The great Australian ripoff

By Josh Mehlman on Nov 30, 2009 10:18 AM
Filed under Hardware

Analysis: CRN asks why prices aren't falling with the rise of the Aussie dollar?

When the Australian dollar was in free fall at the start of the year, vendors would raise their prices with as little as two days' notice. Now, despite the local currency having risen 50 percent against the US dollar in the past six months, prices have remained static. What's taking so long?

The Australian dollar spent the first three months of the year hovering around $US0.65. Economists said it was undervalued and would rise, but many technology vendors and distributors raised their prices in response to the poor buying power of the Aussie.

Since March, the Australian dollar has risen steadily and now sits comfortably at about $US0.90, 60 Euro cents and 54 British pence.

In theory, prices should fall, but somehow they don't. Why not?

Vendors we spoke to were unwilling to provide any real answers.

"Like all organisations, HP makes pricing changes based on fluctuations in costs, market conditions and exchange rates," said a spokesman for the world's biggest hardware vendor. "Unfortunately, I am unable to provide specific details on HP's current or future pricing strategy."

A spokesman for SAP, one of the world's largest software companies, said that it sets prices annually, with "pricing finalised between December and February".

But Mark Gluckman, managing director of Sydney-based systems integrator Regal Information Technology, said suppliers are profiting from currency fluctuations.

"The Australian dollar is going up all the time and the distributors do pass it on, but they definitely don't pass it on as quickly as when the dollar goes down," he said.

"When the dollar goes down, the distributors need to manage their losses. When it was down about $US0.60 in March, their quotes were only valid for 48 hours, because they never knew where the dollar would be in a few days' time.

"Now the distributors say because they lost so much money back then, they need to make it back now."

Gluckman said many customers have asked him why prices haven't fallen even though the Australian dollar has been much stronger.

"They're very aware of it and they're asking the question," he said. "I have to tell them we're very much in the hands of the distributors - 90 percent of our product is purchased through them."

Microsoft won't drop Windows prices

Smaller vendors aren't the only ones feeling the pressure. Even Australia's largest technology retailer Harvey Norman can't make some vendors drop their prices. For example, Microsoft has kept the local price of Windows 7 Home Premium at $299 but sells it for $US200 ($A220) in the US and £149 ($A270) in Britain.

A savvy bargain hunter can pick up a genuine copy of the same product for as little as $A120 in China.

"We would like to support Microsoft on a local level, but we would like greater price alignments between the markets to remain competitive within our own market," Harvey Norman's computers and communications division head Luke Naish told The Australian.

"Retailers are caught in a bind to support Microsoft on a local level or to seek alternative versions of Windows 7 at a cheaper cost from overseas. It is a real dilemma for retailers across the board. Harvey Norman's preference is to support Microsoft locally.

"We are monitoring the situation extremely closely as consumers have to value the locally sourced and 'authentic' version of Windows 7 if they are to purchase it from us at what may be perceived to be a premium price."

Falling down the iPod index

Another example is CommSec's iPod index, which measures the price in US dollars of an Apple iPod Nano in 68 countries.

Like The Economist's Big Mac index, it tests the theory that goods should trade at about the same price around the world if exchange rates are working properly. Unlike the Big Mac, which is usually made from local ingredients, almost all iPods are made in China and Taiwan, so price distortions due to exchange rates and local taxes and tariffs are even more evident.

Last November, Australia was the cheapest place in the world to buy an iPod Nano, if you had greenbacks to spend, reflecting the low value of the Australian dollar against the US currency. However, Apple has not adjusted the local price since then, while the dollar has appreciated markedly, so Australia has fallen to 13th place in the index

"In other words, Apple is basically obtaining higher revenues courtesy of a weaker US dollar," said Craig James, chief economist at CommSec.

Many technology vendors are similarly resisting the push to drop their prices.

"It all gets down to competition," he said. "Vendors will hold out as long as possible before cutting price in an attempt to lift margins and profits. But if one key vendor moves, others will have to follow.

"Of course, it depends if you have a competitive edge. For example, Apple may not necessarily have to react quickly with its pricing given the strength of consumer demand for its products."

Read on for more...

Exchange rates not the only factor

James Murdoch, owner of Principal Computers in Hobart, believes prices overall are going down but a range of other factors complicate the issue.

