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A troubling Choice

‘Choice’ has recently tumbled on to the fact that there are local distributors playing a role in the global supply chain, and thus Australian pricing.

The ‘People’s Watchdog’ formerly known as the Australian Consumers’ Association has demonstrated a new-found understanding of the consumer product supply chain in its submission to the current Parliamentary enquiry into the pricing of software and games.

The House of Representatives Standing Committee on Infrastructure and Communication is looking at why there is a large price difference in IT hardware and software products in Australian compared to markets in the US, UK and Asia Pacific.

Up until recently Choice has been firmly and unequivocally sheeting home the blame for  all high local retail prices to retailers, who it has labelled as inefficient (that’s why operating costs are high), and greedy (for not passing on some of their apparently huge margins to consumers). They deserve to lose out to offshore online retailers, according to the Choice way of thinking, because additionally they are lazy (for not sourcing a broader product range) and just absolutely crap at customer service.

Here’s a random pick of what Choice is telling Australians about Australian retailers:

‘..consumers are driven online by high prices, limited range and poor customer service in stores.’

‘Australia retailers need to raise their game and to give consumers a fair go, instead of giving them a hard time for seeking the best deals.’

‘It’s hard to say which part of the retail sector is responsible for inflated prices, but what is clear is that things cost a lot more here than in markets such as the US and UK.’

[Choice is] ‘calling for retailers to pass on some of the savings they are enjoying due to the strong Aussie dollar to consumers, and to bring the price of digital music and software down to a level comparable with overseas prices.’

– Choice’s simplistic model for how the market works seem to be that individual Australian retailers shop around and then buy stuff somewhere, somehow – but definitely at a world parity price, and in US dollars. Somehow or another the stuff gets to Australia. They then sell that stuff to decent, hard-working, trusting Aussies at shockingly inflated local prices.

However, this cartoonish model was turned on its head when Choice looked at the games and software market, where some distributors (Adobe being a particularly shameless example) are doing the selling from the get-go – without the intercession of those evil retailing types – at shockingly inflated prices.

So far, this is an exception to the rule in the usual real-world supply chain: Australian distributors – often a subsidiary of the manufacturer –  import and warehouse products, set local wholesale and recommended retail prices after having their wholesale or transfer price set by their head office, and absorb other costs like labour, marketing, after-sales service and the multitude of statutory obligations.

Up until this month, Choice had either by, um, choice or ignorance given no indication in their judgements on local retail prices that they were aware that such an entity as a local distributor even existed, let alone played any role whatsoever in setting the prices at which goods are available in the local marketplace. (Regrettably, they have not been alone in this lack of sophistication.)

Maybe Choice thinks that RRPs are set by retailers. (After all they are called Recommended Retail Prices, aren’t they?).

– Anyway, after giving Australian retailing a thorough 12-month bashing on the subject of high local prices, Choice has had a bit of a re-think after the notion of the authorised distributor sunk in, and has identified a new culprit – ‘international price discrimination’.

(Choice may have also started to wonder whether slamming local retailing and encouraging consumers to buy grey product overseas was a genius strategy – after all, if there is no Australian retailing there’s not much point in a consumer watchdog!)

‘Some of the starkest figures…were I think finding that Australians pay around 52 per cent more on iTunes on the equivalent top 50 songs than US consumers,’ Mathew Levey, Choice’s head of campaigns, told the hearing.

‘We pay 88 per cent more for Nintendo Wii console games.’

Australians also pay about 34 per cent more for popular home and business software titles  and 41 per cent more for Dell computers, he said.

– Many of the examples above are for downloadable or ‘distributor direct’ product without a retailer taking a clip.

Major price gougers Apple and Adobe showed their contempt for the Australian marketplace by declining to appear at the inquiry. – So much for the concept of corporate responsibility and ‘the social licence to trade’.

Choice’s Matthew Levey said factors such as labour costs, retail rents and GST couldn’t justify the huge price differences.

‘Choice believes that the most likely cause of product disparity… in IT hardware and software products is international price discrimination,’ he said. ‘The practice of international brand owners, suppliers and manufacturers setting the wholesale cost of products higher for particular markets such as Australia.

‘It creates higher costs, it reduces productivity for business and all of that inevitably flows on to households and consumers.’

Perhaps – just perhaps – the practice of distributors ‘setting the wholesale cost of products higher’ is not unique to the IT hardware and software markets in Australia. Perhaps Choice needs to go back now that it understands the notion of the supply chain and reassess its previous damning pronouncements on the quality and integrity of Australian retail.

The next step in Choice’s education into the realities of the marketplace will be an exposure to the concept of ‘what the market will bear’. That is, prices are set in a marketplace by what buyers are willing to pay. It’s quite evident that Australians have traditionally been willing and able to pay more, with a little ‘what you don’t know can’t hurt you’ thrown into the mix. Up until the advent of international online retailing, we were ignorant or at least only vaguely aware that we were paying more.

Now we are aware, and the market will no longer bear those ‘discriminatory’ prices. If local retailers can’t source authorised product at prices which enable them to compete with offshore online retailers they will either find another source of supply – or fail. The moves by camera manufacturers over the last six months or so to reduce the pricing disparity between Australia and elsewhere is a response to the new retailing reality.

Along with high wholesale prices in Australia come some of the highest retail lease costs in the world, good rates of pay for staff, a raft of other added costs, and then the GST. There are a lot of stakeholders taking a clip from those high Australian prices along the way. Not only will the ‘international price discrimination’ (aka ‘what the market will bear’) need to be reduced, but retailers and retailers’ ‘rent-seekers’ – from Westfield to the local council to the bloody banks – will have to re-examine their costs and charges if Australian retailing is to come out of this discontinuity in good shape.

And given that so many of us make a living selling stuff to each other (including, indirectly the hard-working staff here at Photo Counter), that corresponds to the shape Australia as a society will be in.

We really don’t need Choice putting the boot in at the same time.
– Keith Shipton




  1. John M John M August 2, 2012

    I’ve had no time for the zealots at Choice since about 1972 when they heaped glowing praise on a cheap electronic flash that Myer had direct imported. I worked for Myer and out of the 36 my store sold more than 25 were returned within a fortnight. They worked for a few dozen flashes then the capacitor gave up. Yeah, I know, I hold grudges for a long time – I also don’t suffer idiots easily.

  2. Mark Mark August 3, 2012

    Choice, have had a very narrow view off the Australian Market for a long time. Does not surprise me that they don’t know the logistics of how things work, and the cost of making it work, I am confusesd who’s interest they have in mind. We know it is not the Australian retailer or wholesaler, and in the long term it is not the Australian consumer – we all expect good service and stock on call and that costs money to run.

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