Product Bash 2011: Why do Australians Pay High Prices in Retail?

There is no secret that even as Australia experiences a strong dollar against the US currency, our prices seem extremely high, especially when compared to what we can choose to pay if we shop online from overseas. So why is this the case and how can local retailers manage to compete? The Product Bash panel of Mark Rowland, Co-founder of online shoe retailer Style Tread, Andrew Rechtman, Product Director of PayPal Australia and Daniel Roberts, Head of Online for the Woolworths non-food businesses Dan Murphy’s, Big W and Dick Smith, took on the increasingly contentious subject of global pricing and competition.

The first step is to understand why Australia does pay such high prices for the same products which seem readily available overseas for a fraction of the cost. Mark shared his own experience with Styletread how ethical choices and distribution play a key role in determining the Styletread pricing model.

“Styletread are doing the right thing by buying the shoe from an Australian distributor and paying the same price as what I would pay as a consumer at store level in America. You can find a way around it, you can get it on the grey market, but essentially if you want to build a relationship with the brand that doesn’t tarnish you, then you buy through the Australian distributor. Basically, you could buy through the other channels but you destroy the bridge between you and the suppliers if you do that.”

Knowing his audience is predominately Australian women, Mark also chooses to use the Australian distributors because he understands that buying local is not only important to his audience, it is a key influencer when it comes time to purchase an item. So he chooses to satisfy his audience by providing an Australian experience as opposed to competing on price.

For some retailers, the issue does not lie with the customer so much as the supply chain available for the products they stock. Dan explains how this influences the Woolworths pricing process.

“The Unilever, Nestle and Proctor and Gambles of this world set the prices for what they sell here and what they sell in the overseas markets. I won’t go into detail how but similarly we work together to put pressure on them to balance their pricing. But it is a challenge. In non-food it is a lot easier because we can go to China and do parallel importing but on branded products where the brands have the power it is often quite a problem.”

So will things change and will pricing equalise as time goes on or will we continue to have disparity of this kind in retail? Andrew had this insight to share.

“I think the answer to your question is if it is a digital product for example, the price barriers will go away because consumers will find a way to go around the artificial barriers distributors and manufacturers put into place. In the fresh food industry, it is probably less relevant. Is a supermarket protectable? Part of it probably is. It is a matter of choosing to embrace the opportunity online brings as opposed to running in fear from the inevitable. But as Dan pointed out you can fight back. Online is a means of adding value to the customer. Your prices may be marginal but if someone said to you I could have the same pair of shoes for $110 tomorrow or go around the corner now to buy them for $115 one hundred metres down the round or wait a week to pay $98, I think a lot of people will choose to buy them locally either in-store or have them sent by a local website.”

Finally, as an online only retailer, Mark had this timely advice for any businesses feeling the pinch of online on how to maintain an excellent customer experience in this increasingly competitive environment- and how he continues to grow his business in Australia, even if he cannot directly compete on pricing.

“I think it comes down to ringing up an Australian call centre and getting an Australian answering your question or ordering your shoes and getting them the next day or even the same day, as opposed to waiting four days. Granted if the shoe is half the price and you know your size and you trust the US site you may not be swayed by better service. But we work with some of our global brands to get you shoes you cannot buy when you are choosing to shop online in America. For Styletread, certainly better service and exclusive products are the keys to maintaining viability and success.”

As prices become more and more transparent in the global market places, what other insights do you have as product managers to continue growth in sectors where pricing may not be alluring to the Australian consumer?