You know the feeling. You’ve done your research online, read reviews, spoken to your friends of influence, kicked the tyres in a couple of stores and negotiated hard in another for a gleaming new AV receiver or TV, then taken your new baby home, unpacked it and powered it up. And then a nagging feeling hits you that you might have been able to buy it cheaper elsewhere. You message one of your friends, who replies with a link to that same product for sale in the USA for much less…

You gasp slightly, then remember the currency conversion, but it still seems a bit rich. Then you search the websites of the stores you didn’t buy from in Australia and look up the model number. There’s just a $10 or $25 variation here or there, so you couldn’t have done much better. So what’s going on? Why do Australians pay a premium for electronic goods? Here are eleven factors that we need to consider…

The first is, of course, the exchange rate. Obviously, all importers buy from their suppliers in a currency other than Australian dollars. They would typically pay in US dollars, Euros, British pounds, or Japanese yen. Their goal is to figure out how much the product costs once it’s in their warehouse, and the exchange rate is one of the determining factors. But the next question is whether they calculate that based on the exchange rate the day the truck arrives, when the payment for the goods occurred, or do a finger-in-the-wind calculation. What do we reckon it will be over the months ahead? Of course, retailers and consumers buy in Australian dollars, so the currency risk is assessed by the wholesaler.

Then there’s import duty, which is payable on many imported goods. I can recall tariffs of over twenty-five percent in the late nineteen eighties on audio products that competed with Australian-made goods. These days, in the home entertainment space, this is limited to five percent on various types of speakers and amplifiers. These are mostly passive loudspeakers and integrated amplifiers, the same categories of products where there are still local manufacturers building in Australia. The calculations are complicated by our free trade agreements with various countries.

Inbound freight is another factor. Three years ago, the cost of filling a container with goods and shipping them here from Asia, the US or Europe was already quite expensive. Then the economic effects of the pandemic drove shipping container rates far north by a factor of 7 or 8: so where once an Aussie importer might have paid a couple of grand to fill a container out of China, that went up to US$15,000 or so just in freight cost. This also affected other countries’ costs and prices as well – but refer to my comments below on scale. A small Australian importer in Parramatta might bring in thirty amplifiers on two pallets from Europe, with a shipping cost of around US$1,300, or $43 per box. The big-brother American importer in Pasadena imports 250 of the same models in a 20-foot container, costing it a little more overall, say US$2,500, or just $10 per product. That mere $33 difference could easily expand out to a $100 US retail difference, or $150 Australian.

Compliance costs are an important factor, too. Australia has certain unique compliance characteristics that manufacturers must develop before they export here. Or, more often, the local importer must spend the money before goods hit the stores. Examples include our unique AC plug with 230-volt power supply, RCM certification (which used to be called C-tick) – which ensures electromagnetic compliance, and 9kHz frequency stepping for AM radio (not used in the Americas). Our warranty conditions are backed by the ACL (Australian Consumer Laws), which impose significant potential costs on importers who must provide guarantees on products even if the statutory warranty period has expired (under some conditions).

Tax invariably plays its part. Thanks to Howard and Costello, we no longer have 32% sales tax on electronic goods, which further magnified price discrepancies with overseas markets until the GST was introduced on July 1st, 2000. This had the effect of reducing Australian retail prices across the tech sector, for a while at least. Obviously, in Australia, our displayed or advertised prices include 10% GST. When examining prices in the US, they always exclude state taxes which are paid by the consumer on top of the advertised or negotiated cost. In the UK, published prices include 20% VAT.

Don’t forget outbound freight. The cost of getting goods to retailers’ doors is either borne by the importer, or retailer, or a bit of both. This is not unique in the world, but the vast size of Australia and long travel distances from (predominantly) Sydney and Melbourne ports with high transport costs (fuel and labour) mean that this cost is common to all, disproportionately high, ever-increasing and difficult to predict. For many companies, freight is the biggest expense after people.

Speaking of which, we must consider labour costs. The minimum wage in Australia is higher than in the USA, so costs are higher for businesses operating in Australia. This flows into all parts of the chain between factory and consumer – port charges, local transportation costs, warehouse costs, wholesaler costs, service centre costs and retailer costs. The combined effect of these drives up the prices of goods and services.

Next is local competition. Businesses are set up to compete for the consumer dollar, and the more vigorously they slug it out, the better it is for you, the customer. Retailers want you to buy something from them, not a holiday package for the family from the travel shop next door. Importers who buy at a lower price than their competitors on comparable product will be able to go to the market at a lower price. A retailer with many stores can probably offer a better deal on a specific product than a single store. A product that is in high demand will sell at a higher price than one with almost zero friends. We’re not talking service or value here, just economics.

Profit margins are the elephant in the room. Believe it or not, there is no registered charity in Australia called The Home Entertainment Business Association! My points around local competition remain, but no importer can afford to trade unprofitably, nor can any retail enterprise. Over the years, I’ve formed the view that US publicly listed electronics retailers trade at lower slightly margins than public companies in Australia. Still, the differences are not huge; the sample size is small and justified based on Scale.

Consider the promotional cycle, too. To truly compare prices with another country, just call the importer in both countries and ask for their recommended retail price lists and put them side by side. Not so easy? Then you need to ensure that you can find The Oracle – either the importers quoting RRP on their websites, or product reviews. Then figure out whether each country is at the same point in the promotional cycle as the other. Was the product just launched overseas? The price will be higher than usual. Is the product already discontinued? Prices will be appreciably lower. 

But this will rarely be in synchrony in markets separated by oceans and seasonal differences. I just looked for a great sounding CD player that I know well and discovered that its typical advertised price on Australian dealer websites was double that in the UK once you allow for exchange rates. I figure that many of the factors I have listed contribute to this, but the biggest is the life cycle of that product – it’s still ongoing here in Australia, but finishing up or on special in Britain.

Scale matters. The US has around 336 million people, the post-Brexit European Union has approximately 447 million, and the UK has 68 million. Australia, on tippy toes, has 26 million. So we may be an affluent country, but we’re not a big one. Can we afford to pay more, and do we have a choice?

The previous factors all conspire to influence prices advertised in Australia, and those paid at the till. We can’t escape scale, as our customer base is thirteen times smaller than the United States. And we can’t avoid the fact that every cost you can imagine, or every unit cost, is higher compared to the manufacturing cost than it would be in the USA. Container freight is very expensive if you’re a small distributor buying just a couple of pallets at a time. Our labour costs are high, as are compliance and warranty costs, and so are commercial rents. So property occupied by wholesalers and retailers per sales dollar in Australia is more expensive than overseas. Of course, it’s possible that you can buy from overseas sources – but the more complex the differences like voltage, AC plug, warranty, freight charges, the more headaches you’ll experience.

Underpinning all of this is the notion of parity – that a company might seek for its products to be roughly the same price around the major markets of the world, allowing for exchange rate variations. In reality, this means they have to carefully plan their pricing strategies and might have to accept lower margins in smaller countries, and price higher in big competitive markets. You can always find examples of the iPhone being more expensive in the US than in some key Asian markets and Australia. But if we extend the net to other diverse categories – computers, washing machines, TVs, amplifiers, non-luxury cars – we find Australia’s pricing to be higher in so many cases. So back to my original question – the last time you bought something, did you get value… or just a price?