The Latin American Payments Blog
Subscriptions in Latin America
Companies around the world know that subscriptions are one of the key mechanisms to build engagement and loyalty with customers. With the right subscription pricing, it can create substantial revenue for the organization.
In Latin America, subscriptions exist primarily in mobile-targeting formats. This is because 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. Subscription-based companies have grown over 300% around the world over the last few years, and see no sign of slowing down.
This blog post will focus on the importance of localizing prices, what data to keep in mind, and a few key points to know before releasing your prices in the Brazilian market.
What does ‘globalization of subscriptions’ mean for your business?
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 due to a lack of understanding of the market. When you localize prices, you can see an (almost) immediate 30% revenue uptake in your target market.
While global companies understand the importance of subscription strategies, they may not have clarity on how to best position these services in Brazil. This leads to lost revenue.
Naturally, to effectively capitalize on the Brazilian market, localization is a must. But what does localization mean, exactly?
Localizing in its 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 (pesky currency exchange rates can really cut into your conversion numbers), 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. They shared how to effectively adjust subscription pricing for emerging economies including Brazil. They also identified the complex matrix of considerations Product Managers and business leads must take when pricing subscriptions for the country. 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 the 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 subscription pricing 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. Researching what peers are charging for a similar service in emerging markets, can be a bit more complicated. Not only in doing the competitor research, but in actually evaluating if this pricing makes sense for your business.
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 are the price set by competitors is actually effective and do they resonate 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 including mobile phone plans, Netflix, ISPs, and the like.
It may feel unnecessary to check on subscriptions of products and services that are of a completely different nature. But it is in fact important as 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. 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. This may influence their decision as to whether or not to subscribe to your product or service.
Two key tips For Your Subscription 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 subscriptions in developing markets, usually by around 30-40%. In comparison to countries such as the United States. The reduction is driven by the overall assessment of the metrics above. With developers’ understanding of local pricing — particularly in Brazil where we see this at about 35%.
For emerging market economies like 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 and reviewed how consumers respond to such prices. As a result, they have made adjustments accordingly.
Users in Brazil tend to convert the price of a product into their native currency. This is to estimate the amount it would actually cost them. This could inhibit them from purchasing an app or a product.
Two ways to localise your price:
1. Make a cosmetic change where you convert your price to the local currency
2. Charge differently in different markets, establishing true localisation
A few questions to think about are:
How much would a customer in a specific market be willing to pay for an app or service?
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. It should also 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, including:
● Use GDP as a benchmark
● Check out your competitors
● Look at those in other industries and/or fields
● Test the 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 subscription purchases are credit cards, and since the majority of Brazilians only have local credit cards, it’s critical your business also offer this, to make sure 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. This is because unless you use a cross-border PSP like epag, you will need to set up a local entity. If you are 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.