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SHOPPING

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AUSTRALIANS ARE BEING RIPPED OFF

Advertisers and marketers know every trick in the book that entices people to buy certain products and every shopper should be aware of the techniques that they use. The persuasive strategies used by advertisers who want you to buy their products can be divided into three categories: pathos, logos, and ethos.

PATHOS: an appeal to emotion. An advertisement using pathos will attempt to evoke an emotional response in the consumer. Sometimes it is a positive emotion such as happiness, for instance an image of people enjoying themselves while drinking a particular brand of soft drink. Other times, advertisers will use negative emotions such as pain, such as a person having back problems after buying the "wrong" mattress. Pathos can also include emotions such as fear and guilt, like images of a starving child to persuade you to send money.

LOGOS: an appeal to logic or reason. An advertisement using logos will give you the alleged evidence and statistics you need to think that you fully understand what the product does. The logos of an advertisement will be the "straight facts" about the product: One glass of (insert brand name) orange juice contains 75% of your daily Vitamin C needs.

ETHOS: an appeal to credibility or character. An advertisement using ethos will try to convince you that the company is more reliable, honest, and credible, therefore you should buy its product. Ethos often involves statistics from reliable experts, such as nine out of ten dentists agree that Oral-B is the better than any other brand or that dieters choose Lean Cuisine. Often, a celebrity endorses a product or company to lend it more credibility, such as Jennifer Hawkins for Myer, Rebecca Gibney for Nintendo and Hayley Lewis for Nivea. Whether they actually use the products or services that they are endorsing seems to be immaterial, such as the case of a certain so-called "supermodel" endorsing a sportscar, yet driving a vehicle from another manufacturer.

Here are some examples of pathos, logos, and ethos in advertising.

ADVERTISING BUZZWORDS

There are many words and phrases that don't mean much, but they are used by advertisers to purport that their products are something special, such as the following.

THE RISE OF "PREMIUM"

That word's usage has skyrocketed since 2009 at fast food joints, fast casual eateries and casual dining chain restaurants, according to data compiled by Mintel for Burger Business. And for fast food chains, what’s not to like about "premium"? It infers that the food item is higher priced or higher quality than everything else, without actually having to commit to either of those things.

So whenever you see that "Premium" word, whether it's in a restaurant or cafe or when buying a car or any other product or service, just remember that you're usually not getting anything special, however you will be charged a higher price for it, only because it has the word "Premium" in the advertising blurb. It's nothing more than a marketing tool to fool consumers. Don't fall for it.

ON-LINE IS FAR CHEAPER AND BETTER

For many years, Australian shoppers have been at a great disadvantage, compared to their counterparts in the USA, Britain and EU nations. Retailers have marked up goods at much higher prices than those same goods were being sold for overseas, quoting higher transport costs, duty, taxation and other factors to justify those higher prices.

The Australia Institute's 2011 research cited data from the Australian Bureau of Statistics that found the average mark-up on clothes and shoes was 142%. For electronics, the mark-up was 85% and on furniture, 76%. The markup on jewellery was one of the most rapacious, with markups of over 1000%. This explains why jewellers often have sales advertising goods at up to 80% off, because even when they sell some of their stock for one-fifth of the ticketed price, they are still making a profit.

But in recent years, with the advent of the Internet and on-line shopping, those justifications from Australian retailers were sounding more hollow and more untruthful. No longer at the mercy of the Australian retailer monopoly, shoppers could use the Internet to check prices overseas and purchase those same goods at a much cheaper price than in local stores. Even better, those goods bought on-line would be delivered straight to the door and shoppers would not even have to physically drag themselves to stores. A few clicks of a mouse and a few taps on the keyboard and shoppers could literally buy anything.

SHOPPERS OUTRAGED AT LOCAL PRICES

It has been a long-standing practice for products that are sold internationally to be far more expensive in Australia than in the USA and other parts of the world. When manufacturers of these products are questioned as to why this is so, they invariably state that this is because of the exchange rate, cost of importing and taxation systems. Of course this is a load of baloney, because virtually all international commerce is conducted in US dollars. In 2011, the Australian dollar was higher than the US dollar, so Australians should have been able to buy goods made in Asia cheaper than the same goods sold in the USA. But still the price of local goods was far more than the same items overseas.

The truth is that manufacturers marketing their products in Australia have been fleecing the Australian public for years with these tall tales about transport costs, exchange rates and taxation. Australia has 10% GST, but the USA has anything from 9% to 19% state sales tax on retail purchases, so a product imported from Asia to the USA has approximately the same transport costs as to import it to Australia. But the price of the same product can be vastly more expensive in Australia and this is deliberately done.

