The Latin American Payments Blog

What’s important about localizing subscription prices? What data should you keep in mind while doing so? Below are a few key points to know before releasing your prices in the Brazilian market.

Over the last several years, subscription-based companies have grown over 300% around the world, and see no sign of slowing down. Subscriptions have become one of the key mechanisms to build engagement and loyalty with customers, alongside revenue for the organization.

In Latin America, subscriptions exist primarily in mobile-targeting formats. The reason being, the population there is not as much of a desktop-focused audience. Brazil is the most “mobile” among them – with over 240 million mobile connections, and hockey stick-like growth when it comes to tablet sales over the last few years.

Not surprisingly, 34% of Latin America’s app usage comes from Brazil. 

What does ‘globalization of subscriptions’ mean for your business?

While there is increasing pressure for companies to internationalize, companies launching their digital subscriptions around the world often lose out on market share in emerging economies. This is normally due to a lack of understanding of the market. While global companies understand the importance of subscription strategies, they may not have clarity on how to best position these services in Brazil, leading to lost revenue.  When you localize prices, you can see an (almost) immediate 30% revenue uptake in your target market.

Naturally, to effectively capitalize on the Brazilian market, localization is a must. But what does localization mean, exactly? 

Localizing in it’s best form means really understanding and entering a market with different prices altogether – not just changing your currency accepted. While listing prices in the local currency is one important part of localization, it’s only one piece of the puzzle. The key to successful localization is knowing what consumers want, and how much they are willing to spend.

At the most recent Google Playtime Conference in November of 2019, different techniques employed by top international developers were outlined to effectively adjust subscription pricing for emerging economies, including Brazil. Their study identified the complex matrix of considerations Product Managers and business leads must take when pricing subscriptions. It’s definitely worth a watch!

How do I figure out what my subscription pricing should be?

These 3 metrics can help you.

 1. GDP (Purchase Power Parity adjusted) as an index

One of the best metrics to consider when building your pricing strategy is Gross Domestic Product (GDP,). This generally refers to the total monetary value of the goods/services that are produced within a country. 

Purchasing power parity (PPP) compares the economic productivity and the standards of living between countries. Some countries therein adjust their GDP figures to reflect the PPP.

Checking the GDP & PPP of a country should be one of the key factors in mind when adjusting subscription pricing. Naturally, consumers in such emerging economies don’t usually have the same spending capacity as those from developed countries. Even if their GDP may be lower, they may have an inflated PPP in comparison. So both figures are important as points of reference. 

 2. Use competitors as a benchmark

Direct competitors’ prices should also be referred to as a benchmark. As with any new market entry, it’s important to assess the lay of the land. Doing research on what peers are charging for a similar service is of course important, but in emerging markets this can be a more complicated endeavor.

While competitive pricing should most definitely be taken into consideration, it’s not prudent to follow them blindly. It is essential to ask basic questions. Such as, whether the price set by competitors is actually effective and resonates with users? Whether the competitive price even leads to subscriber conversion?

It is understandably a difficult task to conduct price discovery of other markets for competitors, but such prices should not be followed without proper research and introspection. Check the prices thoroughly to see whether the same strategy could apply to you.

 3. Leverage non-competitor subscriptions as a benchmark too

While the prices of competitors in your field are obviously something to be looked into when formulating price strategies, it is just as important to check on non-competitor subscriptions. These include that of mobile phone plans, Netflix, ISPs, and the like.

While it may seem almost unnecessary to check on subscriptions of products and services that are of a completely different nature, it is in fact necessary. This is because consumers will be using these prices as a point of reference. So it’s critical you do the same.

Of course, you may not consider your product or service to be the same as those from another industry or field, but consumers who pay a subscription fee for a product mentally lump all of their subs together and think about the prices that are offered across all services. The price of the other subscriptions affects their psychology and may influence their decision as to whether or not to subscribe to your product or service.

Two key tips For Your Pricing in Brazil

Reduce Prices by 30-40%

When comparing the same subscription across multiple markets, clear price reduction trends can be seen. Developers tend to substantially decrease prices for subscription in developing markets, usually by around 30-40%. When compared with countries such as the United States. The reduction is driven by the overall assessment of the metrics above, and developers’ understanding of local pricing. Particularly in Brazil where we see this at about 35%

For emerging market economies such as that of Latin America and other developing markets, there are a few factors to keep in mind when effectively adjusting subscription pricing.

Start high and then go low

When setting a price for an app, good, or service in Latin America, the key is effective testing.

Usually, the optimal purchasing power is a lot higher than the expected purchasing power based on indices. Successful apps in the country have set a higher price, reviewed how consumers respond to such prices, and make adjustments accordingly.

When setting a price for an app, good, or service in Latin America, the key is effective testing.

Usually, the optimal purchasing power is a lot higher than the expected purchasing power based on indices. Successful apps in the country have set a higher price, reviewed how consumers respond to such prices, and make adjustments accordingly.

Users in Brazil tend to convert the price of a product into their native currency to estimate the amount it would actually cost them. This could inhibit them from purchasing an app or a product.

Two ways to localize your price: 

1. Make a cosmetic change where you convert your price to the local currency
2. Charge differently in different markets, establishing true localization

A few questions to think about are:

1. How much would a customer in a specific market be willing to pay for an app or service?
2. Why is a customer willing to pay for one service but not another?
   

There are several other factors that should be looked into as well. Such as sensitivity to purchasing power parity according to GDP,  and taking into account consumers’ preferences.

Things to keep in mind

To grab the market in Latin America and Brazil along with other emerging market economies, subscription prices must be adjusted in accordance with the needs and expectations of the market. The pricing strategy that is chosen should reflect the value of the app, as well as meet the market expectations to achieve business goals.

Localization can be challenging and a pretty daunting task, but it is critical to your subscription or services’ success in the country.

To make it easier follow the tips as mentioned, which include:

● Using GDP as a benchmark

● Analyzing your competitors

● Taking a look at non-competitors

● Testing your prices

These can help in effectively adjusting the subscription price to the Latin American market and markets for emerging economies as per the market requirements at an optimal cost. Additionally, when offering subscriptions in Brazil, it’s important to understand the ways your customers will be able to pay for this. For example, the #1 payment option for online subscriptions are purchased in credit cards, and since the majority of Brazilians only have local credit cards, it’s critical your business also offer this. This way you can ensure you’re taking advantage of the smart pricing plan you’ve put in place.

Many companies get caught up in the challenges and difficulties of setting up local payments in Brazil because unless you use a cross-border PSP like epag, you need to set up a local entity. If you’re interested in better understanding how you can accept the critical payment methods for your customers in Brazil, without setting up a Brazilian entity, drop us a line here.