Pricing Software in Euros

Tuesday, November 28, 2006

Rory Prior lives in Great Britain, but the prices listed on his web site for his Mac software are in U.S. dollars. Due to the rapidly falling value of the U.S. dollar, Rory is considering either changing the pricing of his products to euros, or just raising the price of his software. He's concerned that Americans might be less likely to make a purchase in a foreign currency. He asked for thoughts from Americans, so here's my two cents (currently worth about €0.015).

From his blog entry yesterday:

As someone outside the US who does most of his business in the dollar I've been increasingly concerned as the currency has continued to devalue over the past few years. We've almost reached the point where 1 dollar is barely worth £0.51 and I've decided that if it drops below £0.50 I'm going to have to switch over to selling in euros. It's either that or hike all my prices up to try and maintain the same level of income, something I'm not that wild on doing even if switching to Euros essentially has the same effect.

Under the Tuscan Sun

I live in Italy now, but I'm a U.S. citizen, and I lived in the States until just two years ago. We use the euro here, as does most of Europe, except for Great Britain. Today it costs me about $1.30 to buy an item here priced at €1.00. And even though I've been living here for two years, that's still a calculation I find myself doing on a daily basis. My brain works in U.S. dollars, and it just won't switch over.^[1]

But this could work to Rory's advantage. Any American that's travelled to or dealt with Europe since the formation of the European Union knows the euro is close to the value of the dollar (as opposed to something like the yen), so often I just assume €20 is close to $20. Even an American that has never dealt with euros will probably assume that a software product priced at €20 probably won't cost much more than $20, because that's in the normal price range of software: Somewhere between 10 and 40 bills, regardless of the symbol in front of it.

So based on this, I'll go ahead and download the software and evaluate it. I probably won't discover that it's actually going to cost me $26.23 until I'm ready to pay for it. But by then, I've already decided the product is worth paying for. Of course, I see that it's $6.23 more than I was thinking it was, but I then remember I knew this would happen when I got started, and $6.23 isn't really a big deal. I'm not really thinking about paying $26.23 for the software. I'm thinking about paying $20 for the software and then $6.23 for the currency difference.

That's a totally inaccurate representation of what's going on, but it's exactly how I think of the purchase. And that works in Rory's favor. The price feels like $20 through most of the decision making process, unless I make an effort to calculate or find out the exact U.S. price. So often I first make the decision to download, then the decision to buy, based on this feeling.

Now granted, not all Americans think like this. But a lot of us are lazy, and $1=€1 is an easy calculation.

Made in the U.S.A.

I think, however, that there's a bigger problem for U.S. customers than the price. In the U.S. it has been drilled into our heads that we should buy goods made in the U.S. It's a big deal to us whenever we export jobs or money to another country.

Of course, most of what we buy is imported into the U.S., but we generally don't know this if the packaging is done in U.S. English. The problem with pricing a product in anything other than U.S. dollars is that this will automatically trigger the "not made in the U.S." switch in our brains. It gives us a reason why we shouldn't buy the product, which we then need to overcome. Even though the product has always been from another country, with a price in euros it's so obvious we can no longer remain in denial.

Additionally, we'll realize that you're probably in another time zone, so there may be delays or difficulties in getting support. And we might worry about finding other issues with using your software. For example, if it deals with money, will it properly handle U.S. currencies and taxes? Will I have to mentally translate words like "color" and "organizaiton" when using the software? These things can put some small bit of doubt in the minds of U.S. customers.

Economics 101

As I'm sure Rory knows, this is basic economics. Unless there's an inelastic demand for your product (never the case for indie software), rasing prices will result in fewer customers. But it will also result in a higher profit per unit sold. So yes, whether Rory switches to euros (assuming at a price that will make up for the low value of the dollar) or increases his U.S. dollar price, he'll lose some customers. But he'll also make more money on each sale. So will he be better off? Anyone can guess. If you're Microsoft you can hire teams of people to run simulations to determine what might happen. But given the limited resources of most indie developers, the only way for most of us to find out is to try it.

Just Do It?

So, what's my advice to Rory, or anyone else in Europe contemplating this decision? Go for it. Mark your prices in euros rather than dollars. I think you'll lose some sales because of the higher actual price to U.S. buyers. And I you'll lose some sales because of the "not made here" attitude of U.S. citizens who currently don't notice he's located in another country. But I think the gains from higher profits on each sale will outweigh these losses. Especially if the value of the dollar continues to fall.

Of course, that's just a guess. I'm no Microsoft.

Footnotes:

1. It's not just a problem with money. Although I know that 20°Celsius is equal to 68° Fahrenheit, I still don't know know if 15° Celsius is much colder without launching the Calculator to do the conversion. And then, of course, there's that metric thing.

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