SOME SHOPS IMPOSING FITTING FEES

Bricks and mortar retailers want the federal government to abolish a tax break for overseas retailers, who do not have to pay the 10% goods and services tax or import duties of 10% to 15% on items costing less than $1000. Labor Assistant Treasurer Bill Shorten told a fashion importer this week that traditional retailers still have the advantage of customer service.

David Mendels of International Shopping Group revealed his turnover had crashed 25% as shoppers shunned Australian boutiques to buy tax-free designer jeans directly from the USA. He said that his revenue had fallen by at least $100,000 per month and his sales of True Religion designer jeans had dropped by 8000 pairs in the last three months of 2010.

"Consumers are going into stores and trying on brands and then going online to the US to avoid the duty and GST," stated Mendels. "A garment bought from overseas means there is no garment bought here."

But what Mendels did not say was that although rents and wages in the USA may be comparable, Australian distributors and retailers jack up prices to a far higher level than their American counterparts. Mendels did not admit to the fact that some Australian clothing retailers put a profit margin on their goods of up to 150% and it is not uncommon for hard goods retailers such as jewellers to mark up their stock by a whopping 1000% or more.

The Australian ski industry is trying to fight back at its online competitors, with some stores now charging a fitting fee for ski boots. Snowsports Industry of Australia chief executive Eric Henry stated that retailers had to pay high wages for specialist boot-fitters, who could spend two hours helping customers try on boots.

But again, Henry did not state the obvious, that ski boots cost a fortune in Australia, compared with prices in the USA, despite the fact that US sales tax is often more than Australian GST and wages and rents are comparable. For instance, Salomon Impact 8 ski boots cost $630 in stores in Australia. The same boots can be purchased online from the USA for $339. That is nearly half price to those boots in Australia. Those boots are made in China, so transport cost to the USA and Australia are comparable. So if most trading parameters are similar in the USA and Australia, how can the same ski boots cost virtually double in Australia as they do in the USA?

There can only be one reason and that is sheer profiteering by Australian importers and retailers. If shops in Australia sell designer jeans for $200 and the same jeans can be purchased in the USA for $40 and if ski boots made in China can sell for half the Australian price in the USA, then profiteering and gouging by Australian businesses is the reason. Unfortunately for those Australian businesses, they only have themselves to blame.

Australian importers and wholesalers cannot point the finger at GST or wages in the USA. Even if GST was imposed on all on-line sales, it would not have any effect whatsoever. Those designer jeans from the USA would then cost $44, still a fraction of the price of the $200 asked for them by Australian retailers.

So if Australian stores charge fitting fees, they will lose even more customers, simply because people like to shop around for the best bargains and will not tolerate having to pay a fitting fee and losing it if they decide to shop elsewhere. Just like the campaign by large retailers to have GST imposed on on-line sales backfired so badly, stores that charge fitting fees are going to suffer a drastic decline in sales.

JEWELLERS ARE SUPREME RIP-OFF MERCHANTS

Jewellers are notorious for hiking up prices to ridiculous levels. For instance, a woman in Sydney used to fly from Sydney to Hong Kong to buy cultured pearls for $100 per 40cm strand. She sold the finished strings of pearls to jewellers for around $400, which factored in the airfare, accommodation in Hong Kong and the laborious work of rethreading them onto expensive silk strands and putting on a fancy marcasite and silver clasp. Imagine her amazement when she saw strings of pearls that she wholesaled at $400 in the windows of Sydney jewellers for $2500 to over $3000.

Often one can see jewellers having so-called sales, where items are marked down by up to a whopping 80%. How on earth can any business sell stock for such a discount? If they can sell something for a 50% to 80% discount, imagine what they paid for it before they whacked on their massive profit? Of course jewellers can do it and still make money, because it is a well-known fact that jewellers routinely hike up the prices of their goods by 1000% or more. A jeweller may purchase a diamond ring for $100 and sell it for $10,000 or $20,000 to a retail customer. So knowing this, anybody who walks into a jeweller's shop is asking to be ripped off.

THE CASIO WATCH RIPOFF

In December 2011, I wanted to purchase a Casio Pro-Trek PRG-200T Triple-sensor watch with titanium bracelet. I went to a few major retailers and one small watch shop in a shopping centre. The price quoted for this particular watch was $750. So I decided to check the prices on-line.

Many on-line stores quoted anything from $295 to around $400 for this watch, so after checking the bona-fides of the chosen on-line store, I placed an order for it at 7:00pm on a Monday evening for $295 including delivery to my house. Amazingly, the watch arrived by courier just two days later on the following Wednesday, which was less than 40 hours from placing the order to receiving the brand-new watch in my hands at my door.

The on-line price of that watch was around 40% of the $750 asked by the local stores. That is not just a slight discount, but a massive saving. Why would anybody be crazy enough to buy this watch locally when they can save such an extraordinary amount by buying it on-line?

