Why Every European Company That Exports to the US Should Review Their Pricing Now
For the first time in twenty years the Euro is worth less than the US dollar and expectations is for continued decline for at least the next year or two. The decline has been steep as the Euro was equal to a $1.23 US dollars as recently as the start of 2021.
But now the US is seen as a safe haven for investment dollars due to its recovery from covid, improvement in supply chains, the various political and economic challenges in China and the direct impact Russia’s invasion is having on Europe especially with regards to natural gas.
The good news is that we can expect to see a significant uptick in European exports to the US because our products are now significantly less expensive today versus a year ago to US consumers. The opportunity of course is especially promising for those European exporters whose prime US market competition is US based.
Imagine for a minute that you are a leading European producer of a premium beer and 25% of your business comes from the US. The typical price for your 12 pack in the States was $25 just a year ago but now you could sell a 12 pack for just $20 and maintain the same gross margins with a likelihood of selling more volume. But perhaps you would do better if you raised your prices and maintained some consistency in pricing. Your profit margins would increase and also the premium aura of your brand if you believe as I do that “price connotes quality”.
This is where its time to check the pulse of the marketplace and in this case the US beer consumer. Pricing research could help pinpoint the optimal price point beer drinkers are willing to pay for a given brand or type of beer (i.e. premium European lager beer). The research will also provide companies with the likely increase in unit volume as a result of a 20% drop in price. One would think going in that premium purchasers of beer are less price sensitive than lower cost competition but research can provide precise numbers.
The findings are critical for European exporters. If a lower price did not drive expected levels of higher volume then the company “would be leaving a lot of money on the table”. McKinsey Research has found that just a 3% increase in price will on average generate almost a 25% increase in operating profit. With the current drop in Euro/US exchange it would be possible to have it both ways; sell more units with a net price decrease and still increase the bottom line. This could be achieved by raising prices but lower than the drop in exchange rates.
These are indeed unusual times but fortune favors the prescient. Seize this window of opportunity and use pricing research that can help you identify the precise points in the US market for optimal volume and operating profit.
Robert Tinterov
CEO Atenga Insights
robert.tinterov@atenga.com
