How Kogan can sell the iPhone 5 cheaper than Apple

By Allie Coyne on Sep 17, 2012 10:29 AM
Filed under Mobility

The cost of grey importing.

Notorious headline-chaser and online retailer Kogan last week boasted it would sell Apple’s just-released iPhone 5 for $100 less than the maker of the iPhone itself, Apple.

The offer appears to have been available only for Kogan’s first batch of the new smartphones - the price has now gone up from from $699 to $749 for the 16GB model. Apple is offering the same model for $799.

The offer also does not include shipping, which will generally set buyers back around $20 depending on location. Therefore buying the new iPhone from Kogan will mean a discount of around $30.

It’s important to note Kogan’s iPhone 5 is a grey import from Hong Kong, meaning the retailer is bringing the devices over through non-official Apple channels. Hong Kong’s 4G networks use the same spectrum, 1800 MHz, as Australia, so the imported products will still be compatible with local 4G networks.

Apple was forced to create three separate models of its latest iPhone in order for it to work with global LTE networks. Australia comes under the banner of the A1429 GSM model, which Hong Kong is also listed under.

There are a few factors that come into play when looking at how Kogan can afford to sell the iPhone 5 cheaper than Apple.

Exchange rate

Buying products in bulk from overseas at a likely discount (Ruslan Kogan declined to be interviewed) means savings in both purchase price, as well as through exchange rate differences for Kogan. The high Aussie dollar makes purchasing the smartphone from Apple in Hong Kong cheaper than it does in Australia.

For example, the 16GB iPhone 5 sells for around $A690 in Hong Kong compared to $A799 locally - a saving of over $100. Add to that a bulk discount, a lack of physical retail outlet overheads and you can see why Ruslan Kogan is Australia’s richest person under 30, valued at $62 million according to the 2011 BRW Young Rich List.

LivePrice

In late 2010 Kogan launched its LivePrice service, as a method of letting consumers in on the production process and giving them a discount for getting in early - at the same time allowing Kogan to remove any chance of ending up with unsold stock.

The idea was to make pricing more transparent for customers, giving them the ability to choose at what stage of the production cycle to purchase a product, putting the cost of the products’ manufacture in the hands of customers rather than investors.  

The price grows through each stage of the manufacturing process, encouraging customers to get in early and save money, while simultaneously allowing Kogan to cut out the risk of excess stock in the warehouse. 

Overheads

Kogan lists 50 employees on its books. The company is able to cut through the overheads experienced by traditional bricks and mortar stores by operating as an online-only entity and bypassing wholesalers, distributors and retailers.

The retailer also aims to be as cheap as possible with Australian delivery. Rather than partnering with one single courier, Kogan gets several couriers to bid against one another for the cheapest delivery, Ruslan Kogan told Leading Company.

Warranty 

Kogan offers its own free 12-month warranty with each device, which has its drawbacks. 

As it is offering the iPhone 5 under its "Kogan HK" business rather than "Kogan Australia", the device could require shipment back to Hong Kong for service, which could take up to three weeks to be returned to the customer*.

Apple confirmed Kogan’s iPhones are still serviceable at Apple stores under its global one-year warranty.

The iPhone 5 is being sold at Apple stores as well as the local major telcos Telstra, Optus and Vodafone. Click through for the full local buying guide

The iPhone was originally slated to ship on September 21, however Apple has been forced to push that date back to September 28 because of overwhelming pre-order demand.

Pre-orders for the iPhone 5 sold out just one hour after the new smartphone became available on Apple's online store early Friday, trumping the previous records held by the iPhone 4S and iPhone 4.

Update 4:04pm: Kogan has since said it will be able to resolve any issues with devices imported from Hong Kong locally.

 
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Issue: 334 | December 2014

CRN Magazine looks in-depth at the emerging issues and developments for the channel, and provides insight, analysis and strategic information to help resellers better run their businesses.