THE DYSON RIPOFF

The vacuum cleaner manufacturer Dyson makes a device called a DC-35 Multi-Floor, which is manufactured in Malaysia. In May 2011, this company's Australian arm, Dyson Australia had a recommended retail price of $469 on this product, while Dyson in the US had a recommended retail of A$285 (US$299.99) and Dyson UK has a price of A$305 (£199.99) using May 2011 exchange rates.

So how can Dyson UK sell a product for A$305 that comes halfway around the world to Britain from Malaysia, when the same product makes a short hop to Australia from a nation in the region and costs 35% more than the same product in Britain and the USA? The price of this product is marginally the same in Britain and USA, but far higher in Australia.

When questioned about this by a customer, Dyson Australia offered the lame excuse that prices differ between Australia, UK and US on many products, including Dyson machines and this reflects different exchange rates and taxation systems. What a load of utter baloney and so easily disproven.

Firstly, it would cost more to transport that Dyson product from Malaysia to Britain than it would to Australia, therefore the landed cost would be marginally cheaper. Secondly, Britain has a Value Added Tax rate of 20%, while Australia has a Goods and Services Tax rate of 10%, therefore the same imported item sold in Australia would be cheaper than in Britain. Store rents and wages in Britain are comparable to those in Australia, so those would not be a major factor in the ultimate retail price of that Dyson product. So how can Dyson sell that item for A$305 in Britain and $299 in the USA and ask for $469 for the same item in Australia?

There is only one answer. Dyson is obviously setting the recommended retail price of the DC-35 Multi-Floor in Australia far higher than in Britain, obviously to give Australian retailers a grossly inflated mark-up, from which they can offer some discounts and still make an outrageous profit. Buying the Dyson product from a British or US on-line store and having it delivered right to the door would be a far better proposition than to go around various local shops hunting for the best deal.

THE BOSE RIPOFF

On the Bose US website, the Bose PAS L1 Series 2 PA system costs around US$3000 and in fact in June 2011, it was being offered for US$2700. Most US music stores that carry Bose products were selling it for around US$2250. On the Bose website in Australia, this exact PA system is sold for $4400.

Because it is illegal in Australia to force retailers to sell for a set price, Bose Australia has a system of price maintenance, often called a pro-forma system. Retailers who sell Bose equipment do not actually purchase it from Bose at wholesale prices and sell the item after adding their mark-ups, as they would with other products. Bose Australia actually retains ownership of the equipment and uses the retailers as agents, thus they earn a commission on every sale of a Bose PA system. But because retailers don't actually own the equipment, they can't discount it.

Thus the pro-forma system is a price-fixing method that skirts around the price-fixing laws. The prestige appliance manufacturer Miele does exactly the same, so getting a substantial discount on Miele products is almost impossible. Bose Australia cannot be forced to discount, nor can it be forced to sell its products at wholesale prices to retailers and that is why Bose Australia can maintain its high prices and high profits.

So the only way to buy that Bose PAS L1 Series 2 PA system in Australia is directly from Bose Australia or one of its retailer agents for the fixed price of $4400. But a purchaser can buy it on-line from the USA for $2250 or even less and have it shipped to Australia for far cheaper. Even after freight of around $300 plus 10% GST is paid, because the item is over $1000 in value, the landed cost of this Bose PA system will be around $2800, which is a whopping $1600 cheaper and a saving of 36% of the Australian price.

For instance, the power supply accessory for the Bose ToneMatch mixer costs nearly $100, but most US shops sell it for US$35 or less. When questioned about this massive price discrepancy in April 2011 and pointing out that the Australian dollar was worth more than the US dollar, a Bose Australia staffer stated that it was Bose's Australian policy to maintain high prices for Bose equipment, far above the US prices of the same items.

The same can be found with Bose consumer products such as the Lifestyle V35 entertainment system that sells in Australia for $5300, yet can be bought in the USA for US$3300 with a US $300 discount in June 2011, which is a whopping 43% cheaper. In most US retail stores, this system can be purchased for much less.

In June 2011 on the Bose USA website, the Bose A20 aviation headset is priced at US$1096. On the Bose Australia website, the same headset costs $1395. Why does this headset cost so much more in Australia than in the USA? In June 2011, the Australian dollar was worth more than the US dollar, therefore even including freight and GST, this headset should not have cost more than $1100, but Bose Australia sells it for $300 more than in the USA.

Of course there is only one explanation for this and that Bose staffer confirmed that Australians are being deliberately ripped off by Bose. It pays to buy Bose products on-line from the USA and even when freight and taxes are added, they are far cheaper than buying them in Australia.

