By Victoria Palmer and Edward Howard
Pricing. An issue that never ceases to amaze. In store or online, domestic or overseas, the possibilities are endless and more recently so are the differences. It is becoming exceedingly apparent that there has been an emphasis on the price discrepancies between products available in Australia and the price of these same products in overseas markets.
What happens to public perception when a product is priced at an inequitable rate? Is it reasonable that someone in Australia pay the same for the exact same item as someone in the United States?
Obviously, there are factors that must come into play when approaching pricing, including cost of development, sales infrastructure, national/state regulation and cost of shipping the item to another location. But, what if those elements are almost nil in the case of digitally delivered products?
This is a real issue, especially in the IT sector. For instance, the price differences between the cost of computer games on Steam (an online game provider) in the Australia compared to the cost of the same computer games in the US offered by the same platform. There is no delivery, no packaging, just a ‘click here to download’.
Many major corporations, in terms of the digital and physical consumer business have been under attack for inflating prices in markets like Australia. The following article highlights this:
Unfortunately, this disparity is not only limited to computer related products. Homeware and furniture giant IKEA was also in hot water in recent times, due the inflation of the price of its products in Australia compare with the exact same product in the US. As shown below:
Pricing is one of the key factors a company must consider when entering a product into the market. It is the mechanism that guides customer choice and satisfaction and reception of the product. Appropriate pricing also influences profitability. Pricing is also another way in which a corporation can position its product or direct it towards a specific market segment. How the product is to be perceived has great impact on its success or failure.
The Australian government has supported this ideology and has attempted to hold many of these corporations accountable for pricing decisions. Taxation and cost of doing business is also a major factor, but does it mitigate the pressure to price more equitably?
The key difficulties are in the ‘trade-off’ that customers are willing to make when considering the utilisation of a particular product. Is it worth the price? Does it offer value? Is it competitive? Are there other similar products available?
The second, relating to customer psychology, does this pricing structure and discrimination adversely effect a companies brand and its ability to generate revenue in the market. In this instance it could be argued that in the case of digital media, consumers were turning to pirated media sites, not benefiting either the companies or the artists themselves. After media reports of the price differences across the IKEA brand, the company publicly back peddled its pricing stance, by reducing the price of selected items across its Australian stores. This also potentially impacts on sales revenue, profitability and consumer faith in the brand. Is a pricing structure that drives consumers to illegal activity or forces a public rethink of prices, the right approach?
Conversely, consumers are driving pricing strategies for companies like Apple, who have inelastic demand for products. Despite the price differences Apple continues to build a greater brand presence. But, has it hurt them in terms of their digital presence, with the introduction of cheaper services like Spotify and Netflix. Will companies like Netflix and Spotify have to be mindful of pricing out their markets? We have seen some price reduction in some of Apple’s products given the recent weakening of the Australian dollar. Is the market responsive, perhaps to a level? But is it just? Should a brand capitalise and take advantage of its consumers’ and their desire for its products?
I’m not entirely convinced this is fair. But, maybe fair has nothing to do with it.