Why purchasing power parity pricing is a must for digital products?
Purchasing power parity is an economic term for measuring prices at different locations.
It helps you determine how much your product should cost in each country.
For example, At 6.98 U.S. dollars, Switzerland has the most expensive Big Mac hamburger sold by McDonald’s. Concurrently the cost of a Big Mac was $5.81 in the U.S. and $2.55 in India.
Why Is Purchasing Power Parity Important?
Parity pricing is a proven, common-sense way that has been used by businesses for years. Companies like McDonald’s, Starbucks, and many more have re-structured their products with price parity to grow revenue.
The price of the product should be always what the market is willing to pay for it. A digital product is not any different.
As the digital economy started growing, companies like Spotify, Slack, Netflix, and many more went a step ahead and already started offering geographical pricing for their customers.
Benefits of Parity Pricing
When it comes to pricing products, figuring out the best strategy is key to success. As a business owner, you need to understand your customers’ ability to pay.
It helps you sell more. People are more likely to purchase something when they don’t have to “think” about the price.
The digital goods industry is one where parity pricing is just as beneficial to you as it is to your customers.
Let’s take a look at some of the benefits of parity pricing that apply to YOU and your BUSINESS.
1. Extend Your Product to New Markets
Digital products are meant for everyone. There are 4.95 billion people worldwide who have access to the internet. But roughly around 700 million people can afford your product.
Offering purchasing power parity pricing instantly opens up your product to the remaining huge market.
Read the following statement from the Spotify IPO filing from February 2018:
“While streaming has changed the way many people access music, we believe there is an untapped global audience with significant growth potential. We believe the universality of music gives us the opportunity to reach many of the over 3.6 billion internet users globally.”
Emerging markets present some of the biggest growth opportunities.
2. Improved relationships
Parity pricing allows you to build a closer relationship with your customers by providing them with a more accurate price for the products they enjoy. This, in turn, creates more vital customer trust, loyalty, and engagement.
Especially people who could use it to improve their economic situation by learning new skills.
3. Fair Pricing for Your Product
Consumers have different buying power across markets due to economic conditions and currency exchange rates. Parity pricing ensures that your entire customer base receives equal value, regardless of location.
Everyone around the world faces the problem your product solves. But the solution is offered to a few sets of people based on where they were born.
4. Win the competition
The advantage gained by a company that first introduces a product to the market is called The first-mover advantage. The first-mover advantage enables a company to establish strong brand recognition and product loyalty before other entrants to the market.
You are not late. Digital products are still not accessible to 85% of internet users. Concur the new markets before anyone else.
5. Helps you price correctly
If you price incorrectly, you might devalue your product, hurt your bottom line, and cheapen your audience’s perception of your brand.
Price correctly, and you’ll get increased sales, loyal customers, and an enviable brand reputation.
A one-price-fits-all model does not work online. Your price is either overpriced or low-priced somewhere in the world. Trying to sell a product the same way everywhere can be limiting and fail to reach the target market effectively. However, you can appeal to new markets without losing your original customer base using Purchasing Power Parity Pricing.
6. Avoid Piracy and CC Theft
This pricing model can help fight piracy, which is more likely to occur in low-income nations. Suppose your product is available at a reasonable price. In that case, it will be a viable option for many customers who may otherwise pirate your digital product.
It can also help prevent credit card theft since a user in a low-income country would not usually have access to a high-limit credit card from the US. Therefore, they might use stolen credit cards to buy your product (which inevitably results in chargebacks for your business).
How Does Purchasing Power Parity Pricing Increase your Revenue?
There are two ways to increase your business revenue:
- Increase the price of your products
- Increase the volume of your sales
Increasing prices can be tricky because you’re likely to lose some customers. If a competitor offers the same thing at a lower price, you’ll lose customers and market share. So while increasing prices is an option, it’s not always a viable one.
Increasing sales volume is a viable option, but how do you do that? By offering Purchasing Power Parity Pricing.
SaaS products, mobile apps, online courses, info products, desktop apps, themes, plugins, or any digital products, offering purchasing power parity pricing is the easiest way to increase revenue and product reach.
Popular tech companies like Slack, Spotify, Twitch, and Evernote, creators like Wesbos, Kyle Prinsloo, Arvid Kahl, and many more are already offering Purchasing Power Parity Pricing for their customers.
I’ve been offering Purchasing power parity pricing for my products for the last seven months, and it has helped me increase my overall revenue by 15%
- People could abuse it.
Yes, it is possible that people could use a VPN and pretend to be from a different country to get discounted pricing. It is also possible that people could share discount coupons in any public forums.
But, there are solutions out there for both of these problems. You could detect VPN usage and fall back to the original pricing if a user visits your site via a VPN. Also, you can delete existing discount coupons and generate new ones in a specific interval to prevent sharing.
- It is hard to maintain
Setting up dynamic pricing based on the country isn’t easy. You need to create discount coupons for each parity group and apply them correctly based on the user’s location. The PPP value of a country can change over time. You need to actively monitor it. Also, you need to prevent VPN usage and regenerate coupons in specific intervals to prevent abuse.
- I’ll lose money by offering discounts
Nope, You are gonna increase revenue by targeting the huge emerging markets. Take a look at your sales data. You’ll see that the majority of your revenue is coming from the US, Canada, and some parts of Europe while you are getting visits from worldwide.
Let’s take a look at a Real-Life example.
Latin America, Asia, Africa, and Oceania accounted for 73% of all new subscribers in the last year for Spotify, an increase of 130% compared to the same quarter last year.
According to the company, between 2019 and 2027, these markets are expected to represent more than 70% of all global growth in the music streaming space.
This wouldn’t have been possible without offering the geographic-based pricing
Dynamic pricing can be tricky, especially when it’s not something you do every day. The best way to set it up is through the use of third-party tools like ParityDeals, a 2-minute setup tool with no security concerns.