Selling subscriptions to a global audience requires strategic flexibility. In addition to localizing payment methods and languages, subscription companies must consider how they price their products in different currencies and the relative fluctuations in currency values.
The importance of monitoring currency fluctuations and assessing your pricing strategy cannot be overlooked. We’ve covered this in the past during the Greek debt crisis. With the U.K.’s recent vote to exit the European Union (the so-called Brexit), it’s a vital time to revisit how products are priced in volatile markets.
Brexit Impact on Currency Markets
The Brexit vote is still fresh, but proves once again that the daily tumult of geopolitical change can have a direct impact on your revenue.
Even at this early date, however, looking at the dramatic currency swings already underway, it’s clear that revenue will be directly affected for any company that sells globally. Figure 1 below shows the currency exchange rates between the British pound and the euro between May 25, 2016 and June 27, 2016.
Impact on Subscription Pricing
Imagine a U.K. based company that sells in the EU. In order to create an outstanding customer experience for your European customers, you have a set price of €50 per month. A customer who renewed in May would have paid you the equivalent of £37.96. But their renewal on June 24 would have brought in nearly 10 percent more revenue in pounds sterling at £41.70. The weakened pound works in your favor for customers who are paying a set euro price.
But the sword has a double edge. Think of a European company selling to Brits with a fixed price of £50 a month. Your customers who renewed in May would have paid you the equivalent of €65.86. But their June renewal would take a hit, yielding only €59.95. That’s almost a €6 difference. A company with, say 25,000 monthly renewing UK customers would see June revenue down almost €150,000.
In the case of the U.K. company pricing in euros, the currency fluctuation carries with it a 10 percent revenue increase. The question is, what do you do with the extra funds?
You can certainly hang onto that money. Businesses can use those funds to invest in the user and customer experience of their product. They can also bank it to hedge future currency fluctuations that may not be as kind as this one.
Alternatively, the extra income provides an opportunity to invest in new subscriber acquisition. A 10 percent increase in revenue means you can temporarily drop your price for new subscribers. Essentially, the currency fluctuations have subsidized your investment in new customer acquisition.
Opportunities like this usually present themselves once or twice a year, if at all. Pay attention to current events like the Brexit or the upcoming U.S. elections. They usually indicate that you should look at your product prices.
Wild swings in foreign exchange rates provide an opportunity to test your product’s price elasticity. Staying flexible means minimizing revenue loss and maximizing opportunities for your business to grow no matter the financial weather.