Global marketing
Stop converting your home-market price
By Prof. Alessandro Buffoli, PhD
An exchange rate helps calculate revenue. It does not tell you what the customer will compare your product with.
“It sells for €20 in Italy, so we converted that into the local currency.” That explains a spreadsheet cell. It leaves the pricing decision almost untouched.
When an Italian food brand enters Hong Kong, I want to know which purchase it expects to replace. A supermarket ingredient, a present for a colleague and a restaurant treat can all involve the same food. They give the customer very different reasons to spend.
Starting with the Italian price can quietly import an Italian competitive set as well. A product that is familiar and routinely bought at home may need explanation abroad. It may also acquire a different role: something brought to dinner, rather than something kept in the cupboard.
Build two price ranges
The first range comes from the business. Work backwards from the proposed retail price through retailer and distributor margins, freight, duties where applicable, handling and likely returns. State who bears each cost. A price that looks attractive on the shelf may leave the producer with an unworkable contribution.
The second range comes from the customer’s alternatives. What else could satisfy this particular occasion? Ask customers to choose among real offers with visible quantities and prices. A broad question about what they would pay for “authentic Italian quality” is too easy to answer politely.
The two ranges may not overlap. That is valuable information. It could mean changing the pack, the channel or the occasion being targeted. It could also mean the proposed market is not attractive under the current conditions.
I would resist solving the gap by adding more adjectives to the packaging. If the argument is provenance, show what that provenance changes about the product. If the argument is gifting, the presentation and the recipient’s ability to understand it become part of the offer.
Keep the comparison stable
A sensible first trial compares a small number of complete offers. Hold the important features steady when testing price; otherwise a price change gets confused with a new pack, a new display and a new customer group.
Measure contribution as well as purchases. Watch whether the people attracted at the chosen price are the customers the business intends to retain. An introductory price can produce a very persuasive but temporary picture.
Currency conversion still belongs in the financial model. It helps the company account for money moving between markets. The shelf price has another job: to make sense beside the alternatives in front of the buyer. I would build the decision from that shelf backwards.
Prof. Alessandro Buffoli, PhD
Assistant Professor of Marketing at The Hang Seng University of Hong Kong.