How 5 top digital merchants use localized pricing to boost revenue

When your customers aren’t bound by geography, what price should you charge them?

If you sell any kind of digital media or software, this is a question you have to answer. With more and more people coming online, your next customer might come from any part of the world.

Charging all these customers the same price is neither fair nor effective. A customer in Bangladesh does not have the same purchasing power as a customer in Norway. By charging them a flat price, you will end up overpricing some customers, underpricing others.

One way to counter this is to localize prices for all your markets. This way, customers in Turkey see a different price than customers in the US which matches up with their income.

Below, we’ll show you how 5 top digital merchants use localized pricing to boost revenues and offer a better shopping experience to their customers.

1. Netflix

Although Netflix started out as a US-focused company, an increasingly larger share of its growth is coming from overseas markets. For instance,in the last quarter, Netflix added 5.59 million overseas subscribers against 2.23 million US-based subscribers.

To make its service more appealing to overseas customers, Netflix localizes its prices for larger markets. This isn’t a simple currency conversion: Netflix also takes into account local usage preferences and competition to create custom pricing tiers.

For example, when Netflix entered the Japanese market, it priced its lowest plan at just JPY 650 ($5.94) to attract streaming-savvy Japanese consumers.

Interestingly, Netflix also customizes its homepage to match the language preferences of local customers. The Netflix Japan page, for instance, has show titles in Japanese in the background:

How 5 top digital merchants use localized pricing to boost revenue

Here’s a quick analysis of the price for Netflix’s cheapest plan across some of its target markets. Besides prices in local currencies and USD, we’ve also included per capita income in PPP from IMF’s 2015 report.

To help you understand the price better, we’ve calculated the price of a 12 month subscription as a percentage of annual income for each country.

Country Price (Local) Per Month Price (USD) Per Month Annual Per Capita Income (PPP) Percentage of Annual Income Big Mac Index
USA $7.99 $7.99 $55,805 0.17% $4.93
Japan JPY650 $5.94 $38,054 0.18% $3.12
India INR500 $7.48 $6,162 1.45% $1.9
Mexico MXN99 $5.40 $17,534 0.37% $2.81
Singapore $10.98 $10.98 $85,253 0.15% $3.27
Malaysia RM33 $8.21 $26,315 0.37% $1.82

Two things to note here:

  • Except for India, the prices in every country are under 0.40% of the average annual income; for India, the pricing is drastically high and should probably be reviewed.
  • The prices also don’t follow a uniform pattern (like 9.99, 12.99, etc.).

2. Spotify

“Spotify Premium” is Spotify’s paid offering. Unfortunately, due to copyrights issue, this service is available in only a handful of countries. This hasn’t stopped it from picking up nearly 30M paid subscribers.

This is a substantial achievement when you consider that Spotify is still not available in some very large markets: China (721M internet users), India (460M internet users), Brazil (120M), and Russia (102M).

Spotify localizes its prices quite heavily. While the service costs $9.99 in the US, the Turkish version costs just $3.37/month (TL9.99).

Here’s a quick analysis of Spotify Premium prices in five different markets:

Country Price (Local) Per Month Price (USD) Per Month Annual Per Capita Income (PPP) Percentage of Annual Income Big Mac Index
USA $9.99 $9.99 $55,805 0.21% $4.93
Philippines P129 $2.78 $7,254 0.45% $2.79
United Kingdom GBP9.99 $14.46 $41,159 0.42% $4.22
Turkey TL9.99 $3.37 $20,438 0.20% $3.41
Norway NOK99 $12.11 $68,430 0.21% $5.21

As you can see, the prices vary substantially across different markets. However, two things are worth noting here:

  • Spotify maintains the same pricing pattern across markets. Prices end in a “9” and plans are usually under a round figure (10, 100, etc.).
  • Prices are kept low in emerging markets (Turkey, Philippines) to make them more affordable. Most subscriptions cost under 0.50% of an average person’s annual income.

