Price-gouging online Kiwis

The world has become one giant hypermarket, where you can buy almost anything you need – but not always at the price you like. Take books, for example. A recently published novel by Emma Donoghue, Room, has a cover price of $30 in a New Zealand shop. Yet it sells for the equivalent of NZ$17 in a bookstore in the United States. More astoundingly Amazon, the grandaddy of online shopping, has it discounted to NZ$9.62 (at the rate of exchange when writing), about 30% of the price here.

Why, so often, do we find New Zealand prices are so much higher than those in other countries? Economists call it “price discrimination”, the practice of charging differing prices in different geographic regions for the same goods. At the height of the furore over the Adidas All Blacks jerseys ($220 if bought here but only $92 if purchased online in the United States), Prime Minister John Key opined, “I’d like to believe that New Zealand consumers get a fair deal and they’re not being taken advantage of just because they’re here in New Zealand.” Labour’s Phil Goff also chimed in: “They are trying to stop the competition. There are rules against that in New Zealand; they should be enforced.”

Unfortunately, both leaders are wrong. Frequently, New Zealand consumers are charged much more for a product than it costs internationally because it is “what the market will bear” and the supplier has a virtual monopoly in this country. And, Mr Goff, no, it is not an illegal practice.

But it’s not always easy to buy cheaper at offshore prices, because many brands have fenced off parts of the global market with territorial licensing agreements that push New Zealand online customers into buying from local sites at prices considerably higher than what they’d pay if they bought the goods abroad.

Hop on your computer, go to the iTunes store and you will find you are paying NZ$2.39 to download a premium track. If you were in the UK, you’d find the same iTunes recording costing NZ$1.91. It is cheaper still to download the same iTunes music in the US – just NZ$1.51. How can the dulcet tones of Rihanna or Beyoncé flowing through cyberspace to your computer cost so much more than the same voices being downloaded elsewhere on the planet? After all, there are no packaging or postage costs.

A recent Australian Productivity Commission report on retail issues found in most cases the excuses of many brands for higher prices in Australia than on sites abroad “are not persuasive, especially in the case of downloaded music, software and videos, for example, where the costs of delivery to the customer are practically zero and uniform around the world”.

However, iTunes did lower its discriminatory pricing structure in Australia after Federal Labor MP Ed Husic began thundering about the need for the Australian Competition and Consumer Commission to investigate why Aussies were being “ripped off”, compared with overseas customers, by tech companies such as Apple.

“I’m staggered by [Apple’s] behaviour,” Husic told the Australian Parliament. “They’ve snubbed consumer, media and parliamentary interests in the matter.” He went on to pitch a message to IT com­panies and wired-in households. “Families who want to get access to technology whose impact has been far-reaching in our lives shouldn’t be fleeced for Silicon Valley’s bottom line.”

Husic pointed out Australians pay 60% more than Americans for video games, many hundreds of dollars extra for laptops and often twice the price for software. New Zealand consumers face much the same problem.
In one example Husic gave, the L.A. Noire video game cost as little as A$48.98 when bought from one international retailer, but as much as A$104.99 in Australia – despite the game having been developed in Australia.

“It is widely and frustratingly understood by adult gamers in Australia; we are grossly discriminated against when it comes to retail prices on video games (as well as other retail products),” wrote one video gamer in the Productivity Commission’s report. I don’t want to appear to be picking on Apple as I am a great fan of its products. As someone cruelly but accurately suggested to me last week, “You’d buy an iFart if they made one.” But Apple does appear to be one of the prime price discriminators.

In a small experiment I logged onto the international Apple site, clicked on a new MacBook Air and saw it listed as “starting at US$999” (NZ$1172). When I clicked on “Buy”, the international site automatically flipped me straight to Apple’s New Zealand site where the same MacBook Air was “starting at NZ$1549”. Can shipping and tax account for a nearly $400 price differential?

It’s not just hardware and music. I priced some popular software, Adobe’s Creative Suite 5.5 Master Collection, at NZ$2813 on Adobe’s website. But that’s for US customers only. To download the same software from the “Adobe Store New Zealand”, part of the same website, costs NZ$4945 – an enormous price difference.

Tech companies are not alone in playing the price discrimination game. A pair of the latest Nike Zoom Vomero+ 6 running shoes costs NZ$148 on American sites. In-store in New Zealand the best price I spotted was $240. Yes, there’s freight and GST to take into account in the Kiwi price but, again, the price gap seems much wider than necessary when it comes to retail prices in-store in New Zealand.

Lipstick, while not a product I’d generally be looking for, is, I’m assured, another hot property online. A MAC standard lipstick selling for $42 locally can be bought for $17 on a US website.

