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How can your pricing take advantage of the euro-dollar parity?

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in
Maciej Wilczyński
Managing Partner, Founder Valueships
July 16, 2022
pricing
strategy

How can your pricing take advantage of the euro-dollar parity?

tl;dr Change your USD pricing to match EUR currency, e.g., $99 and €99 consecutively. It's the first opportunity window like this in 20 years.

This article might be relevant for July 2022, so keep in mind the currency exchange rates will likely change in the future, but it's essential to seize the opportunity now.

Overall inflation, high-interest rates, financial markets turmoil, supply chains not recovered from covid-19, and oil & gas supply crisis caused by the Russian invasion of Ukraine. There are many reasons why the euro hit parity with the U.S. dollar for the first time since 2002. While we might have negative thoughts regarding the future economic situation (we have a whole content initiative on that, so stay tuned), let's find a way to take advantage of the exchange rate. 

Euro/Dollar


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Why do exchange rates matter in my business, and how can I use them effectively?

Let's state the obvious. Even if you are a local player serving your domestic markets, you are affected by the overall global economy. You import things from Germany and pay in euros. You hire a consultant from London. You have just purchased a SaaS account from the United States.

Naturally, you have global ambitions, so you want to sell and export your products and services to other countries, which matters even more. If your local currency performs poorly, the more you ship at foreign rates, the better. That only happens if you manage to price on the new market effectively.

The truth is most companies don't do it right. In fact, according to Valueships data, less than 8% of the B2B software companies we know leverage geolocation in pricing. It's a powerful lever to unlock at least 11.78% more growth. The more you do it, the better. According to ProfitWell's benchmarks, it correlates with even a 30-45% higher growth trajectory if you do it correctly.

Geolocation benchmark

What is pricing localization, and how to use it effectively?

In a soldier's words, pricing geolocalization is adjusting your prices to the new cosmetic market. There are two ways of doing it:

1) Basic one: charging customers in their currency. It's the most common one. More or less, most companies do something like this: if you were charging $99 for one user in the U.S., you were doing €89 in Europe.

2) Advanced one: adjusting the price above only currency level and the price points to the willingness to pay for your product. It relies on a few straightforward facts: where you are from determines how much you can and want to pay for products. 

Geolocation chart

As seen in the picture above, customers from most developed countries, e.g., Scandinavia, are willing to pay 25 to 30% more than the same customers in the U.S. It's mostly affected by the wealth in the society and overall economy, market saturation, and overall price and cost base in the country. Opposite it, you need to create an excellent discounting strategy for APAC countries, which by default, have a lower ability to pay the premium.

There is a tremendous opportunity to differentiate with the willingness to pay. Still, it requires good survey research, and we suggest measuring it correctly as you don't want to over-tweak prices (here is how we do it). While we recommend using it as a tool for long-term competitive advantage, the short-term quick-win window is open right now.

Euro-dollar parity opportunity window

In a nutshell, the current situation is more or less like this:

100 USD = 100 EUR

So instead of having a 10-15% delta between two currencies, you can now benchmark the prices to be the same.

Interestingly enough, even Hubspot didn't do yet leveraged the opportunity:

hubspot poor geolocation

Right now, they have a 9% difference between USD/EUR, favoring EUR deals. In other words, they're not capturing the total value they can on every EUR sale. In consulting jargon: "they're leaving money on the table."

Window to the world

The last time we had this opportunity was 20 years ago. This picture was AI-generated by MidJourney AI

Our recommendation for most B2B companies is clear: match EUR and USD prices now. Your P&L and a financial officer will thank you later.

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Maciej Wilczyński
Managing Partner, Founder Valueships

Expert in B2B pricing, monetization and value-based selling strategies. Over the past year, he has completed over 40 consulting projects in Europe. Prior to founding Valueships, he worked at McKinsey & Company, mainly in the TelCo, software, and banking industries. He completed his doctorate in pricing in SaaS start-ups at the University of Economics in Wrocław, where he also lectures.

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Maciej Wilczyński
Managing Partner, Founder Valueships

Expert in B2B pricing, monetization and value-based selling strategies. Over the past year, he has completed over 40 consulting projects in Europe. Prior to founding Valueships, he worked at McKinsey & Company, mainly in the TelCo, software, and banking industries. He completed his doctorate in pricing in SaaS start-ups at the University of Economics in Wrocław, where he also lectures.