Article

Localizing online prices drives international e-commerce sales

Most Internet usage occurs outside of North America, and localizing prices can turn international browsers into buyers.

June 1, 2010

By Melissa Jones

U.S. retailers are increasingly being forced to think creatively about how they can generate new revenue, and the traditional tactics that they have implemented such as deep discounting have hurt their profit margins. Retailers are now looking to enhance their websites in order to target a lucrative new base of international customers.

The majority of internet usage, in fact, occurs outside of North America, with higher penetration and growth opportunities in Europe and Asia. According to a Forrester Research report titled “Trends 2008: Online Retail” online retailers will look to international expansion as one of the key areas for growth as competition becomes “increasingly fierce” in the maturing U.S. market. This new customer base presents potential for great opportunities, and to maximize this opportunity, U.S. retailers need to appeal to international customers in a familiar, localized way.

As retailers expand their brands internationally, they are best served to implement strategies that target specific foreign markets. The initial and immediate customer experience will occur on the retailers’ websites, and the more localized these websites are, the more likely these international browsers will make purchases. In order to convert these international browsers into paying customers, retailers need to enhance their websites to set prices and accept payments in the customers’ local currency.

This can elicit an emotional response from the customer, who better relates to prices in their familiar currency. Customers are able to make easier purchasing decisions, especially when they are able to compare web-based prices to prices on similar products in their local market.

Retailers do need to make a strategic decision in terms of how they wish to present local pricing to the customer. With fixed pricing, the customer views the same local price whenever they visit the retailer’s website, while the retailer receives a fluctuating settlement amount daily. In this case, the retailer manages the rates and local prices. With variable pricing, the local prices to the customer fluctuate on a day-to-day basis, while the retailer receives a consistent settlement amount daily.

Customers enjoy the experience of having localized pricing made available online, and it is equally important for the retailer to provide their own currency at checkout. The experience becomes comfortable and familiar and would be disrupted if pricing was presented in the customer’s local currency, but not provided at the checkout. By supporting transactions in the customers’ local currency, retailers are further strengthening the customer experience, and setting a strong foundation for continued customer loyalty.

In the same way that localized pricing and multi-currency checkout allows retailers to acquire new international customers, the same website features contribute to retailers’ retention strategies. The fact that websites are localized down to the levels of pricing and payment is helping retailers improve customer loyalty and the overall customer experience. International customers are becoming accustomed to making informed buying decisions on these websites, and they are gaining a higher appreciation of purchase value when compared to sites that don’t price in their currency. And, there are no surprises for these customers; the amounts paid in their home currencies match the amounts that will appear on their credit card statements. Retailers that incorporate these strategies onto their websites will not only build loyalty with their international customers, but will clearly stand out against their competitors that don’t offer this option.

Retailers are experiencing as much as a 25 percent increase in overall sales when defaulting prices to the currency based on a customer’s browser or IP address. Now that retailers are able to price in local currencies, they are experiencing increases in site traffic and sales by expanding to those countries where they previously couldn’t penetrate, because local currency pricing was required. Additionally, retailers are also picking-up an additional profit margin now that they are expanding into other countries without having to make the investment to become international corporations.

High levels of international customer satisfaction have a direct positive impact on retailers’ profitability, namely cost savings for reduced customer service inquiries, and lower levels of chargebacks. Customer service is necessary for retailers to be profitable, but becomes costly when it needs to be expanded to support an international customer base. Localized pricing can help retailers reduce costs by lowering their investment in resources and call centers. Chargebacks are one of the biggest pain points in terms of retailers’ web-based businesses, and a reduction in the rate is a tangible cost saver. Customers are less likely to call with chargebacks if they have a pricing model option in which they can choose to make a payment in their home currency.

Retailers have much to gain from a branding and marketing standpoint if they are able to understand their business across all the regions and currencies that they support. Knowing their customers’ needs and buying behaviors is fundamental if they are going to be successful.

Melissa Jones is vice president of U.S. relationship management at Planet Payment, a multi-currency and data processor headquartered in New York with offices in Atlanta, Beijing, Bermuda, New Castle Delaware, London, Hong Kong, Shanghai and Singapore.