"However, what we are seeing right now is an increase in the US dollar price of many computer goods as a result of reduced production of many products," he said.

"Good examples of this are DVD burners and RAM which have both doubled in price over the last few months because the manufacturers have cut back on supply due to the global financial crisis.

"So many things are coming down, such as laptops, software, CPUs, LCD screens, and pretty much everything that has a stable US dollar price.

"But some of the more commoditised products are more greatly affected by [supply and demand factors] than the swinging currency. For example, in the last two weeks, the wholesale price of 500 gigabyte and 1 terabyte hard drives has shot up about $20 due to a shortage."

Best to shop around

In the consumer space, online shopping has made it more difficult for Australian companies to hide behind exchange rates and other excuses.

As overseas e-tailers have aggressively targeted offshore customers, Australian consumers are increasingly spending with online stores in the US, Britain and elsewhere.

"It always pays consumers to shop around and that is certainly the case in the current environment when the Aussie dollar is favourable for purchasing imported goods and has risen markedly in a relatively short space of time," James said.

"Domestic vendors may be holding back on cutting prices while the stronger dollar is giving consumers purchasing power in foreign markets. But it is important to consider the full prices - taxes plus shipping - and make sure you are buying from reputable sites."

Figures provided by eBay Australia show how effective this can be, even when taking into account the additional shipping costs. For example, an Apple MacBook Pro is available for almost 28 percent less on eBay's British site than it is on eBay Australia, even with shipping costs factored in.

"We know a lot of people are looking for better value as a result of the global financial crisis, so we see them spending more time comparing prices, and that includes our US and UK sites," said an eBay spokesman.

"If you're getting a $400 discount buying it from the US or the UK, spending $30 on a local power supply isn't a big deal."

Support a bigger concern for business buyers

While shopping overseas might help save money for small items that can be used anywhere, larger business-related purchases such as networking equipment or servers are more difficult.

"Bigger items are a bit harder because the shipping costs start to become prohibitive and in some cases there are different standards overseas," said eBay's spokesman.

And while local businesses might be getting their cameras or smartphones overseas, there's little evidence they're importing larger, more serious equipment on the sly.

"No one's ever threatened to buy from overseas if we didn't drop the price," Gluckman said.

"Most people buy locally. It's all very well buying overseas but they're very aware of support.

"There's plenty of grey-market stuff - switches and things like that - you can get them cheaper than the list price, but then they're worried about support."

Technology analysts often point out that the upfront cost of the hardware or software is a small proportion of the total cost of owning a system. Most technology buyers are reluctant to acquire unsupported equipment, even if it saves money, said Gluckman.

But because the support is provided locally, the costs are not subject to currency fluctuations, he said: "The vendors won't change their prices on support contracts at all. They normally discount the hardware upfront but not the support."

A final factor to consider is timing.

"Bargain hunters are very aware of the vendors' quarterly and financial year end," Gluckman said. "The vendors are always under pressure to present their numbers end of the quarter or year, so now is a good time to get good deals.

"You can get a good 5-10 percent discount just by buying at the right time.

"A lot of customers are taking the opportunity now to do upgrades. We have definitely noticed a lot of them bringing projects forward."

Can you get it cheaper overseas?

BlackBerry Curve

Average price

Average shipping

Total

eBay Australia

$309

$15

$324

eBay UK

$353

$19

$372

eBay US

$209

$11

$221

 

 

 

 

MacBook Pro

Average price

Average shipping

Total

eBay Australia

$1,714

$28

$1,742

eBay UK

$1,193

$57

$1,250

eBay US

$1,288

$40

$1,328

 

 

 

 

Apple iPhone 3GS

Average price

Average shipping

Total

eBay Australia

$952

$28

$980

eBay UK

$631

$29

$660

eBay US

$633

$28

$661

 

 

 

 

Garmin Nuvi 1390

Average price

Average shipping

Total

eBay Australia

$348

$14

$362

eBay UK

$358

$27

$385

eBay US

$283

$16

$299

 

 

 

 

Dell Studio One 19

Average price

Average shipping

Total

eBay Australia

$1,410

$29

$1,439

eBay UK

$829

$66

$895

eBay US

$733

$43

$776

Data compiled using Terapeak; date range 25 Aug-22 Nov 2009

 
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