OPINION: Why retailers aren’t free when it comes to setting price

By Claire Reilly

Apple today appeared at the House Standing Committee Inquiry into IT Pricing, defending its global pricing model and the prices it sets locally for its hardware, software and digital content.

Providing background to the company’s pricing model, Apple Australia managing director Tony King said that prices for products are initially set at Apple head office in Cupertino, California, before adjustments are made based on disparities between foreign currencies, costs of freight in different markets and local levies that may be charged on products.

He conceded that, although feedback from the Australian market is provided, the ultimate decision on price is set in the US.

While King said Australian prices for Apple hardware are “marginally above” the prices in the US, he also said Australian retailers were free to set their own sales prices.

“Our partners are free to set their prices as they see fit in the market,” he said.

“We take great interest in the way our products are displayed across the market…but the number that goes into that display that goes onto the table is entirely in the hands of our retail partner. It is not up to Apple.

“Every week, we see our partners doing wonderful things with our products in the market, and if they choose to do something with the price of the product it is their decision and their decision alone.”

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And there’s the rub — although Apple prices differ compared to overseas markets, retailers are free to slap their own price tag on any iPad or MacBook. But are they?

Retailers may be able to reduce prices on Apple product to try and generate sales, but with the price that Apple sells to the retailer, the already-thin margins that retailers get from these products would be cut back even further. Retailers are free to change their selling price, but they won’t find a cheaper buying price from Apple.

Some retailers may choose to sell these products as loss-leaders, but there would have to be a decent number of accessories bundled into that sale to make up the difference.

Similarly, if Jasmine at JB Hi-Fi chooses to pull out her bright red texta and mark up the price of the iPad mini by $200, she may manage to get one or two customers to pay more. But all wise retailers know that customers now come into stores armed with knowledge about what other websites and retailers are charging for the same product — such a huge mark-up wouldn’t be tolerated by a well-informed market.

Aside from these points, Apple is effectively setting a customer expectation through the prices it maintains in its bricks and mortar stores, most of which are, geographically speaking, in direct competition with other Australian electrical retailers.

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Consumers are understandably confused and annoyed when they see that their products cost more than the same products overseas. There are plenty of reasons for this, and plenty of arguments about whether the Australian market demands a different pricing structure to, say, the US.

But Apple is not being helpful by passing the buck to retailers and saying they can set their own price.

A consumer may be angry at Apple, but they are more likely to direct their ire towards the local retailer that they face in the store — a retailer who is no doubt doing their best to set a competitive price in order to keep their business running.

In a global marketplace where a consumer has the option to grey import to find a cheaper price, retailers are keen to do anything they can to keep bringing customers into their store and keep selling great technology. But setting their own prices is not really an option.

However, Apple MD Tony King did offer this piece of advice for consumers: “If a customer brings an ad into one of our retail stores where the price is cheaper down the road from somewhere else, Apple retail stores have a price matching policy.”

Matching a price advertised at a competitor store? Maybe retailers could start advertising iPads for 50 per cent off and drive prices down across the board. It’s a long shot, but it might make the big brands sit up and take notice!

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