When expanding your business outside of Japan, how do you decide on prices for overseas sales? Converting amounts based on retail prices in Japan might not result in appropriate prices. Instead, it is important to consider local market conditions and sales-related costs.

For example, in addition to shipping costs, customs duties, and payment handling fees, it’s also important to check the pricing of local competitors, purchasing power, and exchange rate fluctuations. In addition, fees and margin structures differ among self-owned e-commerce sites, overseas e-commerce malls, and sales through distributors. Therefore, profit on the same products will also vary.

If overseas sales grow, profits might not be as high as expected if prices don’t fully reflect necessary costs. To sustain overseas sales without causing strain on your business, it is important to set prices that consider how much local customers are willing to pay and the profit your business needs.

In this article, we explain the costs businesses need to be aware of when selling products overseas from Japan. We also discuss how to set prices that are appropriate for local markets. This article will help business owners who are thinking about cross-border e-commerce or are already selling overseas and want to review their pricing.

Key takeaways

• It is important to base prices for overseas sales on local price ranges, purchasing power, and the competitive landscape, rather than simply converting domestic Japanese prices into local currencies.
  
• When setting prices for overseas sales, manage profitability by taking into account the cost of goods, shipping costs, customs duties, sales and payment handling fees, and exchange rate fluctuations.
  
• Establish a system that ensures consistent and ongoing profitability by considering the costs and roles of each sales channel and adjusting prices as needed.
  

How to determine prices for overseas sales from Japan

To determine prices for overseas sales, it is important to do more than add a fixed amount to the price in Japan or convert the price to the local currency based on the exchange rate.

First, research the prices of competing local products to identify a price range that customers will accept. Work backwards from there to determine pricing that allows for the necessary profit, and consider the cost of goods, shipping costs, customs duties, payment handling fees, sales platform fees, and distributor margins.

When selling overseas, it is necessary to consider prices that will be well-received by the local market and will deliver a profit. Simply aligning with market prices might not generate enough profit. On the other hand, marking up the cost could result in prices that are higher than the local market rate. This can make it harder to make sales.

When setting prices, focus on price ranges that meet these three conditions:

• Meet customer expectations
  
• Recover sales-related costs
  
• Ensure target profit
  

In addition, costs vary depending on the sales channel, such as self-owned e-commerce sites, overseas e-commerce malls, and sales through distributors. Check the fees and margins for each channel and product, and set prices after calculating the profitability for each one.

Why is pricing important for Japanese businesses selling overseas?

Every year, more and more foreign customers buy Japanese products from overseas. According to the Market Survey on Electronic Commerce for Fiscal Year 2024 published by the Ministry of Economy, Trade and Industry, Chinese customers spent nearly ¥2.64 trillion on cross-border e-commerce purchases from Japanese businesses in 2024. This is an 8.5% increase from the previous year. In addition, the value of cross-border e-commerce purchases made by US businesses reached ¥3.14 trillion, reflecting the strong overseas demand for Japanese products.

The expansion of the cross-border e-commerce market presents an opportunity for Japanese businesses, sole proprietors, and solopreneurs to expand their sales channels overseas. On the other hand, the more countries and sales channels, the more complex pricing and profit management become.

For example, when a business sells through its own e-commerce site, it must factor in payment handling fees and customer acquisition costs. When selling through overseas e-commerce malls, it is important to factor in sales commissions and shipping costs. Lastly, when selling through distributors, businesses must consider wholesale prices and distributor margins. Even for products sold at the same prices, profit margins are likely to vary depending on the sales channel.

Does this mean Japanese businesses need to choose the channels with the highest profit margins? This is not necessarily the case because using overseas e-commerce malls and distributors can create new touchpoints with customers and potentially increase brand awareness in those markets. Even if short-term profit margins are low, initiatives that lead to the development of new sales channels or future sales growth can yield greater benefits in the long run.

Therefore, when setting prices for overseas sales, carefully assess profitability by considering the immediate profit margin, role of each sales channel, and business's medium- to long-term goals.

Costs to consider before determining overseas prices

Before determining prices for overseas sales, confirm the cost of goods and costs associated with sales, such as shipping, handling, and taxes. It’s also important to remember that the party that bears the costs and the amounts involved can vary depending on the country of sale and the sales channel.

International shipping

When shipping products overseas, businesses incur international shipping fees and costs for packaging materials, tracking services, and shipping insurance. Shipping rates vary based on the size and weight of the item and depend on the destination country or region and shipping speed.

It is also important to factor in the costs associated with returns and various shipping issues that might occur. For overseas returns, the return shipping costs can exceed the price of the actual item. For products with an expected return rate, one approach is to allocate the costs associated with returns and re-shipments across orders and factor that into the price.

Even if a business offers free shipping on purchases above a certain amount, this does not actually mean that the carrier’s shipping fees are waived. Typically, businesses cover these costs. Therefore, it’s important to check the average order value and gross profit. Then, calculate whether the business can absorb the shipping costs.

Customs duties and taxes

When selling overseas, customs duties, import taxes, value-added tax (VAT), and other charges can apply depending on the type of product and destination. The amount the customer ultimately pays and the profit a business retains varies depending on who bears these costs.

For example, in addition to the product price and shipping cost, the customer might also be required to pay customs duties or taxes upon receipt. If it’s unclear what additional costs might apply before a purchase, customers could refuse to accept the delivery or return the product. Therefore, it’s necessary to clearly specify which costs are included in the price and which are not.

