How to prevent localized pricing policy abuse

It’s no secret that localized pricing can boost conversions, especially with ever expanding global markets. Streaming services, Ecommerce, FinTech, to name a few, all benefit from customized price tags.

However, while this personalized touch offers a wealth of revenue opportunities, there’s also another side, and that’s this: customers can try to bypass these policies to pay less.

The good news is that companies can take steps to prevent this abuse and protect their revenue.

What is localized pricing abuse?

Localized pricing is due primarily to global expansion. Not all countries possess the same buying power, yet the market opportunities in those regions are ripe for growth.

Making global expansion possible

Companies who want to capitalize on these opportunities and offer their products or services to new markets need to adjust pricing based on the buying power of the region.

By way of illustration, India has a lower purchasing capacity than the US. The result is that the same product is often priced differently in the US compared to India. Localized pricing, in other words, benefits companies focused on market expansion and greater conversion rates.

Businesses who want to offer their products, services, or content in different countries also have to consider local fees or reseller protection. Location-based rates, in other words, help companies protect their bottom line from being eroded by unexpected costs.

How is it abused?

With every opportunity for growth and progress, however, fraud or abuse seems to be close at hand. Localized pricing is no exception.

Customers or users from countries with higher buying power sometimes try to sidestep localized pricing in order to pay less for products or services. There are many ways they accomplish this, and those will be mentioned further down in this article.

But for now it’s important to note that when localized pricing policies are abused, companies can’t fully harness the revenue power that’s offered by global expansion.

How does it affect different industries?

The impact of localized pricing policy abuse isn’t limited to one industry or market segment. Rather, it affects the bottom line of companies in many different fields. And ultimately, if it goes unchecked, this abuse can prevent expansion for future-oriented businesses.

Here are just a few examples of industries affected by location-based pricing misuse.

On-demand music streaming services

When it comes to music streaming, the global market brings in around $20 billion annually. And most of these streaming services cater their prices to each local region.

India, for example, has an average wage of around $140 per month. In this specific market, Apple Music charges $1.32 for monthly subscriptions. Denmark subscribers, however, pay well over $15 every month for this service due to an average monthly income of over $4000.

But in terms of affordability, Apple Music takes up 0.39 percent of Denmark subscribers’ income. Whereas in India, Apple Music subscribers pay 0.95 percent of their salary in order to get access to this service.

What’s really fascinating is how Apple Music appears to have used localized pricing to undercut competitors. They are now slightly more affordable than Spotify in fifty-four different markets.

Online shopping experiences

Ecommerce is yet another field affected by location-based pricing abuse. For instance, Michael Kors’ online products are available to buyers on nearly every continent. To make this possible, they cater their prices to the buying power of each region.

Take this handbag as an illustration. It’s offered at different prices in Austria, the US and Hong Kong, China.

Translating these prices into USD, the same handbag in Austria costs just over $475. In China, customers will pay upwards of $683. While in the US, this designer crossbody is priced at just $428.

Simply put, buyers who want cheaper prices often try to purchase handbags at an unfair discount by hiding their geographical location. More on this later.

Gaming subscriptions

GameTech is another industry that uses localized pricing to boost revenue. Microsoft, for example, charges different prices for Xbox Live subscriptions in different countries. Not only that, but in the past they’ve also altered prices based on specific locations to provide the right balance of service and value.

Subscribers in India pay just under $7.00 USD whereas those in Taiwan pay $11.44 per month. Customers have used this information to purchase plans from countries with cheaper rates. In short, the gaming industry loses profit and control over pricing policies from this abuse.

Video streaming sites or services

In addition, sites such as YouTube that offer premium video streaming services vary their prices based on users’ location.

Argentinians can purchase this service for a mere $1.57. Users in countries like Switzerland or Denmark, on the other hand, pay over $17 for monthly access. But again, YouTube caters their prices based on the average income of users to gain optimal revenue and conversions.

Then there’s Netflix. Canadians pay less for this service than US citizens. But at the same time, those in Canada also have access to more titles than those living right across the border.

Needless to say, pricing differences like these leads some buyers to abuse pricing policies in order to gain access to more content at a lower cost. The result is that video streaming services lose revenue from regions with more buying power or higher demand.

Money transfer services

Another industry that’s impacted by localized pricing policy abuse is Fintech. For example, TransferGo - a money transfer service - needed to prove the country of origin for their customers before completing transactions.

