Australian price gouging: is it what we think it is?

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CNET Editor

Michelle Starr is the tiger force at the core of all things. She also writes about cool stuff and apps as CNET Australia's Crave editor. But mostly the tiger force thing.

The Australia tax. We imagine it as some vast, groaning behemoth, barely able to move under the weight of its own corpulent avarice.

It sweats and farts, scratching at the places it can reach, while it shoves another piece of Australia pie into its fetid mouth.

How much more are you happy to pay for locally sourced tech?

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But first impressions can be wrong. While our dollar may have been hovering around the parity level for some time now, retail prices are not as simple as "we want what they're having".

First, let's take a look at some of the factors that may influence higher prices in Australia.

Sales tax

When you see a retail price in the US, that figure is without sales tax, a percentage that gets added at the point of sale. These vary from state to state, but the national average is about 9.6 per cent. So that's one cost that you need to mentally add before making the price comparison, as Australia's sales tax is included in the retail price.

Property

Property prices vary all over Australia and the US; however, occupancy costs in Australia are significant. The Australian Government Productivity Commission quoted the Red Group submission in a report: "Rental costs are a significant impost for physical store operators, ranging from just over 2 per cent for JB Hi-Fi to in excess of 20 per cent for specialty retailers." In the US, because more retail space is available, rents are naturally lower.

This report (PDF) by retail specialist Michael Baker calculated that in 2009, occupancy costs in digital product retail was 9.6 per cent in the US and 12.8 per cent in Australia, on average.

If a brand has its own stores — and a lot of them — it will be paying more than brands that buy shelf space in stores like Bing Lee and JB Hi-Fi.

A 2011 graph showing the average Sydney office rental price — higher than that of mid-town New York.
(Credit: Austrade)

Staffing costs

Our US counterparts get paid quite a bit less than we do. The federal minimum wage in the US is US$7.25 per hour (although it can vary from state to state). In Australia, the minimum wage for a junior employee over the age of 20 is AU$15.59 per hour — 121 per cent higher.

Also, the average full-time weekly wage in Australia in February 2012 was AU$1047.20 — compared to the average weekly American earnings in the US for the same period, which were US$807.22 — around 25 per cent less.

Import tariffs

These are actually fairly competitive with the cost of US tariffs (PDF). However, due to our distance from manufacturing countries, compared to that of the US, and our much smaller population, shipping goods is more expensive here; 10 million units being shipped to the US will cost less per unit than shipping 500,000 to Australia.

Training costs

With tech products, sales staff and technicians need to be trained in operation and repair. Training and then employing those people costs more, due to the higher wages mentioned above.

Marketing

Advertising and marketing campaigns cost more in terms of human resources — those pesky wages keep coming up — and, on top of that, you have the cost of advertising space and resources.

Things get tricky, though, when the products are digital; when buying from the web, there is no GST to be applied, no store space to be rented and no shipping costs. Perhaps a small, additional percentage might cover the cost of local support staff, if required — but with the bypassing of other costs accrued by the import and sale of physical goods, we are scratching our heads for a justification for some software products on the Australian market.

Flick through the gallery below for some price differences on what Australia perceives to be some of the worst offenders. Maybe not all of them are as bad as you think. Then again, maybe some are worse.

Editor's note: all percentages were calculated on a conversion rate where 1 USD = 0.972180 AUD.




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JoelT1 posted a comment   

Gouging is true and abundant.

Stepping away from digital items and imports for a second. I can buy 4wd products, MADE IN AUSTRALIA, from an overseas retailer and have them shipped back here for less than I would pay in their Aussie store. Worked out to about a 30% saving AFTER the product had been shipped to the USA for sale then shipped back here for delivery.

That is unacceptable in my book.

 

JohnnyW posted a comment   
Australia

Average wage in the US, TEXAS. $42,000.

Average wage in Sydney, Australia $52,000.

Brand new Subaru STI in Aus = $67,990 on roads.

Brand new Subaru STI in US = $37,000 on roads.

We are closer to the factory that produces the car here in Australia.

BMW. in Aus. 335 model, is $109K.

BMW. in US. 335 model, is $47K.

I know you can get a container and ship a car, individualy, for about $3000. Can you imagine how cheap it must be for the company when they ship 1000's??

Price gouging is very real, and is a by product of terrible negotiating skills in Australian business. We need to be better at getting a good deal for our people Here.