The oddest thing is even products from New Zealand-based companies can be cheaper when purchased overseas online. A pair of Karen Walker’s designer sunglasses, for example – the Pegs Orange style, which retails on her local website at $329, is available on US site eyegoodies.com for NZ$211.

To be fair to Walker, this pricing structure may have more to do with the small size of the New Zealand market for high-end sunglasses and the economies of scale that come into effect for a giant American distributor or retailer. US companies can buy and sell far more sunglasses and, because of that huge volume of sales, apply much lower margins to make a profit.

A letter to the Dominion Post recently picked up on another such pricing incongruity. “After enjoying hearing Joe Bennett reading his book Where Underpants Come From on Radio NZ National, I checked the price,” wrote Peter Wylie of York Bay. “At Whitcoulls it is $27.95. I bought it from the UK for £7.19 ($13.30 at the then exchange rate), enjoyed a discount of 80p on the recommended retail price, and received it within a week.”

Economist Matt Nolan argues if the prices of goods in New Zealand are greater than those abroad, we need to ask three questions:

• Is this because of the cost of getting things here (shipping costs and high costs of doing business here as a result of our smaller scale)?


• Or is this because of price discrimination (for some reason New Zealanders are willing to pay more for the goods than people in other countries)?


• Or is this a result of competition (does New Zealand have a bunch of monopolies because we are so small and firms are unwilling to come in and undercut because we are such a tiny market)?

Probably all three of Nolan’s factors come into play, to varying degrees, depending on the product. For example, he maintains in the case of the Adidas All Blacks jerseys, New Zealanders value them more than consumers in North America or Europe and therefore are prepared to pay a higher price.

Patriotism and Kiwi rugby mania aside, the price differentials on some goods can really annoy. With men’s toiletries I got a little sniffy when I found my favourite eau de toilette, Jean Paul Gaultier’s 125ml Le Male spray, was easily obtainable online in Britain, from leading pharmacy chain Boots, for NZ$99. In a New Zealand department store I discovered it priced at $149. However, one New Zealand-based site had obviously sourced a cheap parallel import, and Jean Paul’s aftershave was listed at just $68.34.

Parallel imports – where a company sources a product overseas at a lower cost and applies smaller margins – are the enemy of price discriminators because they need a closed market to really succeed. Price discrimination requires a brand to be protected by territorial licensing agreements that mean foreign distributors cannot sell their lower-priced goods into the New Zealand market.

With the growth of online shopping, where the whole world can be one big market, many brands internationally are increasingly putting up geoblocking barriers, as Apple does. Your internet protocol (IP) address alerts the system to the fact you are in New Zealand, causing you to be automatically shunted to the often much more expensive local supplier’s site.

The more computer-savvy can disguise their IP address to avoid this type of blocking by routing their internet connection via a foreign server. This can get around regional barriers on copyrighted audio or video content, but where someone is buying goods that have to be shipped, chances are the blocked foreign site will foil your cunning plan when you enter your New Zealand mailing address into the order form. What’s more, some American sites enforce territorial barriers by requiring you to use a US credit card – the numerals on your card also give away your location.

Blocks are common and the Listener’s Joanne Black tells a typical story. “One of my daughters likes charm bracelets made by Swarovski, who make upmarket bling. Poppy’s favourite charm is a strawberry – a very small glittery thing. It is $150 in the Swarovski shop on Lambton Quay and also in the printed brochure they gave her in the shop. Online at Swarovski.com the same charm is US$70 (NZ$82), but the Swarovski website does not allow you to purchase from New Zealand.”

Paul Brislen, spokesman for Tuanz, the telecommunications users pressure group, finds overseas sites that block Kiwi customers or force them to higher-priced New Zealand licensed suppliers downright annoying.

“When you fill out an online form and up comes ‘Not available in your region’, that can be more frustrating than the price differential. The problem is you see a range of things you can’t access and it’s frustrating.” As he is something of an online expert, I ask him if there is a technical term, such as geoblocking, for those kinds of barriers on foreign sites. “It’s called Being a F---ing Bastard!” he says, before going on to describe his latest online excursion to a foreign website to buy a bag for his laptop. Having perused the company’s extensive range, he laboriously filled out the form only to have the “Not available in your region” message pop up; he was referred to an approved New Zealand stockist that carried a much smaller range and not the bag he was after.

For Brislen, this happens far too often. “Either they can’t be bothered dealing with the rest of the world – and you get that with a lot of American sites – or they’ve got a local store in New Zealand and they can bump up the price.”

Nolan is more positive about online shopping, saying it’s “a big area that would allow competition in the [New Zealand] retail industry. Furthermore it ruins a firm’s ability to price discriminate.” But he acknowledges geoblocking is an issue. “I use this website, wiggle.co.uk, for running gear and it charges different prices depending on where I try to get it shipped. Now this may mean New Zealand gets stuff by paying higher prices – as we are a wealthy country. However, by doing this they can charge much lower prices to poorer countries.”