Since each country has different licensing restrictions, TransferGo needed a solution that validated these transfers quickly and allowed them to charge their customers correctly. Without the right system, users would either spend a lot of time submitting proof of residence or could potentially sidestep licensing restrictions that are meant to prevent criminal activity.

Luckily, TransferGo found the right solution to provide efficient, validated transfers for their customers. But in a complex market like Fintech, localized pricing abuse can lead to serious legal concerns alongside profit losses.

How users fool the system

The whole point is this: many different industries are affected by customers who try to sidestep location-based prices. Here are some common ways users fool the systems meant to protect the revenue of globally expanding companies.

IP address anonymity

Anonymity is key for localized pricing abuse. That’s often why buyers hide their IP addresses using VPN. Online buyers, in other words, attempt to hide their location using fake addresses.

Since VPNs loan users a temporary IP while also encrypting real location details, customers can hide their true country and purchase goods, services, or content at lower prices.

Proxies also make IP addresses appear to come from another country. With this method of anonymity, customers in Switzerland, for instance, can purchase goods as though they lived in Argentina and ultimately pay less. The result is that online stores sell products for less than they should and lose revenue in the process.

This form of localized pricing abuse has affected streaming services so much that some have tried banning international VPNs. Netflix prohibits quite a few VPNs due to territorial licensing.

To summarize, fake IPs and customer anonymity can wreak havoc on companies who want to expand to global markets. That’s why many future-oriented businesses take proactive steps to prevent localized pricing policy abuse.

Mail Forwarding

Many customers of physical goods also have to take anonymity a step further. To make the sale look legitimate, these buyers have packages sent to a mailing address in the country the seller thinks they’re from. Then this postal service forwards any mail to the actual address of the customer.

In the end, these customers purchase goods at an unfair discount. Take, for instance, the handbag example from above. While the buyer may receive a discounted handbag, Michael Kors unwittingly loses revenue.

Obtaining a local phone number

The basic gist of localized pricing policy abuse is that customers need details that make them appear to be in another country. Some buyers get around the system by obtaining a local phone number from the region with the lowest prices. Using a service like 5sim makes it relatively easy to look like a legitimate citizen of that country.

Steps to prevent localized pricing policy abuse

On the positive side, online businesses can protect their inventory, content, and services from customers who would abuse localized price tags.

It’s important to note that by themselves the steps below may not prevent localized pricing abuse. But used in tandem with each other, companies can gain better insights into their customers’ intentions.

1. Validating credit card location

Credit cards have made consumerism much more feasible. However, when it comes to localized pricing, they also pose risks for businesses. There are some features built in to credit cards that make validation easier.

For instance, businesses can use Bank Identification Numbers (BIN) to check the location where the card was issued. IP address geolocation data can then be used to compare BIN information with the customer’s location.

But beyond traditional credit cards, buyers also attempt to use systems like Transferwise or free fee cards like Monzo. Consider this customer who wanted to use Transferwise to purchase a video game subscription outside his or her own country:

The problem with simply blocking companies like Transferwise is that normal users may also get banned. But by validating credentials, companies can stay a step ahead of customers who try to get around pricing policies in their region.

2. Detecting VPNs

As was already mentioned, fooling online stores often includes some sort of VPN protection. Privacy detection, therefore, is a very important part of preventing pricing abuse.

IP address data can be used to flag masked identities such as users with a VPN. In the case of IPinfo, though, our privacy detection API also tracks several other methods used to hide identities - tor usage, connections via hosting providers, and beyond.

While IPinfo can’t speak for all VPN detection systems, here’s how privacy detection works for our users. Our API performs Internet-wide scans to detect nearly 10 million active VPNs. This information is then combined with data from public SOCKS and HTTP proxies, tor exit nodes, and IPinfo’s usage type classification.

In other words, privacy detection features such as these give businesses a bigger picture of their customers, allowing them to protect revenue while expanding globally.

3. Verifying addresses and locations

Credit cards also have a system called Address Verification Systems (AVS). They check to see if billing information used for each purchase matches up with the address on file for the card. If not, credit card companies may decline the transaction.

And while customers sometimes try to get around this system in other ways, IP address data can also match the billing country with the IP country information. Consequently, companies gain more visibility over each transaction and have better ability to know where their buyers are located.

To summarize all of this, localized pricing policy abuse can be avoided by gathering various forms of location data that validate where customers originate. IP address data is a valuable piece of the puzzle, helping companies mitigate risk while protecting revenue streams.

Ready to gain consistency with your localized pricing? Connect with a data expert today!