THE REEBOK RIPOFF

One of my female friends loves Reebok Princess sneakers and for years she had bought them locally from various stores. The Australian Recommended Retail Price (RRP) for this product is $99.99. She decided to look on-line and found them at a reputable US on-line shoe store for $42 (US$44.45) at May 2011 exchange rates. The cheapest discounted Australian store price was around $85.

So this lady bought two pairs of Reebok Princess sneakers from the US on-line store and even when freight and handling charges were applied, she received them straight to her door for a far less amount, instead of having to physically shop around for them at various local stores. She told me emphatically that she will never buy shoes locally again if she can shop on-line for them.

Those Reebok Princess sneakers are made in China and the transport cost to the USA and Australia would be much the same. So how can shoe stores in the USA sell them for less than half the price of shoe stores in Australia? There is only one explanation and that is, Australian shoe distributors are gouging the customer.

ANOTHER EXAMPLE WITH GUITAR STRINGS

A very close friend of mine who is a professional entertainer used to buy good guitar strings for around $12 to $15 per set from local music stores. Then he discovered a US on-line store where he could purchase top-quality guitar strings for US $2.74 in quantities of 12 packets or more. The freight was negligible and with the Australian dollar being higher than the US dollar at the time, those strings landed in that guitarist's hands for less than $3 per set.

Now $15 for a set of guitar strings from local music shops is no comparison to $3 for a set of top-quality strings delivered right to the door. The same goes for most other musical products that can be bought for a fraction of the price of the same products purchased from local stores. When it is known by Australians that the Australian dollar is worth more than the US dollar and Australian GST is on a par or even less than US sales taxes, it makes a mockery of the spin that such products are four or more times dearer in Australia because of taxes and exchange rates.

MAJOR RETAILERS CAMPAIGNED FOR GST ON IMPORTED GOODS

Many local retailers, including Harvey Norman and Coles, have pushed for GST to be applied to goods purchased from overseas on-line stores. They claimed that they could not compete against overseas sellers when Australian merchants were forced to apply GST to local sales. However, although GST-free purchases might place local retailers at a small disadvantage, that is only a small factor in the reason why they are losing sales to the on-line stores.

In early 2011, a number of large Australian retailers launched a publicity campaign to have GST imposed on all on-line sales and this was the worst thing that they could have done. They literally shot themselves in the foot by spending a fortune telling Australian consumers that shopping on-line was so much cheaper than buying in local bricks-and mortar stores. The result was that literally every Australian who didn't realise this at the time was informed by those retailers that better deals could be obtained by not shopping at their stores.

Apart from the anger vented by consumers at this stupid campaign, shoppers did flood on-line for their purchases, resulting in a massive downturn in business for those retailers. The retailers suddenly realised their colossal mistake, went very silent and withdrew their advertisements and stopped their public campaign, but it was too late. Even when some of them established on-line sales to circumvent the GST that they had originally tried to push, they could not compete with offshore on-line merchants.

THE REAL PROBLEM IN AUSTRALIA IS PRICE GOUGING

The truth is that the rapacious mark-ups on goods sold locally in Australia is the real problem. The examples here prove it. For instance, even if GST was applied to that Casio Pro-Trek watch that I purchased and was delivered to the door for $295, that would bring up the price to around $325, still less than half the price of purchasing it from local stores for $750. The Dyson DC-35 Multi-Floor purchased on-line from Britain, including freight charges, would cost no more than $350, still far cheaper than the $469 recommended retail price of the item in Australia. As for the guitar strings, who would buy them for $15 per set when they could get them for $3.30 per set with GST applied?

Until Australian stores learn that their potential clients are now educating themselves as to how much products cost overseas and they discover how much cheaper those goods are, in comparison to local prices and they realise how they are being ripped off, local stores will continue to lose sales at an alarming rate. The advent of Internet shopping has meant that Australian stores have now lost their monopoly on retail sales and they either have to compete with on-line merchants or die.

IMPOSING GST WILL DO NOTHING TO SAVE LOCAL STORES

Imposing GST on on-line goods will not deter people from shopping on-line, because even with that, the goods are still cheaper to buy on-line by far. Even worse for local retailers, the variety of merchandise on-line far exceeds what local retailers have on their shelves, so on-line shoppers have a far better selection. Of course the other major aspect of on-line shopping is that prices can be compared and the best deal found without leaving the house. On-line shoppers don't have to trek around a variety of local stores and haggle with salesmen for the best prices when they can do it with a few mouse clicks and the goods are delivered to their doors.

Unfortunately, the real losers are not so much the local stores, but their employees who will lose their jobs as local shopping declines. But this is a result of the changing face of commerce, coupled with the exorbitant mark-ups in the prices of local goods. Employees who lost their jobs because the stores in which they worked closed down or downsized because of on-line competition cannot just blame the GST, but have to understand that the outrageous margins that retailers place on products, reported in May 2011 as being as high as 146%, are to blame for their unemployment.