If this theory holds true, New Zealand, being poorer than the US or UK, should be paying lower prices, but it isn’t. To Nolan this suggests the other two factors – freight and our small-scale market – must explain a fair chunk of the current difference. “As internet competition hots up, the issue will become less important in New Zealand,” Nolan forecasts. “So we should see the differences in prices only really representing transportation costs or, for example, higher prices for All Blacks rugby jerseys just because we want them more than others do.”

That is, unless tight territorial marketing agreements and geoblocks close off the global market to us. Tuanz’s Brislen approves of Australian MP Husic’s campaign, suggesting the Government here might like to start asking similar questions of foreign companies exploiting New Zealand consumers. But he doesn’t see any need for regulation or legislation to fix the issue. “I’d like government to stay away from that area – every time they go near anything digital or online they stuff it up.”

In terms of geoblocking and higher local prices, the Commerce Commission spokesperson says: “The issue of distributors preventing New Zealand consumers from buying certain products from overseas websites is not uncommon. It is also not a breach of the Commerce Act.

“It might be an issue under the Commerce Act, however, if that restriction resulted in a substantial lessening of competition in the market. But you would need to bear in mind that if you take the case of XYZ brand of computers – they are not the only brand of computers in the market. So simply not being able to buy that particular brand from an overseas distributor is unlikely to be a substantial lessening of competition (as defined by the Act) because you could choose to buy any one of a number of other brands.”

Of course, not all offshore remote purchasing is done on the net. Driving home with a friend recently, I was startled to hear him on the phone doing a sizeable foreign currency trade with his bank. “It’s for our holiday next year. I can purchase the tour through the American operator direct. It’s $22,000 using them and saves me around $5500 by not using their New Zealand agent. The US agency wasn’t happy about dealing direct with me and kept referring me to their New Zealand operation, but when I threatened to go to another rival travel company they relented.” In this case, he broke down the territorial pricing walls with a phone call and the force of his argument.

One last way around the blocks is to check out auction sites such as eBay. Many sellers have bought the goods new with an eye to people like you who cannot access the foreign sites, and they will take a price lower than the New Zealand one. Geoblocking and price discrimination have yet to become a serious issue in this country and Nolan contrasts that with our neighbours across the Tasman.

“I’m hoping that the New Zealand public is more comfortable with it than the Australian public – because in many ways it currently has more to do with our geographic isolation than big business being evil. “And as the internet provides more and more competition we should see prices in New Zealand fall below prices in the US and UK (excluding transport costs) – unless New Zealand actually becomes a wealthier country than those two.”

That last part of Nolan’s scenario for the future seems highly unlikely in the short term, but his earlier proviso that the internet will allow greater competition and erode price discrimination has a greater degree of probability. Eventually, major brands may realise that locking customers into smaller regional sales baskets makes less sense than marketing to one vast global market.

Buyer beware

Online shopping may bring you cheaper goods but it also has the capacity to rip you off, as it’s not covered by New Zealand consumer protection laws. A spokesman for the Ministry of Consumer Affairs warns that “consumers may be able to find cheaper deals from overseas websites, but they should be mindful that price isn’t everything. Internet shopping carries certain risks that people should consider.” He says it’s important to know your rights and what disputes-resolution protection is available in the country you are buying from.

Additional suggestions include buying only from reputable sites, checking out other customers’ experiences, comparing prices using currency conversions, and keeping an eagle eye out for scams by checking www.scamwatch.govt.nz. Another thing to watch for is the possibility of having to pay extra to get goods you order from overseas into the country. If they are valuable enough, you will have to pay GST and possibly customs duty. Fortunately, many goods don’t attract any duty – in this case, if the cost of buying them and getting them into the country is less than $400, the Customs Service won’t require you to pay anything.

Online spending ramps up

New Zealanders’ online expenditure now accounts for 5.1% of all retail sales, according to a PricewaterhouseCoopers report. The country still has some way to go to catch up to the US, where online sales are 7.5%, and the UK, with 9%, but we’re level-pegging with the Australians.

The report predicts that this year almost half the New Zealand population will shop online, running up an average bill of nearly $1400 per person. This represents a 12% increase over 2010’s online spend, a grand total of $2.68 billion. PricewaterhouseCoopers expects just over a third of this to be spent with offshore retailers.

The company’s global retail and consumer advisory leader, Stuart Harker, says, “New Zealand’s retail landscape is commencing a structural shift as more consumers start to spend a greater share of their wallet online.” Our online shopping growth is expected to continue at the same rate, reaching a total of $4.22 billion by 2015.

Technology columnist writes about a new website that allows Kiwis to buy from US stores online here.