Warranty costs do not justify high IT pricing: Choice

Choice has shot down claims by the AIIA that Australia's warranty scheme plays a big part in driving up the cost of local IT products.
Written by Spandas Lui, Contributor

Australia's warranty laws are not to blame for the high cost of IT products sold in the country, according to consumer advocacy group Choice, speaking at a parliamentary inquiry into IT pricing in Sydney.

Choice's response countered claims by the Australian Information Industry Association (AIIA) this morning that the high cost associated with honouring product warranties in Australia is a big contributor to higher prices for IT goods, including hardware and software. In a report by Choice, the price disparity between IT products sold in Australia compared to the US can be as high as 50 per cent.

In 2011, the Federal Government consolidated consumer-protection regimes, encompassing product warranties, into the Australian Consumer Law (ACL), but the IT industry organisation claimed that the local warranty scheme still bears a high price.

"One of our members said [Australia's] consumer warranty landscape is the most expensive in the world," AIIA CEO Suzanne Campbell said at the IT pricing inquiry. "A life cycle of a product could be three years, and that makes provisioning of warranty of those products very expensive in this market."

Choice rejected the AIIA's explanation, especially when comparing Australia to the US, where warranty laws may differ from state to state and yet IT products are still sold at a cheaper rate.

"Our view is that we fail to see evidence of how offering warranty in the Australian market under the ACL could be that much more expensive than offering that requirement under the US legislation," Choice head of campaigns, Matthew Levey, told the inquiry. "We understand that it's part of doing business, and there may be some jurisdictions out there that don't have sophisticated consumer legislation.

"But we don't believe the difference between Australia and the US market would justify that."

Choice used Kogan, which is a parallel importer of electronic equipment, as an example of how it is possible to sell IT goods at a lower price while still providing adequate warranty for the products.

"It obviously shows it is quite possible to operate here quite profitably selling products and still offer significant price savings," Levey said.

In its response to the inquiry, the AIIA also blamed the high cost of doing business in Australia, citing tax, rent paid by retailers and labour costs as contributing factors.

Choice disagreed, claiming that these factors wouldn't cut into margins to the extent that they would justify the disparity in prices between Australia and the US. Based on its own research, the consumer advocacy group concluded that the issue stems from vendors setting wholesale prices higher in the Australian market.

"Those [cost] factors that comprise the gross margin of the goods are simply not that much higher in Australia, even cumulatively, to account for the price differences we have identified," Levey said.

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