On the fall of the US dollar
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.
The graph below borrowed from the BBC shows the decline in the value of the dollar over the last 12 months.
I'm a little worried that American's might not be that keen on paying in a currency they're not that familiar with - but I don't know if this is going to be worse than an obvious sticker price increase. E.g. $20 > € 20 vs: $20 > $30 or what ever. If you're an American I'd love to know your thoughts on paying in a foreign currency and whether it would be a barrier to purchase or whether you'd just swallow dollar price increases as the currency devalued further?
Without getting overly political I'm hopeful that the Democratic Congress and Senate will rein in all this deficit spending next year, as it's part of what's leading to the devaluing of the dollar. But realistically it may already be too late to prevent it from sliding further as no county's going to pay off eight trillion dollars that quickly without some massive tax hikes.
Linkage
Foreign trade at the MK&C blogOn Doing Business in the Dollar at reinvented software
Pricing Software in Euros Living The Life
posted by Rory Prior @ 10:55 PM
36 comments
36 Comments:
I've been thinking the same thing. It's got worse and worse all year and where it is now is quite silly. The Euro has been pretty steady and that sort of predictability is so important to me.
As an American I may not want to swallow the fees associated with paying in another currency and trying to figure out the conversion. I wouldn't be opposed, I've bought things in Euros and Pounds before, but I'm more mindful of how much I'm spending when I have to do the math myself.
I've bought things in other currencies before, for example, Inquisitor was originally selling in Euros, and I bought that seamlessly through PayPal. As long as the purchase process is seamless, and there are no extra fees associated with it, I wouldn't care.
I suppose linking to a currency converter might be helpful :) I plan to keep on using PayPal and they seem to make it a pretty painless experience (I keep my PayPal account in dollars at the moment).
Either tax hikes or cut spending. I'm in favor of cutting spending.
Frankly, as an American with not a lot of extra cash to throw around, any sort of price hike would make me think twice. Maybe I'd eat the price, maybe not, but there would definitely be hesitation.
I think that, from a purely American standpoint, a simple price hike is a better idea. Once the user punches the price into his currency converter, he'll see that it's a price hike anyway. Then there's also a good chance that he'll have this feeling of, "Uh, I don't have any £s. Can I buy this?" (It sounds silly, but I bet a significant number of Americans would feel like a foreign currency means they're excluded.)
Obviously any price increase is not something most people like to face, but as an American who gets paid in Yen, I'm certainly not adverse to paying in another currency besides the almighty dollar.
The only problem is gauging the cost of a product at a glance, but let's face it, those in other countries have been doing that for a long time now. We can cope.
I don't see a problem with it. You should ask for payment in the same currency you buy your groceries with, or you're putting yourself at risk of a financial crisis that could be caused at any time by the whims of speculators. I've bought Euro-denominated software several times; dealing with foreign currency is a reality in a global market.
IMO I would leave it in $ if you want to sell to USA folks. Add a Euro amount for others who might prefer that, but my first thought when seeing a Euro sign is:
"I have no idea what the exchange rate is" and "I wonder if I'll get hit with a fee from my credit card company for this?"
I loathe PayPal and have previously opted NOT to buy software that was PayPal only.
FWIW.
I agree with "anyonymous" above--if the process is seamless, it's not a problem. And selling in Euros reminds the buyer that your prices are high because you need that many of their rubles to buy yourself dinner, not because you're trying to rip them off.
Maybe I'm not a good sample because I've never used your products, but I think you need to either sell in your local currency or increase the price to account for the long-term difference in the exchange rate. I've never hesitated to purchase something I wanted or needed because of the currency or exchange rate.
I personally prefer knowing exactly how much its going to be without going to Google and typing in "20 euros in usd"... PayPal does make this really easy though so its not as big of a deal.
When buying stuff online in Euros I just think of it as one to one and if in Pounds I think double. I realize that it's not very accurate but frankly if I've decided to buy something I'm not going to quibble over a few bucks and I'm more than happy to just let the credit card company deal with the conversion. Perhaps I'm just lazy or wasteful but I'll leave it to others to worry about application arbitrage.
They way to go is exactly what Evariste says, sell in the same currenecy as you buy your groceries, or a currency with a tight relationship with your own. Myself being from Sweden would probably choose Euros and not Swedish kronors.
