Bend over and cough… (Price Disparity)

Welcome to Australia, home of the great barrier reef, Uluru, kangaroo’s, emu’s, the shrimps cooking on the barbie and paying through the nose when you want something.

Recently in Australia there has been some commotion in the retail world regarding the topic of when and where people shop. Major retailers have been up in arms regarding the increasing trend for people to window shop in stores and then head home in order to purchase what they want from an online retailer. The key motivator with this being money, or in their case the loss of it.

We have a goods and services tax here in Australia and part of the crying foul by retailers is the fact that online goods under the value of AU$1000 do not attract a customs import fee thus can be seen to be a major drive for shoppers to head online. The truth of the matter however is we do not pay 10% more for goods, in many cases it can be up to 100% more.

In part I do agree with the retailers, personally when I choose to do my shopping online I also do my research regarding the product online as well. I look at photos, read reviews and investigate the specifications / features of the product I am thinking of buying and base my decision on this. People however that do their shopping in brick and mortar stores and then buy online to save money are in a sense cheating the store of their chance to earn your money. They do all the ground work by having staff there to assist you with your questions and having the goods for you to have a play with in person, only for you to then walk away hence wasting their time and their money I would be annoyed too.

But the question is what is that level of service worth?

Some things in my view affect the purchase price of the product:

1. Economies of scale
Australia has a population 22.3 million (circa 2010) vs the population of the United States being 311.5 million. American with a population almost 14 times that of Australia, coupled with a higher GDP per capita would lead to a greater percentage of units being sold there.

2. Manufacture
In the global economy these days, goods are increasingly manufactured in one location and from there dispatched to the areas in which they will be sold. Based on this the cost of supply is more stable rather than differing material and labour costs driving supply and demand associated costs.

3. Logistics
Given that goods are increasingly made overseas due to cheaper labour and materials, the other component to consider is the costs associate with shipping the goods to where they are being sold. I could go on to write a complex formula to calculate cost, however goods are commonly shipped either by air or sea, the common variable being fuel associated with hauling the goods. The areas of the world that are used for manufacture is commonly third world countries as well as china due to the low costs associated with operation of factories and cheap workforce, these countries are relatively central in the world meaning overall distances between major countries can be relatively evened out working on an aggregate cost per location for delivery, the only key variable here is the number of units being shipped. The more units there are the heavier a shipment weighs, the more something weighs the more energy is expended in propelling it to it’s destination.

4. Local Costs (Warehousing / Store / Wages)
Australia has minimum wage laws defining how much one should expect to be paid based on age, years of employment and vocation (covered under federal / state award rates) aside from these there is the absolute minimum wage being $15.51 per hour. When comparing this to the USA where I believe it is not uncommon for unskilled labour to earn about $5 per hour this does represent a significant difference in staffing costs. Retail rent is not particularly cheap I do not believe anywhere in the world, the major key difference between us would be wages I believe.

All this boils down to the actual cost that each of us pay for goods respectively in a brick and mortar store.

Item

Price in Australia

Price in USA (AU$)

Difference

Canon EOS 5D Mk III $4399 MSRP $3300 MSRP +32%
Diablo III $88 (EB Games) $57 (Gamestop) +54%
Playstation 3 $348 (EB Games) $183 (Gamestop) +90%
20 pack Marlboro Red $13.20 $5.40 (San Diego) +244%
Fuel (Per Liter) $1.50 (as of tonight) $0.96 (gasbuddy.com) +56%
1kg T-Bone Steak $19.90 $28.87 (homelanddelivery.com) -45%
iPad 3 16GB wifi $539 $475 +13%

* Note to self fulfill T-Bone desire before next travel to USA youch

Surprisingly Apple actually win out after taking GST into consideration, they only charge us an additional 3% compared to the states, still I do not think their products are worth the pricetag associated but I digress…

In the end it all boils down to what you are willing to pay for something, it seems that we here in Australia don’t mind being ripped off when shopping in stores…

Now to consider some items which actually have the same costs associated with them.

In the digital age we have more and more content becoming available to us over the internet and can buy content such as games and music in digital form. The largest part of the cost in data for Australian users is the fact that about 90 – 95% of content we like is hosted in the USA and there is a whopping great ocean in the way. This cost however is not worn by the content provider it is covered by the international bandwidth provisioned by our carriers here leaving the actual supply costs pretty much the same for all markets.

For digital game delivery Steam has certainly taken off, being a global platform with many datastores being provided by other carriers to Steam overseas you would think that there would be a set cost with products regardless of where you are, however sadly this is not the case.

Item

Australian Pricing

US Pricing

Difference

Bulletstorm $69.99 $19.99 +350%
Rage $89.99 $29.99 +300%
Duke Nukem Forever $49.99 $19.99 +250%
Assassin’s Creed Revelations $79.99 $49.99 +60%
Call of Duty Black Ops $89.99 $39.99 +80%
Saints Row The Third $89.99 $49.99 +80%
Call of Duty: Modern Warfare 3 $99.99 $59.99 +67%

It is not just steam who take advantage of Australian consumers, Apple also take a slice of the pie just for being an Aussie

Source: http://www.macstories.net/stories/the-great-disparity-in-global-itunes-prices/

Apple do not gouge us as much as steam, however +46% for the same cost of supply is still making way too easy money.

In both of these instances given that the majority of the cost associated with delivering the product is worn by the customers’ carrier this is just blatant “give us money just because we say so if you want our stuff” Unfortunately the great masses of the people are sheep and ooh I want it, that does not seem too unreasonably priced stuff it I will buy it.

In closing I will make one last comparison being flights between the same point A and point B using the same carrier except booking from both sides.

Qantas is the flag airline carrier of Australia, and can be recognized everywhere by the red kangaroo. Being an Aussie company you would think they would give their best prices and options to those that helped create them and have supported them over the years, but sadly this is not the case. When you book a flight between the same locations (in this example Melbourne and Los Angeles) you would expect the costs to be identical when taking into account local currency. The route, the locations that are used (and associated fees), fuel and staff at each end are all the same, and you would expect that on the costs already calculated for the route as well as the margin that you are wanting to make on the flights would work out to be exactly the same.

Month

MEL – LAX Return (AU$)

LAX – MEL Return (AU$)

Difference

May $1330 $1062 +25%
June $2012 $1209 +66%
July $2402 $1733 +38%
August $1757 $1114 +58%
September $1778 $1114 +60%
October $2027 $1580 +28%

On average we pay an additional 45% premium just for the privilege of using our flag carrier to go to the United States.

The old saying of A fool and his money being easily parted comes to mind, in the end it boils down to how and where we choose to spend our money.

2 Responses to Bend over and cough… (Price Disparity)

  • Dori Heltsley says:

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  • jbawden says:

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