And the lowest wages dont matter, they're not the people in the market for a Apple laptop, a nice car.. etc.

They are trying to get by.

If you believe anything else you are an idiot.

 

LukeC3 posted a comment   
Australia

I cannot believe that you almost verbatim quoted press releases from Jerry Harvey without even suffering any apparent pangs of guilt or making your irony felt much more tangibly. Further away? From China? Have you looked at a map of the earth lately? We're significantly closer to China than America is!

As for your cost breakdowns, you've not been able to explain why it is that on a web based purchase, no storage to speak of, we pay more to download a file, a bloody file for goodness sakes from a web site hosted in the US, redirected to a local iteration, yet here I pay more than 30% more than I would from the American site! It's simply that many local entities are run by people whose annual bonus is directly tied to a profit margin. If that local person can squeeze a few percent more they get a bigger bonus. Also, Australia is more reliant on middlemen and licensees who have exclusive license to import a product and therefore control the costs of products by adding enourmous margins. A pair of Calvin Klein Undies costs $9.00 in the US (made in China) and retails for $25 here.

As for wages, the reality is, the person working in high end retail in America does not make $7.95 an hour, they make between $12 and $18 and they make commission on sales, as well as getting as much as 30% staff discount on products. As for training, they get far more product training than similar staff do here. I lived in the US for more than 10 years, I know the situation on the ground. All of the arguments you've posited don't bear out in a real world analysis. Retailers in Australia might be getting the blunt end of the stick, but they are far too quick to pass it on to consumers. The Internet is showing their less than honest dealings with buyers and now we have some recourse.

 

Michelle Starr posted a reply   
Australia

Hi Luke,

I think you have misunderstood the point of this article, which was not, in fact, to justify anything, but simply provide food for thought from the opposite perspective. That said, your points are very interesting indeed - thank you for that - and I do agree that there seems to be very little justification for the price of digital goods in Australia.

Quoted from above:

"Things get tricky, though, when the products are digital; when buying from the web, there is no GST to be applied, no store space to be rented and no shipping costs. Perhaps a small, additional percentage might cover the cost of local support staff, if required - but with the bypassing of other costs accrued by the import and sale of physical goods, we are scratching our heads for a justification for some software products on the Australian market."

You should have a look through the gallery of price comparisons above.

PS What press release from Gerry Harvey are you referring to? I don't think I've seen it ...

 

woftamjohn1 posted a comment   
Australia

And as Pioneer, Canon and other companies change names and product numbers I still can't see a 40-100% price gap being due to retail space, salaries and etc. We do have price gouging and price differentiating and have had forever and day. Why else has Canon suddenly reduced the price in Oz? Why is the same camera a KIss X4 and a 650D? Let's get real - we are paying way above in most cases than any structural costs. I am surprised at CNET or is this due to advertiser pressure?

 

CarlM posted a comment   

none of these arguments mean anything when I am paying an extra 20-25% for a digital download from the US. in faact it is cheper to buy the retail version from a retails outlet in the US with Hard copy and manuals. that is where people are getting annoyed.

 

GreenL posted a comment   

Our US counterparts get paid quite a bit less than we do. The federal minimum wage in the US is US$7.25 per hour (although it can vary from state to state). In Australia, the minimum wage for a junior employee over the age of 20 is AU$15.59 per hour — 121 per cent higher.

Also, the average full-time weekly wage in Australia in February 2012 was AU$1047.20 — compared to the average weekly American earnings in the US for the same period, which were US$807.22 — around 25 per cent less.

"How much TAX DO THEY PAY, HOW MUCH IS THEIR TAX BRACKET????"

 

Michelle Starr posted a reply   
Australia

http://en.wikipedia.org/wiki/Income_tax_in_the_United_States

http://www.ato.gov.au/individuals/content.aspx?doc=/content/12333.htm

 

ADSLNerd posted a comment   
Australia

This whole article appears to try to justify our higher prices, well it fails miserably. No matter how many times you try to re-word it we get ripped off. No simple way around it. The sales tax could be absorbed by the company who then claims it back on their own tax without passing it on - especially the massive companies. To try and justify all of this on the hope we all just sit back and accept it, is an irresponsibility for those trying this trick.

If people understood the corrupt economic system which amplifies this problem (aka GST is not legal) and people were not misled by lies from Government departments, we would't have this issue. BTW its not Australian Government, it's the Commonwealth Government (the first being illegal).


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