Well being a guy from the UK working in Europe in Euro and Pounds I can tell you that personally I dont care what currency something is sold in.
Although I prefer to see prices in Euros, lately prices in $ are so much better because everyday it gets cheaper!
However personally I think you should look at how your buyers split, are they all american? are americans over 50% of your market? etc. Then make a choice based on that because it seems most of them would be put off by seeing a differnt currency. One thing to note, if you do keep $ and hike prices, as a 'potential european customer' I would feel annoyed that the price would essentially go up for me simply to appease a weak US$, but so is life I would get over it we are talking small ammounts of money anyway.
Interesting problem though.
Just hike the price to cover your costs. I think most US residents would prefer the immediate "oh, thirty-five bucks" vs. the more unclear "twenty pounds". Explicit is better than implicit!
Switch to the Euro, it's much more stable at the moment, and poor consumer figures out from the US means that the dollar can and probably will keep on falling.
The debt run up by the government has had me worried for quite a while. This is not a sudden surprise. I don't think the cure will be as painless as a simple tax hike or a little cut in spending.
To be honest, what you do is up to you and what you think is best for your business.
However, currency fluctuations are part and parcel of international trade and a risk that you have to take when selling abroad. I guess the reason you chose to sell in Dollars was to maximise your market by appealing to American buyers. You can pretty much write off a good percentage of them if you convert to euros and also bear in mind that the euro has a patchy history itself. If it were me, I'd hold out a little longer. The pound can't remain this strong for long as it's not sustainable - the Bank of England will see to that
One person to maybe ask about this would be Allan Odgaard, seeing as he's been selling in Euros for quite some time now. I'm personally launching my Apps in $ just because it's easier to work with my American friend but if things drop below 50p I might start to reconsider my position. It's always a two edged sword, because buying stuff in the US is very cheap, but you have less money to buy it with
(btw: As we're all on Mac here, right?!, don't forget the Unit Converter widget. A quick zip to the Dashboard and you're done.)
I live in Europe and have made numerous online payments over the years in various currencies and find that to be quite natural, the internet being a global thing 'n all.
Given the current trend I think that over the coming years doing business in dollars is going to be a losing proposition. You may mark up your price now from $20 to e.g. $30. And what do you do if the dollar keeps going down (or climbs back up)? Are you going to keep adjusting your prices based on the whims of the dollar market?
Just like how the pr0n industry is often a leader in quickly adopting new technology (online payments, streaming video, etc.) because of the potential of greater profits, the currency criminals prefer to use in their, um, transactions indicates the current most stable coin. After all, few people are as obsessed with value as they are. :) Currently they prefer Euros.
Of course, as an avid Euro user myself, I'm biased, but I say move to a stable currency and show the current dollar value next to it. I'm sure there are some webservices that do conversions.
Too bad PayPal can't handle transactions in gold. ;)
Switch to Euros and show the equivalent Dolla' value.
I'm not sure what the potential problem you're anticipating is.
The dolla's floundering around so fast you'd be losing money week-to-week so something stable like Euros or Sterling is definitely the way to go, after all if your software is worth 30 euros, then it's work 30 euros.
Psychologically, it may be worth thinking about putting the amount in sterling.
* It's stable
* Its ("twice as much") value against the dolla means it's relatively easy to convert
* All non-Americans can work it into their currency without too much bother
Consumers are used to pricing being different in the USA, UK and Europe. For example, Gears of War, a new XBox 360 game, retails for USD 59.99 and GBP 49.99. Based on current exchange rates, UK customers are paying around USD 96! As long as prices are set reasonably, e.g. $24.95, GBP 14.95, EUR 19.95, I don't think customers would mind. Implementing a store which handles multi-currency pricing might be tricky though. Not sure if Kagi or eSellerate handle this, or how easy/hard it is to do in PayPal.
The problem is when it comes to selling Mac shareware probably 90% or so of all sales are to the US, so from their perspective it just looks like a price hike. At least there's not so much 'sticker shock' with a similar of equivalent price in euros. It's like the whole 24.99 thing, the psychology of pricing is quite important.
