The digital audience used to be located in North America and Western Europe as most of the world’s population with access to the internet was located here. Today, the US has fallen behind China and India in smartphone ownership, and there are 2x more smartphone users in Indonesia than people living in the UK.
A major problem for digital merchants with this new audience is pricing. In Indonesia, average monthly earnings are $183 compared to $3,692 in the United States. The pattern is similar for most other emerging markets. With users having much less disposable income at their hands compared to Western audiences, how to localise your pricing for the market?
Here are 6 practical ideas on how to get started:
Purchasing power parity
Basing local pricing around average income is too drastic and would lead to 20x lower pricing for Indonesia compared to the US. Average income statistics also represent the entire country’s average, including people in rural areas less likely to have internet access and be a user of your service. Instead, consider checking out the Big Mac Index which gives a better indication of the purchasing power parity between different countries and tweak your pricing based on that.
Having competitors operate in the same market with you is a two-sided coin. On one hand, it will be tougher to capture the audience they are also targeting. On the other, it’s possible that they have already done the pricing research on your behalf. For reference, here’s how Spotify and Netflix have localised their pricing strategy.
Insights from payment providers
Payment processing companies that you work with will have a very good understanding of user payment behaviour in markets where they operate. Reach out to them and ask what the average transaction size and revenue per user for your segment in countries relevant to you are. In case of carrier billing, our data map provides an overview of general trends with this payment method.
Painted door tests
An efficient method that requires very little upfront research for understanding whether local pricing is needed is a painted door A/B test. You can display your current pricing to 50% of users in a country, and localised pricing (for example in the context of a “discount campaign”) to the other half. If users do click on the local pricing, you can have a note saying “sorry, this package is not available yet”. Should the conversion of the local price offer see bigger uptake, it makes sense to dig deeper into analysis.
Bite-size chunks of content
For companies that have the capability to break their service up into smaller parts, local pricing may not even be needed. For example, if you’re selling monthly subscriptions, there is the option to create daily packages with a substantially cheaper price. Another way to do it would be to sell individual movies, TV shows, songs or albums as one-off purchases. While the total cost of the service remains the same, the user perception of pricing will improve and they will think the service is more affordable to them.
Not just local pricing!
Last but not least, localisation does not only include changing the price of the service. The currency which the user can pay in should also be that of the local country, and you should also account for the difference in how numbers are displayed and punctuation is used.
Need more guidance on how to localise your pricing for emerging markets? Get in touch!