Most overseas companies see the US market as an El Dorado with unlimited customers and opportunities to maximize their profitability. For many of them, it’s true—but it isn’t without its pitfalls. Starting a business in the United States can be very rewarding when you do it right. One important topic you need to think through thoroughly when building your US strategy is how to price your products and services.
PRICING WITH PRECISION FOR GUARANTEED BUSINESS SUCCESS
A lot of companies do not pay enough attention to their pricing for the United States. This means they risk pricing themselves out of the market entirely or possibly leave a lot of money on the table. Some companies just take their existing prices from their home market and merely translate them to US dollars. This lack of pricing precision can be a big mistake. Here are a few reasons why:
Photo: ©Nicolas Duhaut
#1 - EXCHANGE RATE FLUCTUATION AND INFLATION
Simply changing € to $ on your price list is easy and sometimes tempting for an immediate solution to your pricing strategy. But it’s rarely the best long-term solution.
Depending on when you set your prices, future exchange rate fluctuations will affect your profitability. The recent parity between the euro and the US dollar for the first time in 20 years further highlights how important it is to have a well-thought-through US pricing strategy. If you set your prices last year, you’re already making 12% less on every transaction.
The pandemic has impacted the global supply chain and generated the highest inflation in the US in 40 years. This will inevitably put upward price pressure on European companies exporting to the US. On the other hand, the recent parity between currencies might give European companies a false sense of security that they don’t need to pay too much attention to their US pricing, since one effect may compensate for the other. This is a potentially grave mistake: companies must balance the two trends to adapt their pricing and not hesitate to adjust prices when there is an opportunity.
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#2 - COST OF IMPORTING TO THE US
With global supply chain challenges, shipping costs around the world are sky high. This means just getting your goods to North America will likely be more expensive than you thought. Then, there are customs fees. These fees are easy to overlook, but since there is no free trade agreement between the US and Europe, there are tariffs on the import of European goods to the United States. These costs also need to be worked into your US pricing strategy.
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#3 - COST OF DOING BUSINESS IN THE US
Most international companies are surprised by how much it costs to do business in the US. You need to put your cost comparison to your home market aside and approach the US with open eyes (and expert research).
Labor is more expensive than most other markets, transportation across the US is on par with transportation across the European continent, and rental costs are much more expensive than in Europe (your warehousing/storage costs will be much higher).
All these additional costs mean that the price premium you can justify in the US will not necessarily translate to a higher bottom line. If your competition has a certain price point, it’s because they’re considering all the ancillary costs of doing business in the US.
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#4 - VALUE PROPOSITION OF YOUR PRODUCT
Finding the right price point also means leveraging your value proposition: how do you differentiate your products or services from the competition? Are your products better than the competition’s, justifying a price premium? Are your manufacturing costs lower, allowing you to undercut your competitors to grab market share?
A common misconception European companies make is to rely on the idea of “Made in XX.” Most American consumers pay little attention to the country of origin of the products they buy and rather base their decision on how value is conveyed in marketing communications. Your product will probably not stand out solely because it is made in France, in Italy, etc., but it will stand out if you tailor your marketing message to your customers’ needs, or if it has a true competitive advantage compared to the others. The American market will pay more for higher quality or competitive advantage.
THE RIGHT EXPERT CAN HELP YOU PRICE YOUR PRODUCTS PROPERLY FOR THE US
Getting the right pricing strategy can make or break your success in the US. Don’t skip over this important step: it should not be an afterthought. Take the time to understand your market, your competition, and your price structure. And always have the humility to recognize past mistakes, learn from them, and adjust accordingly.
Author : Sebastien VILLON
Read his French Cluster expert profile here or contact him through LinkedIn here.
Photos: ©Nicolas Duhaut https://www.nicolasduhaut.com/