European business operating in the US need to review their pricing – now
For the first time in 2 decades the Euro is worth less than the US dollar. There are strong indications for the Euros continuing decline for at least the next year or two. Since 2021 there has been a steep decline, at the start of 2021 the Euro was equal to a $1.23 US dollar, but now in the autumn of 2022 the Euro is equal to $1 USD.
While things are growing uncertain in Europe, especially considering the Russian invasion and its impact on natural gas. Things are growing stronger on the other side of the Atlantic. The US is now seen as a safe haven for investment dollars, this is mostly due to recovery from covid, improvement in supply chains. The various political and economical challenges in China has also contributed to the rising trust in the US dollar.
What does this mean for European businesses?
Although this might seem dim for the Europeans operating in the US, it not all bad. With a stronger dollar we can now anticipate an uptick in European exports to the US, since EU 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 are US based companies.
Imagine you are a European beer exporter
Let’s imagine that you are a leading European beer producer of a premium beer and you get 25% of your business from the US market. A year ago the typical price for your 12 pack beer $25 in the US, but now you can sell that same 12 pack for $20 and maintain the same gross margins with a likelihood of
selling more volume.
But perhaps your business would do better if you raised your prices. To maintain some consistency in pricing. Your profit margins would also increase and also the premium aura of your brand, if you believe as I do that “price connotes quality”.
In our example, this is where its time to check the pulse of the marketplace and in this case
the US beer consumer. Conducting pricing research would help you 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). In addition, the research would 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.
Key takeaways for European exporters
These findings are critical for European exporters. If a lower price did not drive expected levels of higher sales volume, the company “would be leaving a lot of money on the table”. This is further highlighted in McKinsey Research that found just a 3% increase in price will on average generate almost a 25% increase in operating profit.
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. Making this a unique opportunity for European exporters.