Pros and cons of pricing in a local currency: advice for exporters
Lesley Batchelor OBE is an expert on international trade and a passionate champion of UK exporters. She is also the Director General of the Institute of Export, the professional membership body representing and supporting the interests of everyone involved in importing, exporting and international trade. In this article she discusses the pros and cons of dealing in different currencies and how to stay on top of exchange rates.
The cons (against) pricing in a local currency
Pricing in GBP sterling is easy. It requires no action from the company at all, the company can even use the same invoices that they use in the UK. The staff will not need any additional training to work in another currency or to calculate exchange rates to fix with the customer and the bank. Dealing in GBP places the onus on exchange rate and all the risk firmly on the customer.
Simply put, keeping your pricing in GBP will:
- make invoicing straightforward
- involve no currency risk
- incur no additional bank charges
- require no additional training for staff.
The pros (for) pricing in a local currency
Pricing in the local currency of your customer puts the customers needs first. It lets them know how much your offer really is in terms that they can understand, especially if your price includes freight or shipping costs and insurance.
This enables your customer to easily compare your offering with a local supplier or manufacturer and although is time consuming for the company preparing the quote, it will reflect well if the onus of investigating the exchange risks is taken from the buyer and placed with the seller.
It is very hard for the buyer to find time in this ‘time poor’ business environment to do this analysis and this means that it’s easier for the potential customer to buy local or to go with the company that made it easy for them.
Simply put, pricing in a local currency will:
- Make invoicing easier for the customer
- Mitigate the currency risk (by an agreed forex deal)
- Allow you to absorb any bank charges/exchange fees into the price
- Ensure there are no surprises for the customer, hence making it easy for them to do business with you.
Also, knowing how to manage exchange risk will help you transact profitably in any new market – which is always time well spent.
In marketing terms, it always helps to walk in a mile in ‘someone else’s moccasins’. In other words, think about how much work you’re making for your customer and more importantly, why they should do it? Your customer not only wants to know how much the cost would be in the local currency, but also how much duty it will attract, how much the cost of transport would equate to and whether your quote includes insurance and delivery to their warehouse.
Selling internationally is about building a proposition, understanding what your fabulous overseas buyer might need to know to make an informed decision.
It may require a little work from your side but satisfying your customers’ needs is paramount, not only in gaining the order and but in growing a sustainable relationship.
Open to Export’s advice articles on how exchange rates affect you and taking and making payments in foreign currencies provide further guidance.