It's also pretty hard, if not impossible, to enforce that users from different regions pay in a certain country when using PayPal - and savvy consumers will just pay in what's cheapest, which is going to be dollars.
For now, depending upon your business and how its setup, its probably worth speaking to an accountant as any foreign exchange loss can reduce your taxable profits.
In the end switching to any currency has exchange risk, and it will be more noticeable to you, if it's not your day to day currency.
I'm not really sure if euros are any more appealing than pounds outside Euroland, so why not just charge in pounds? More than just keeping the numbers the same they'll actually appear to go down.
I definitely think Americans have a mindset problem with purchasing from the internet in other currencies. But on the other hand, you'll offset these lost sales with greater profits on each sale at the higher (or non-dollar-based) price.
I think you should switch to euros.
Who would be angry if you adjust prices? Most of the people who have already bought your app won't bother as they're not affected, and your future customers don't know about the old price.
So if I were you, I'd put a dual-currency price tag on the software, whereby the euro is your reference point. Adjust the dollar price from time to time (as soon as weak dollar hurts you), and add explain why the prices may change from time to time in your FAQ.
Frequently varying the price does seem to annoy some people and it creates confusion - there has been a lot of discussion about varying prices on the Mac Small Business mailing list and it was generally agreed it was a bad thing to do.
I would advice to hike the price and not to convert your base price to euros. eSellerate is great and shows buyers their native currency, taking care of the exchange rate transparently. Your biggest market is the American market (it is for all of us software developers) and the reason you should keep your prices in dollars. You will loose a lot more customers when "Purchase (20€)" turns into "$ 26.29" in the shopping cart than when "Purchase ($26)" becomes "19.77€". You can even publicize the imminent price increase as a reverse sale. BTW your metal buttons would have saved me some time 2 years ago.
The Economist's Big Mac Index of May 22nd, 2006 suggested that the Pound was overvalued against the Dollar back then. From this one might expect that we're near the bottom of the exchange rate scale now and that we'll see it start to "correct" itself soon.
But that's just a guess. :-)
My opinion is biased because I'm an American and am really familiar with USD. But my suspicion is that USD has an internationally recognized value that no other currency can match. Therefore, by pricing in USD you're not just catering to Americans but to, say, Japanese, who (big assumption here!) may have a more comfortable understanding of USD than Euro.
Of course, I could be totally wrong here. I'm assuming that the US currency permeated the world to a similar extent that the UK's language has.
As an Australian, I pay through the nose for shareware from other countries. Banks here charge several dollars on top of the converted rates, just for the pleasure of doing business. I'm therefore just as happy to pay in Euros as US dollars, with the proviso that since the US dollar is tanking and that country is likely to enter a long recession, the Aussie dollar is looking very strong against it (right until we follow the US into recession, as we follow them slavishly in every other way). More stable currencies like the Euro and the Phenobian wooden bead effectively cost me more.
But you should prefer payments that meet your costs. That's business. That either means increasing prices or going to your preferred currency. If your US customers can't afford your product, you've got to decide if they're worth having. That's the new economy promoted by the Free Market.
I would just have two prices for the software: one in UK pounds (i.e. the currency you use in day-to-day life) and one in US dollars. The US$ price would obviously have to rise to reflect the exchange rate and have a buffer to cover any further deterioration in the US$. Anyone in the US not comfortable with paying in another currency would be able to buy in US$ but possibly paying more than the current exchange rate.
Well we charge in U.S. dollars, Euros and Sterling, depending on where in the world the customer is. For most places we use Sterling, unless they either use the U.S. dollar or a currency pegged to it (in which case we use U.S. dollars), or they're in the Euro zone (in which case we use Euros).
We haven't had any complaints about confusing prices since we started doing that, whereas we used to get some very irate e-mails from Americans claiming that we'd overcharged them when in fact they just ignored the currency symbol. And it means that those customers who don't expect to have to take account of exchange rates don't have to.
I think it would be unwise not to offer pricing in U.S. dollars, because by not doing so you're essentially leaving the price in the main market for Mac software at the whim of exchange rate fluctuations. At least, with a U.S. dollar price, you can choose whether to subsidise U.S. customers or whether to increase your prices (especially important if your competitors are U.S.-based).
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