Parity Pricing Glossary
Understanding the key terms in purchasing power parity, geo-pricing, and global pricing strategies.
Purchasing Power Parity (PPP)
An economic theory that compares different countries' currencies through a 'basket of goods' approach. In pricing, it means adjusting prices based on what customers in different countries can actually afford relative to their local economy.
Example: A $100 product in the US might be priced at $40 in India because the average income and cost of living are significantly lower.
Parity Pricing
A pricing strategy that adjusts product prices based on the purchasing power of different geographic regions. It allows businesses to offer fair prices to customers worldwide while maximizing revenue from each market.
Example: Spotify offers different subscription prices in different countries: $9.99/month in the US, but approximately $1.50/month in India.
Geo-Pricing
The practice of setting different prices for products or services based on the geographic location of the customer. This can be based on country, region, or even city.
Example: An online course platform showing $199 to US visitors and $79 to visitors from Brazil.
Location-Based Pricing
A broader term for any pricing strategy that considers the customer's physical location. This includes parity pricing, regional pricing, and local market pricing.
Example: Netflix charging different monthly fees in different countries based on local market conditions.
Country-Based Discounts
Automatic discounts applied to customers based on their country of origin. These discounts are typically displayed via banners or automatically applied at checkout.
Example: Showing a '40% off for visitors from Philippines' banner on a pricing page.
VPN Detection
Technology used to identify when a user is accessing a website through a Virtual Private Network (VPN), often to appear as if they're in a different location. Important for preventing discount abuse in parity pricing.
Example: Blocking parity discounts for users detected to be using VPNs to fake their location.
Coupon Abuse
When customers use methods like VPNs, proxies, or shared coupon codes to obtain discounts they're not eligible for. A common concern in parity pricing implementations.
Example: A US customer using a VPN to appear as if they're in India to get a 50% discount.
Price Localization
Adapting prices to local markets, including currency conversion, PPP adjustments, and consideration of local competitive landscape and willingness to pay.
Example: Displaying prices in local currency with PPP-adjusted amounts for each country.
Emerging Markets
Countries with developing economies that typically have lower purchasing power than developed nations. These markets often benefit most from parity pricing strategies.
Example: India, Brazil, Indonesia, Mexico, and the Philippines are common emerging markets targeted for parity pricing.
Conversion Rate Optimization (CRO)
The practice of increasing the percentage of website visitors who take a desired action (like purchasing). Parity pricing is a CRO strategy for international visitors.
Example: Implementing parity pricing banners to increase purchase conversion rates from international visitors.
API Hits
In the context of parity pricing tools, an API hit is counted each time the tool checks a visitor's location and determines what discount (if any) to show.
Example: Each time a visitor loads your pricing page and the parity banner is displayed, that counts as one API hit.
Big Mac Index
An informal measure of PPP created by The Economist, comparing the price of a Big Mac burger across countries. Often used as a simple illustration of purchasing power differences.
Example: A Big Mac costs $5.69 in the US but only $2.50 in India, illustrating the purchasing power difference.
Willingness to Pay (WTP)
The maximum amount a customer is willing to spend on a product or service. Varies significantly by geography due to income levels and local market conditions.
Example: A customer in Germany might have a WTP of $100 for software, while a customer in Vietnam might have a WTP of $25 for the same product.
Revenue Optimization
Strategies to maximize total revenue from all customer segments. Parity pricing optimizes revenue by capturing sales from markets that would otherwise not convert at full price.
Example: Earning $40 from 100 Brazilian customers vs. earning $0 because none would pay the $100 US price.
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