The cost of global pricing parity

Several of my blogs during the past few months have been about global pricing parity and how the internet has assisted in lowering the cost of living, where items are produced in and purchased from other countries, in other currencies and then imported into Australia.

Basically 95% of every processed or manufactured item Australians consume fits that description. In New Zealand it’s about 98%.

When the Australian dollar was growing in value against almost every other currency in the world we expected prices of imported goods to drop.

We also expected the cost of living to drop, similar to the cost of our overseas holidays, as the state of California and United Airlines know only too well, having purchased TV advertising in Australia to woo us to family holidays and theme parks just a short hop across the Pacific. Some shelf prices in stores have dropped, but only slightly.

Our headline inflation rate in Australia should have dropped by about 5% if the Australian dollar appreciation had been passed on by every manufacturer, importer and retailer.

Some have, some haven’t, and the net result shows that our inflation rate has been positive by 3%, driving up salary costs and making Australian-made products even less competitive.

In the year 2011 you would be mad to set up any kind of major manufacturing operation in Australia, which is why Hyundai and Kia didn’t.

They wouldn’t be able to sell their cars at the prices they do, not even if they sold them straight from the factory gate for cash, without a warranty or wheels.

The internet and growth of online shopping has let us all see just much we are being charged for the same pair of jeans or set of tyres manufactured in China and sold in the US and Australia. The internet has been the lens that made it all so simple and clear.

It was great news that Apple, the cutting edge global manufacturer and retailer whose day-to-day success – and very existence – is reliant on the internet, announced a cut in the price of its applications last week.

Prices of music and hardware haven’t dropped yet but it looks like prices of apps have been reduced by up to 25%, making them more in line with US pricing. And Apple hasn’t just done that in Australia.

Just so everybody is clear on this – Australian shoppers don’t expect everything to be at parity with the US.

The US is the largest homogeneous free market in the world, with the highest per capita expenditure on consumer items.

It has lower tax rates, structurally different labour markets and very little government-funded health care for the employed and unemployed.

Fair Work Australia’s latest award rate increase takes the wage of the lowest hourly paid Australian to almost double that of the lowest hourly paid worker in the US. Our prices are higher and US prices are lower.

Australian shoppers don’t want pricing parity with the US if it means everything else would be on par with the US because our small 22 million-person economy on a great big island couldn’t support the lifestyle that we all enjoy.

So where does that leave us?

Most of us are happy to pay more, just not too much more. 20% more? 25% more?

Apparently yes. But double? No. Items that are much more expensive are being shunned by shoppers where they can’t be purchased any other way or shopped for online.

If you truly want to pay $1.29 per music track like in the US rather than $2.19 in Australia or if you passionately want to pay $9.99 for a movie in the US rather than $12.99 in Australia I suggest you move to California and look for a job.

But make sure you register with the Australian Consulate – just in case you get crook.

In his role as CEO of CROSSMARK, Kevin Moore looks at the world of retailing from grocery to pharmacy, bottle shops to car dealers, corner store to department stores. In this insightful blog, Kevin covers retail news, ideas, companies and emerging opportunities in Australia, NZ, the US and Europe. His international career in sales and marketing has seen him responsible for business in over 40 countries, which has earned him grey hair and a wealth of expertise in international retailers and brands. CROSSMARK Asia Pacific is Australasia’s largest provider of retail marketing services, consulting to and servicing some of Australasia’s biggest retailers and manufacturers.