Pricing in Asia – what to watch out for to make a profit
Exporting goods and services to an offshore Asian market might be the next step to growing your business – and pricing will be vital to your success. Get it right and you’ll become established and make a profit.
Pricing is different is Asia
Pricing in Asia is different to pricing in Australia. Asian culture can be a lot more price sensitive – economies of scale mean that with high levels of demand and supply, competition for offering the lowest price is intense.
However, in several Asian countries pricing at a premium is encouraged for some products or services – it signifies that the good or service was created in Australia and consumers will pay more.
If you get your pricing structure wrong, you’ll have trouble generating sales to create and sustain your export business. Aim to:
- Test the market – visit your Asian export country and obtain the information you need through on the ground research.
- Price relative to your competitors – but take into account whether you might be able to price at a premium if you have an Australian product or service highly valued. Alternatively, you may be able to price lower than your competitors. After all, Asia has over four billion of the world’s population, so it stands to reason that if you can get large numbers of sales, you’ll be able to grow and build your export market.
- Be flexible – you’ll likely find large numbers of potential competitors so be prepared to be flexible with your prices.
Will culture influence your price?
Think about how your goods or services are perceived by the Asian culture you’re targeting. Are they luxuries? Commodities? Impulse items? These cultural perceptions could positively influence your sales in your target export market.
Some countries in Asia have a growing middle class of people – places like India and China particularly have huge numbers of citizens who are now able (and willing to) pay more for quality than perhaps they did in the past.
You might be able to charge a premium for your offerings in these countries. For example, many Australians would expect to pay more for certain products from France, such as wine.
It’s important to research cultural values in the countries you’re planning on exporting to. For example, in China, the number ‘8’ is associated with good fortune while the number ‘4’ signifies bad luck. Pricing an item at $4 could be a bad strategy in China.
Your pricing strategy needs to take into account cultural factors so you don’t wind up creating offense.
Take into account the extra costs of exporting
Make sure you’ve calculated the added costs of producing and distributing your offerings in an Asian market. Take into account:
- Additional overheads – like new staff or extra space. For example, you might plan on selling alcoholic beverages to Cambodia and need extra warehousing to store enough stock-on-hand for rising demand.
- Tariffs – and other regulatory fees in your export target market. For example, Australia has a free trade agreement (FTA) with Singapore, which may mean any regulatory costs are minimal, or even nil. Find out more about FTAs and what they mean to you.
- Packaging and branding – you may have to rebrand your goods for most Asian markets considering the language and cultural differences.
- Shipping and logistics – for instance, if you’re planning on taking your possum fur business to the farthest reaches of Mainland China, there will be logistical and customs issues that need to be ironed out to reach the market.
Get to know your competition
Find out as much as you can about your potential competitors – their pricing strategies, positions in the market, and likely reaction to your entry.
What price are customers willing to pay?
Consider where your broader position will be in your target Asian market. Market research is crucial – just as you researched your local market to get a deeper understanding of your target customers, you’ll have to do the same for your target markets in Asia.
Before you can possibly set a price, you’ll need to know:
- Who your customers are.
- What they’re willing to pay for goods or services similar to yours.
For example, if you’re exporting machinery parts to Laos and the market has an undersupply of machinery parts, you may be able to charge more than you would in Australia.
Make sure your market research on how much your potential customers will pay is accurate – see Austrade for extra market research advice.
Protect your profits margins
Once you get a foothold in your target export country and gain some sustained sales and profit, you’ll need to protect your margins – especially if you get a fierce reaction from your competitors.
Take into into account foreign exchange fluctuations
Exchange rates are dynamic and in a constant state of change. If you choose to accept payments in local currencies, you’ll need to keep an eye on the exchange rates of the Asian countries you’re trading with – and adjust your pricing, if necessary.
For example, if you export aluminium products to Thailand, two scenarios are possible:
- The value of the Australian dollar falls (depreciates) against the Thai Baht – making your aluminium exports cheaper. As a result, your goods will be more competitively priced in Thailand and demand may increase.
- The value of the Australian dollar rises (appreciates) against the Thai Baht – making your aluminium exports more expensive. You may have to reduce your pricing and make a lower profit.
How NAB can help
NAB has a wealth of information, tools and advice to help you price right and make a profit in Asia. On our website, you can:
- Compare the Australian dollar against Asian currencies in real time.
- Check out our help guide to exporting.
- Take a look at our international business section– with it’s array of tools, calculators, how to guides and videos.
- Consider opening up a NAB foreign currency account when you start exporting.
- Talk to a NAB business specialist.
Any advice contained above has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice, NAB recommends that you consider whether it is appropriate for your circumstances and that you review the relevant Product Disclosure Statement, Terms and Conditions or Financial Services Guide.
© National Australia Bank Limited ABN 12 004 044 937 AFSL and Australian Credit Licence 230686.