How fair is geographical pricing on the Internet?
It seems like the pricing announcement of any major product these days is accompanied by obligatory outrage over geographical price differences. These are not isolated incidents and they underscore a more fundamental problem as traditional business models are incorrectly applied to a new market of web-savvy international consumers.
The latest example of a backlash on geographical pricing inequalities is the one over Adobe's prices for its CS3 products in the UK and Europe. But why are people complaining? What exactly is the difference between adobe.com and adobe.co.uk? Three characters, it would seem, and approximately $1,527 less in your pocket if you're buying Creative Suite 3 Design Premium.
Creative Suite 3 Design Premium costs $3,326.26 in the UK and $1,799 in the US. Similarly, Creative Suite 3 Web Premium costs $2,820.66 in the UK and just $1,599 in the us. Basically, a difference in three characters in the domain name that you buy your software from translates to those of us in the UK paying double for the same software. You can see why people are a little pissed off.
Microsoft's pricing for Vista sparked a petition to 10 Downing Street that reads: "We the undersigned petition the Prime Minister to bring pressure on Microsoft to stop them overcharging the UK for its Vista Operating System." The petition, brought forward by Paul Milne, continues:
There is a huge difference in the price that people in the US and the UK are paying for Windows Vista the new Microsoft Operating System. As an example of this, in the UK a full copy of Vista Ultimate would cost you £350, in the US it would cost you £195. The US version of Vista is exactly the same as the UK version. There is no difference. Therefore I can see no reason for there to be such a huge difference in prices between the UK and the US other than Microsofts belief that the UK customers will pay more than their US counterparts. I ask people to sign this petition in the hope that the Prime Minister will bring pressure to bear on Microsoft over their pricing as it is my belief they are simply overcharging the people of the UK and therefore are ripping us off.
The bit that stands out for me is the last line: Microsoft's pricing scheme has led at least the 9,807 people who have signed that petition feel that they are getting ripped off. It appears that Adobe is following Microsoft's lead here when they have great opportunity to distance themselves from Microsoft's tactics at a key point in their competitive relationship.
There is a similar online petition complaining about the European pricing of Adobe's CS3 products. It states:
Adobe has announced the launch of their new CS3 line of products containing new and improved versions of previous software such as Photoshop, Illustrator, Flash, etc (details on www.adobe.com).
With new products comes new pricing... fair enough. However, prices for the same product (i.e. the mac design premium upgrade from CS2.0) go from 599$ for an upgrade in the US to 1'057$ in Switzerland and 1'134$ in France and Germany, the worse being 1'178 $ for the UK... not fair enough! (all prices excl. tax).
Prices in Europe have always been a little higher, but 190% of the US price is pushing it!
There is an interesting comparison at the following address: http://www.amanwithapencil.com/adobe.html that shows the difference in pricing between Apple and Adobe software.
Once I have gathered enough signatures, I will communicate this petition to Adobe and to the European/Swiss commissions of competition.
In the meantime, if you can, don't purchase the upgrade, it's the best pressure we can have...
Currently, that petition has 5,898 signatures. I am unsure whether the author's intent to communicate the petition to the European/Swiss commissions of competition will have any affect, however. The reason the European Commission can investigate Apple is because its iTunes store sets different prices for songs between European countries and stops European consumers from being able to purchase a song from a different European store. That made it fall within the jurisdiction of the EC, who can investigate whether it infringes on European trade regulations. (The prices range from 66p a song in France to 79p a song in the UK.)
I don't know of any body that has jurisdiction over pricing differences between the US and Europe. At the end of the day, I don't believe that this is an issue that can be resolved by legislation. It will only get resolved if Adobe sees the business sense in not alienating its European customers.
This ZDNet article on the same subject has the following justification proposed by Adobe to explain the difference in pricing:
Adobe sets pricing in each market based on customer research, local market conditions and the cost of doing business. The costs of doing business in European markets are significantly higher per unit of revenue than in the US . . . Pricing is higher in Europe on many goods, not just software.
It's true that we pay more for everything here in the UK and that we charge more for things too (the British Pound is about twice as strong as the US Dollar at the moment.) And, if Adobe was creating tangible goods in a factory located in the UK, it could easily justify the price difference based on the difference in the cost of doing business in the UK. They would have to pay their employees more in the UK, raw materials would cost more in the UK, and thus it would make sense to implement local pricing for their goods. But Adobe doesn't manufacture in the UK and it doesn't sell tangible goods.
The software that Adobe makes gets made in the US and in India. The additional cost to Adobe of selling this software in Europe is negligible. Adobe has a relatively tiny staff in Europe, mostly sales and marketing, so it cannot defend the pricing model based on having to pay higher wages to local staff. Of course, at the end of the day, Adobe can choose to sell its products in Europe at whatever price it wants to but it has to weigh the potential impact of its actions in alienating European customers and possibly pushing them to download or even purchase pirated copies.
The argument also falls flat on its face when you consider Adobe's pricing for third-world countries. If Adobe consistently applied the rationale it uses in its defense, Creative Suite 3 Design Premium would cost about $179 in India given that India's per capita income is about 10 times lower than that of the US. Something tells me that's not going to happen. I was going to check the prices in their store in India but apparently they don't have one. When I tried to check the prices on their South African store, I got redirected to an International store page that has almost no products for sale and definitely does not contain information on the CS3 line. If anyone does know the price of the various CS3 products in these countries, please do leave a comment so we can compare them and see if in fact they are priced lower based on "local market conditions and the cost of doing business".
The biggest fault with Adobe's argument, however, is that it shows a complete lack of understanding of the core issue here. The problem here is not so much that Adobe sets different prices for the US and Europe but that it bars European customers from using its US store. People do not like barriers on the Internet and here we have a huge "Keep Off!" sign on the US Adobe Store.
What Adobe (and many other traditional businesses) do not understand is that the traditional axiom that you should price your products close to the maximum that the market will bear does apply to the Internet. The caveat is that the Internet is the market. Segmenting the Internet into smaller geographical regions is an artificial segregation and is perceived by citizens of the Internet as unfair.
You could argue that Adobe has to do this or else everyone will buy from the online US store. That's just not true. If Adobe offered a true value add to buying the software in Europe -- like local support, for example -- I'm sure that large businesses would pay the difference. And there will always be people who prefer to buy boxed software from retail stores. And if small businesses and individuals do end up buying their software from the US store, Adobe will still get far more dosh than if these same individuals get pissed off and pirate their software.
This appears to be an issue that is important to a great number of people and I do hope that Adobe addresses it.