Let’s start by what we mean by Buying Power. Let’s take the Big Mac price index as an example of this; You can check out the Big Mac Index website here.
The Big Mac price index looks at the cost of buying a Big Mac from McDonald's in many cities around the world. This provides a good indication of the relative “buying power” that consumers have in different countries. McDonald's changes the price of the Big Mac based on how easily consumers from these different countries can afford to pay. It’s a fair bet that if McDonald's has to half the cost of a Big Mac in India to sell it, then the effective buying power of consumers in India would be half that of consumers in the US.
This tells us that you need to consider whether your product is overpriced if you sell it in India vs. the US for the same relative price. Now obviously if you have other costs to consider, such as supporting your customers, you might not want to directly reflect market buying power, however if you want your product to sell well in other markets, this is an area you need to consider carefully.
We like to think about it using simple math..
Let’s assume you’re selling your software for $40 to US customers, and you enable Indian Rupees and use the same relative cost in INR ( 2715 )
The minimum wage in the US is $7.25 per hour. That means a US consumer would have to work just over 5 hours to earn enough money to buy your product.
So how does that compare to our India price?
Although it is slightly harder to calculate, a good average for the hourly pay in India is 300 Rupees per hour. That means someone in India would have to work for just over 9 hours to earn enough money to buy your product… ouch!
The Big Mac index we referred to above suggests that the buyer power difference is some 46% less, which means we should alter our product price to something more sensible (1466.14 rupees, which if calculated, would take an Indian approx just under 5 hours to earn enough to buy it)
One last thing to think about
The last stage you need to consider when setting a price is to ensure it is “easy on the eyes” in the checkout. For example, you wouldn’t want your checkout to display 1466.14 Rupees as above; we’d highly recommend using something like 1450. This entices shoppers to checkout and increases your conversion rate.
However, be aware that this does not hold true for all currencies and countries. For example, you may want want to set the price using .99 in some countries and not in others. In some countries it is considered bad luck to contain specific numbers. It might seem crazy but these little tweaks can have a huge impact on your conversion rate and help you to sell your product around the world.