyer persona construction). We often forget that in a region with less competition, we can often charge more; and in a region with more competition, we may need to charge less.
In fact, we’ve seen time and time again through our customers where those who set different prices for local markets are often growing at a quicker rate overall, and definitely growing quicker in their localized regions - sometimes at levels of 30% or more than their counterparts. Let’s walk through what exactly price localization is along with some data showing it’s impact, before outlining how you can take advantage of this powerful pricing strategy.
Price localization is the practice of adjusting prices to local markets, rather than charging the same amount or displaying sale prices in the same currency in all markets. Localization can be as simple as ensuring customers see prices in their local currency, or it can incorporate purchasing power, willingness-to-pay, and other factors for prices truly customized to the locality.
Old school members of the SaaS community used to rail against companies going international before they reached a “Series B or C” size, because the cost and hassle of going global as a business was pretty large. These days, with services like Aircall, Localize, El Loco, and Lokalise, accessing global markets is easier than ever before.
The 2 Types of Price Localization
As such, localizing your pricing comes in two flavors: 1. cosmetic changes where you simply convert your price to the local currency, and 2. true localization where you actually charge differently in different markets.
Cosmetic Localization - Making Sure Prospects See Prices in Their Currency
Cosmetic localization is exceptionally straightforward, and the bare minimum you should be doing. In this strategy, you’re essentially just making sure that your prices are converted to the local currency using the latest exchange rates. For instance, you’d show a $10/month product in the US as a £6/month product in the United Kingdom. Theoretically you’d do this across the major regions you’ve seen traction in for your company’s stage. Early on, I’d just target the US, Canada, UK, and the EU as four main targets since you’ll only have to localize the price point, not necessarily all of your product marketing copy. This is especially important in areas like ecommerce where potential customers may be making a one-time transaction: they want to get the best deals, not calculate prices based on conversion rates.
True Localization - Charging based on willingness to pay in each market
True localization takes cosmetic localization one step further. Here you actually run price sensitivity studies (instructions at that link) to determine what the market can handle in each respective location and charge accordingly. This is the truest form of localization, because you’re having a granular strategy for each location you’re acquiring users in. For instance, just from our past work I know that for products geared towards developer buyer personas, individuals in the UK, Northern Europe, and Western Europe are willing to pay 20-30% more than their US counterparts. This is mainly because there isn’t as much market saturation in these regions, and purchasing power differs as well. Similarly, I know that because of piracy in Southeast Asia that for some on-premise solutions personas in this region are typically willing to pay 60-70% less.
These differentials exist, because each market is drastically different from a buyer persona perspective. We even see this within the United States where customers in NYC and San Francisco are willing to pay much more than customers in Chicago (depending on the product). Because of these differences, true localization goes beyond just the number you’re putting down on your pricing page. You need to make sure your packaging and positioning also align to those personas, all of whom have different wants and needs than their US counterparts.
"The world isn't homogenized; your pricing shouldn't be either"
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A common attack on this methodology is, “well, won’t customers in the UK get pissed off if they are being charged more than their US counterparts?” This is a fair question, because you can royally screw this up, as Adobe has done with their launch of the Creative Cloud in Australia. A prospect can actually buy a plane ticket, come to the United States, buy the Creative Cloud here, and fly back for a cheaper amount than just buying the Creative Cloud outright in Australia.
Adobe’s failure wasn’t in the strategy though; it existed in not knowing their customers and botching the communication of their pricing roll out. If Adobe ran proper price testing in both regions, they would have found that the willingness to pay was very similar across the market, mainly because the Creative Cloud has become a fairly ubiquitous tool throughout the world. On the other hand, QA testing software and more niche solutions don’t have as broad of penetration and different personas are willing to pay different amounts for access.
This also just isn’t about the number you’re putting down on your pricing page. Price Localization also comes down to the feature packages and positioning within different regions. Each region will have different needs and wants, and you need to market and package accordingly.
So, Why Should You Care About Localization?
You need to have a price localization strategy, because the SaaS world is becoming increasingly global and the revenue gains are too large to shirk from. In running an analysis across a group of 50 SaaS companies, we found that those who were more focused on localization were growing at a much higher rate than those who weren’t. The reason for this is because those companies are more closely aligned with the buyer personas of the different regions. Of course, there’s likely some lurking variables here, especially considering someone who has a localized pricing strategy also has quantified buyer personas and a tight SaaS pricing strategy.
Yet, what’s fascinating is that several of these companies are increasing their growth rates in different regions. For instance, in the chart below for one company, you can see that the differential pricing actually allowed them to balance both sides of monetization and acquisition - all because they didn’t treat the world like one homogenous zone.
Beyond revenue, localizing your pricing also helps you connect with your customers more, especially if you’re localizing your site copy and software as well with different languages. Prospects like to buy from people they know or feel a connection to, and simply making sure your language is localized helps with that immensely.
"Localizing your pricing builds trust between you and your customers"
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What Should You Do At Your Current Stage?
Like we always say, pricing is a process, and depending on your current stage and resources, your approach to localization should differ.
Early Stage - Cosmetic localization and potentially localizing page and software copy
In the early stage, you likely are pushing to keep the lights on, as well as still finding your ideal product-market fit. This doesn’t mean you shouldn’t optimize for monetization, as pricing research will help you determine your ideal buyer personas. Yet, over optimizing for localization and internationalization will likely not give you the ROI you’re seeking.
Therefore, in this stage, we recommend you use a localization product to cosmetically localize your prices in a few major regions, and think about making your whole marketing site localized. This allows you to explore the buds of internationalization, while also expanding your pie across the globe.
Growth Stage - True localization and definitely localize your copy and software
In the growth stage, you need to be worrying about monetization and pricing heavily, because that’s where you’re going to get the best Lifetime Value (LTV) to Customer Acquisition Cost (CAC) ratio. If you haven’t evaluated your pricing in the past 2 years, I guarantee you’re losing money.
Localizing at this level means you need to have true localization and definitely the localization of your copy and software. You should also be re-evaluating your pricing every 6 months and making changes to accommodate changes in the international and domestic market.
Late Stage - True Localization and Market Expansion
In the late stage, if you haven’t localized your pricing yet, you’re way behind. You need to internationalize as soon as possible, because it’s likely the reason you’re losing market share across the board. If anyone gives you any resistance internally, simply ask them - well our marketing, recruiting, sales, etc. needed to shift a bit when we opened an international office, shouldn’t our pricing?
You also need to think about rapid market expansion. B2B products may not have as much flexibility to move here, because there are only so many markets that make sense for certain niche products. Yet, any general business or consumer products should be localizing heavily, globally. This is all especially true if you’re trying to find the next buds of user and revenue growth.
Localize or Die
Overall, localization is an impressive force for revenue monetization that shouldn’t be left to the wayside until it’s too late to get momentum internationally. The world is becoming too small and the tools to localize becoming too easy to use, to not take advantage of the gains easily made abroad.
By Patrick Campbell
Founder & CEO of ProfitWell, the software for helping subscription companies with their monetization and retention strategies, as well as providing free turnkey subscription financial metrics for over 20,000 companies. Prior to ProfitWell Patrick led Strategic Initiatives for Boston-based Gemvara and was an Economist at Google and the US Intelligence community.