3. Avast Antivirus

With 21.4% of the antivirus market, Avast Antivirus is the world’s most popular digital security vendor. Its suite of productivity tools are used by over 230M users worldwide, including more than 100M downloads for its Android security products.

Avast sells a number of products on its site, though for our analysis, we focused on its “Premier” security package for Windows desktops. This suite of tools costs $49.99/year in the US for a single PC. Avast also localizes prices for all its overseas markets.

Here’s a quick analysis of “Avast Premier” prices across some of its markets:

Country Price (Local) Per Year Price (USD) Per Year Annual Per Capita Income (PPP) Percentage of Annual Income Big Mac Index  
USA $49.99 $49.99 $55,805 0.09% $4.93  
India INR1,799 $26.92 $6,162 0.43% $1.9  
Malaysia RM119 $29.60 $26,315 0.11% $1.82  
Turkey TL109.99 $37.03 $20,438 0.18% $3.41  
Norway NOK699 $85.37 $68,430 0.12% $5.21  

For most middle to high income countries, the prices are under 0.20% of the average annual income. For a low income country like India, however, the price is nearly 0.50% of the average annual income. This seems like a deliberate choice considering that computer access is still limited to small section of the Indian population.

4. Kindle Unlimited

“Kindle Unlimited” is often called the “Netflix for Books”. This program allows anyone to read as many Kindle books in a month after paying a monthly fee. At $9.99, the price is nearly the same as a standard paperback, making it an attractive option for heavy readers.

Kindle Unlimited is available in all the 13 markets Amazon currently operates in. The prices are localized for each market to align them with local incomes and spending habits.

Here’s a quick analysis of Kindle Unlimited prices across five markets. Note that the prices in USD are as per today’s exchange rates.

Country Price (Local) Per Month Price (USD) Per Month Annual Per Capita Income (PPP) Percentage of Annual Income Big Mac Index
USA $9.99 $9.99 $55,805 0.21% $4.93
India INR179 $2.68 $6,162 0.52% $1.9
Mexico MXN129 $7.02 $17,534 0.48% $2.81
United Kingdom GBP7.99 $11.55 $41,159 0.33% $4.22
China RMB12 $1.84 $14,107 0.15% $2.68

It’s interesting to note that Amazon has kept prices in India and China substantially lower than prices in USA or UK. Besides lower income in these markets, this could also be a strategy to attract customers away from more popular rivals.

5. Economist

The Economist is one of the few traditional media companies that has managed to transition successfully to digital media. Across the web, tablets and mobile,it has over 2.78M digital subscribers.

For The Economist, localizing prices isn’t just about aligning it with local incomes. It is also about attracting the right kind of readers while also propping up the Economist brand.

This is why instead of simply converting prices from USD to a local currency, the Economist offers wildly varying prices for different markets. For example, a 12-week subscription will cost you $12 in the US. The same in Singapore, however, will set you back by $60.

Here’s a quick overview of The Economist’s prices in different markets:

Country Price (Local) Per 12 Weeks Price (USD) Per 12 Weeks Annual Per Capita Income (PPP) Percentage of Annual Income Big Mac Index
USA $12 $12 $55,805 0.021% $4.93
India INR900 $13.46 $6,162 0.22% $1.9
Turkey EUR57 $64.49 $20,438 0.31% $3.41
United Kingdom GBP12 $17.36 $41,159 0.042% $4.22
Singapore $60 $60 $85,253 0.07% $3.27
Switzerland CHF74 $75.72 $58,551 0.13% $6.44

Keeping its prices high in certain markets (such as Singapore and Switzerland) is arguably due to two reasons:

  • These countries don’t have enough English speakers to warrant low prices.
  • Higher prices attract a wealthier readership.

In contrast, prices in emerging markets with a lot of English speakers - like India - are kept low to attract new readers.

On the whole, the price for a 12-week subscription won’t set you back by more than 0.50% of your annual income, regardless of which country you are living in.

Conclusion

Price localization is important for digital merchants, though there is no “one-size-fits-all” way to do it. How you choose to localize your price will depend largely on your customer base, your product and brand positioning, and what markets you want to tap for future growth.