For B2C transactions, include customs duties and taxes in the product price to make it easier for customers to understand the final amount they will pay. Businesses also need to clearly disclose any additional charges before the checkout stage. If unexpected costs arise after purchase or upon receipt of the product, customers might be dissatisfied or abandon their carts.

Tax rates and regulations vary depending on the country of sale and product category. Check these in advance to ensure they match the actual transaction conditions.

Sales and payment handling fees

When a business sells through its own e-commerce site, it needs to factor in payment handling fees, website operating costs, and customer acquisition costs. When selling through an overseas e-commerce mall, it’s important to factor in sales commissions, listing fees, advertising expenses, warehousing costs, and fulfilment fees. When selling through a distributor, margins paid to the distributors and wholesale pricing can impact profitability.

Although the costs vary slightly depending on the sales channel, it’s important to gain an understanding of how much of the selling price ultimately remains with the business.

Exchange rate fluctuations

With overseas sales, exchange rates can change between the time prices are set and payments are received. Even if the price is the same in local currency, sales revenue can decrease when converted to yen. This means profits might fall short of expectations.

When setting prices, it’s important to base calculations on more than the current exchange rate. Verify that the business can maintain the necessary profit, even with a certain degree of fluctuation.

Setting prices that suit local markets

When setting prices for overseas sales, it is important to consider the costs involved and the price ranges that local customers are willing to accept. After gaining an understanding of competitor pricing and purchasing power, businesses need to calculate whether they can secure necessary profits and verify which sales channels are profitable.

Research local products and price ranges

First, check the prices of similar products on local e-commerce malls and at retail stores. In addition to comparing prices, check product sizes, quality, brand recognition, reviews, and shipping costs.

For example, if a product has certain advantages – such as being high-quality and made in Japan – or features unique materials, customers could be willing to accept a higher price than they would for local products. On the other hand, similar products on the market at low prices could lower price competitiveness.

When comparing multiple competing products, checking the lowest price, main price range, and median price can provide an understanding of the overall market.

Understand purchasing power and perceived value

Even with products that cost the same amount, the perceived financial burden on customers varies by country and region. Therefore, set a price range that won't burden customers, taking into account local income levels, typical purchase prices, and frequency of purchase.

Calculate prices based on target profit

When deciding on a selling price, it is important to do more than add a markup to the product cost and shipping fees. Instead, calculate the minimum selling price by also including sales fees and payment handling fees.

A product's selling price can be calculated as follows:

Selling Price = Fixed Cost per Item ÷ (1 – Fee Rate – Target Profit Margin)

For example, a fixed cost of ¥5,500 is incurred for each sale – such as the cost of goods, packaging, and shipping. The commission on the selling price is 15%, and the business wants to maintain a profit margin of 30%. In this case, the minimum selling price can be calculated as follows:

¥5,500 ÷ (1 – 0.15 – 0.3) = ¥10,000

In this case, the minimum selling price is ¥10,000.

Confirm profitability for each sales channel

Self-owned e-commerce sites, overseas e-commerce malls, and sales through distributors each have distinct objectives and needs.

For example, consider the following objectives:

• Collecting customer data on self-owned e-commerce sites
  
• Increasing touchpoints with new customers on overseas e-commerce malls
  
• Expanding sales channels into hard-to-reach regions through distributor sales
  

It is important for businesses to review the pricing and profitability for each channel and consider medium- to long-term benefits, such as increased brand awareness, development of new sales channels, and future sales growth.

Key pricing strategies for overseas sales

In addition to setting appropriate prices for overseas sales, it’s also important to display prices in local currencies and adjust them in response to exchange rate fluctuations.

Display prices in local currencies

If prices are displayed in unfamiliar currencies on e-commerce sites, customers have to convert the amounts. This can make it difficult to intuitively determine whether a product is expensive or inexpensive, which can result in customers deciding not to make purchases.

Display prices in the currency customers typically use, such as US dollars (USD) for US customers and yen for Japanese customers. When selling to multiple countries and regions, it is also important to provide a way for customers to easily select their preferred currencies.

Present additional charges

If there are additional costs beyond the product price—such as international shipping fees, customs duties, or import taxes—inform the customer as early as possible. Even if a product appears to be reasonably priced on the product page, unexpected costs that arise when proceeding to checkout can lead to cart abandonment.

Align prices with exchange rate fluctuations

Even if prices are displayed in local currencies, changes in exchange rates will cause the yen-equivalent sales and profits to fluctuate. Regularly reviewing prices is important for mitigating this kind of exchange rate risk. However, changing prices too frequently can confuse customers and lead to more coordination with distributors and business partners.

Therefore, it’s important to establish a schedule for checking prices in advance, such as monthly or quarterly. Another option is to adjust prices when exchange rates fluctuate beyond a certain range or when profit margins fall below an established threshold.

Automate conversion to local currency

As the number of countries and currencies increases, it becomes more complex and difficult to check exchange rates for each one and update prices manually.

Stripe’s Adaptive Pricing determines the appropriate currency based on the customer’s public internet protocol (IP) address. This allows product prices to automatically convert to local currencies. For example, product prices set in Japanese yen are displayed in USD for customers in the US, and they can pay directly in USD.

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FAQs about pricing strategies for overseas sales from Japan