Why do Aussies pay more for software?

Summary:When it comes to software prices, there have long been grumblings from those who, by accident of birth, happen to live outside the United States. Why should they be charged a premium when, increasingly, people are merely downloading software off the internet? And, more recently, where is the benefit consumers should be getting from the strong Australian dollar? Trend Micro is one of the worst culprits, but it's not the only one charging big mark-ups to Aussie consumers.

When it comes to software prices, there have long been grumblings from those who, by accident of birth, happen to live outside the United States. Why should they be charged a premium when, increasingly, people are merely downloading software off the internet? And, more recently, where is the benefit consumers should be getting from the strong Australian dollar? Trend Micro is one of the worst culprits, but it's not the only one charging big mark-ups to Aussie consumers.

It's been a big month at Adobe. The latest release of the company's Creative Suite has been eagerly awaited by people in the media and design industries. Its software is powerful, but it's pricey.

In Australia, the full-blown Creative Suite 5.5 Master Collection will set you back AU$3949 (plus GST) for those who choose to download it off the internet — that's about US$4230. Yet in the States you can download the same files for just US$2599. In other words, there's a 62 per cent mark-up, then add GST on top of that. I fell foul of the difference myself when upgrading Audition, the sound editing tool I use for my podcasts on BNET and ZDNet Australia. If I was an unscrupulous consumer I would have registered myself as a US resident when I first downloaded the product, saving myself an ongoing history of price mark-ups (and avoiding GST in the process).

Trend Micro's new Titanium Maximum Security software is available for US$55.95 in the US, but costs AU$125 (+GST) here — that's 2.2 times the price. Microsoft's Office Professional (at AU$817 + GST) costs 75 per cent more in Australia. The list goes on.

Ironically, a strong market presence helps push the price up. Aussies wanting to download Vegas Pro, video production software from Sony Creative, are charged in US dollars and not charged GST — in effect, you're importing the software. In bigger markets Sony charges in local currencies, but, in those cases, the mark-up is nowhere as extreme as it is with the major software vendors.

Graph of relative prices

Adobe puts the difference down to "customer research that assesses the value of the product in the local market". In other words, dropping the price here won't pay off in terms of incremental sales. It's the old elasticity of demand argument. Put another way, they're all saying, "Let's charge those Aussies more because they'll grin and bear it".

There's also the excuse that costs are higher here. Microsoft says location-specific factors include the size of the market, local taxes, duties and in the case of physical retail, logistics. These don't apply, of course, when we're looking at downloadable products, except for the need for parity with indirect channels. Much as they'd love to, a software vendor can't be seen to undercut retailers when they sell direct.

Microsoft also says that consumers do not want to see frequent changes in recommended retail pricing, based on fluctuating exchange rates. It said consumers would not like to see retail prices constantly "move up or down in line with the international currency markets" and that tying local products too closely to the exchange rate would make pricing "unpredictable". There's a difference, of course, between introducing a new price each day, or even each month, based on how the dollar is performing, and recognising in your pricing that over time the dollar has continually strengthened. If we related the prices today to the exchange rate in early 2009 (when the US dollar was worth AU$1.40) Microsoft Office would be 17 per cent more here than it did over there. Perhaps that's a fair differential for the cost of doing business in a smaller economy, but what's the real reason for the 75 per cent difference we see today?

This has to be where the "local costs" argument falls apart. Software vendors survived in a market where the Aussie dollar was worth 40 per cent less than it is today, yet they managed to cover distribution and channel costs. What's changed?

As to price fluctuations, I'd take them any day in exchange for parity with US prices. If it's really all about what the customer wants, why not give us the choice to buy in the local currency, or in US dollars. I'm sure all business customers (and most consumers) would be with me on that.

If, for the mass market, retail margins are muddying the waters, then we must just count the days till they're cut out of the equation. I don't remember the last time I bought software in a store. In a world where more commerce is happening online you have to wonder what future they have. The same goes for geographic pricing. Consumers hate it and many will find ways to avoid paying more than they have to. It'd be nice if these cloud-focused companies recognised that the cloud is global and treated everyone the same.

Via BNET

Topics: Microsoft, Software, Software Development

About

Phil Dobbie has a wealth of radio and business experience. He started his career in commercial radio in the UK and, since coming to Australia in 1991, has held senior marketing and management roles with Telstra, OzEmail, the British Tourist Authority and other telecommunications, media, travel and advertising businesses.

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