Turning dollars into euros, yen, or pounds is trickier than you think.
A 5.5-ounce bar of Anthony Logistics' Glycerin Cleansing Soap costs $8 in an American specialty shop. The same product goes for $21 in Australia (about $16.40 U.S.) and eight pounds in England (about $10.75 U.S.). Arriving at those prices, says Anthony Sosnick, CEO of the New York City company, which makes skin care products for men, has been one of the hardest parts of doing business overseas. "In each country, it's like starting from scratch," he says.
Today's weak dollar gives American companies a sales edge overseas. But if identifying new markets is a challenge, calculating the appropriate selling price can be even harder -- and neophyte global merchants often fail at the task, says Louis Columbus, CEO of LWC Research, a strategic pricing consultancy in Orange, Calif. Many make the mistake of determining a foreign price by simply multiplying the U.S. price by the appropriate exchange rate, Columbus says. Then, they keep prices steady, even as volatile currency fluctuations eat away at profits or restrain sales. Others, in an effort to grab market share, set prices too low, failing to take into account the added costs -- such as shipping, insurance, and taxes -- of doing business overseas.
Anthony Logistics is determined to avoid those gaffes. The company went global in 2001 when it began selling in the U.K. and now does business in 24 countries, from Switzerland to South Korea. Wherever they happen to be, Sosnick and his team do considerable legwork before putting a price tag on anything, studying each market's competitive dynamics, surveying individual customers in stores, traveling to visit buyers, and poring over industry reports before coming up with the right number. Anthony's director of sales is a former Wall Street analyst with years of experience spotting global trends. The firm leaves wiggle room for exchange-rate fluctuations and avoids volatile economies, like Venezuela. It's a labor-intensive, and often expensive, process, and it can take the company as long as three months to make a decision.
Of course, not every company has the resources to enlist high-priced analysts or travel around the globe researching potential markets. Chaco Footwear, a manufacturer of high-end sandals, for example, would be hard-pressed to attract multilingual Wall Street talent to its rural headquarters of Paonia, Colo. (population: 1,575). Nor is the company particularly close to a major international airport.
Still, Chaco has managed to become a global company with products in 28 countries. When it comes to pricing, the company treats different countries differently. In markets where nobody on staff speaks the language, Chaco relies on strong relationships with local partners, usually distributors, whom it finds by networking at international trade shows and talking with buyers. "We leave final pricing up to them," says Richard Weight, the company's vice president of sales. That's how Chaco got into the Japanese market, which now accounts for 15% of the company's global sales. In Canada, on the other hand, Chaco hires its own sales staff and negotiates prices directly with buyers in home currency, retaining control over retail and marketing strategy.
If Weight and Sosnick treat pricing as an art, a host of new software providers are working to make it a science. Their applications track all of your transactions, factoring in everything from exchange rates to local taxes to your cost of goods to arrive at the right price. The website Pricingsociety.com keeps a database of software firms and consultants.
But be prepared to pay -- anywhere from $5,000 for a generic online spreadsheet to as much as $500,000 for a custom-designed extranet. And bear in mind that even the best technology will not succeed without strong management and oversight, says Mark Gaydos, vice president of business development at Comergent Technologies, a pricing software firm in Redwood City, Calif. "There's no system that says what your pricing should be worldwide," he says. "You have to be aware of where you're losing deals or lagging. That will help you capture more revenue."