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Parallel import argument turns toxic in Oz

Canon, Nikon in JB HiFi hissy fit

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Vendors vs consumers With retailers in Australia getting shafted by vendors and consumers alike, it’s hardly surprising that the "Iron Curtain" of channel control is starting to fall.

With it, price discrimination – the “hell, Aussies will pay anything” thinking that’s set prices for imported goods since time immemorial – is also breaking down, and as it does so, the fallout is starting to get toxic. The latest spat sees JB HiFi following Kogan down the parallel import path – and the vendors at the top of the food chain don’t like it one little bit.

I can’t speak with any authority as an economist, but here is a decently authoritative commentator, the Sydney Morning Herald’s Ross Gittins:

“[T]he primary source of Internet bargains is the existence of what economists call ‘price discrimination'’ the longstanding practice of international suppliers charging higher prices in some markets than others.

“Global companies selling books, music, DVDs, software, sneakers and much else know the punters' 'willingness to pay' varies greatly between countries. Why? Because, for instance, Australians are simply used to paying higher prices than Americans are.”

Knowing this, vendors set higher prices here, and retailers have to suck it up and pay. They’re even reluctant to go public and tell people who sets the prices, since that would jeopardize the relationship.

But retailers still have to make money, which is why JB HiFi has decided that parallel imports give them a chance to take the punters’ dollars, or at least, to put pressure on vendors for fairer prices. And so the outfit last week began advertising Nikon and Canon cameras, parallel imported, from its online store at lower prices than you can get in Australia at retail.

Canon and Nikon are going ballistic. Looking around the local reports, Canon is darkly warning about “relationships”, while Nikon has flicked the switch to Vaudeville, pulled on the scary mask, and rolled out the Halloween “grey market” fright-stories about warranty, product support, the terrible risk of getting a manual not in English, and a real sting-in-the-tail: firmware.

Before we get to the last, lets dismiss the others. Unlike Joe-in-the-pub, JB HiFi is a publicly-listed company with a brand to protect, and it’s aware of warranty. From the JB HiFi Website:

“Direct import products do not have a manufacturer’s warranty but come with a voluntary warranty provided by JB Hi-Fi and the statutory protection of the Australian Consumer Law Act.”

So warning consumers that the JB direct imports might come sans warranty is a deliberate attempt to muddy the waters.

While JB asserts that its “direct import” products are identical to what arrives in Australia through the price-controlled official channel, Nikon tries to warn consumers that parallel imports might not meet Australian standards (remember, we’re talking about cameras here).

Nikon:

The products “may not meet mandatory safety and certification codes, or may not have been handled properly, therefore they may malfunction”.

JB:

“’Direct Import’ is not illegal, not factory seconds, not demo merchandise, or inferior product. In fact in almost every instance a ‘direct import’ product is absolutely identical to its Australian warranted counterpart.”

Firmware, however, is another matter entirely. Here’s what Nikon told a local retailers’ publication, Current.com.au:

“Owners of grey items may not be able to download online software and firmware upgrades available from the Nikon site, due to incompatible serial numbers”.

(From a marketing viewpoint, this seems stupid: "Buy products from someone who won't nobble software to maintain geographic monopolies". But maybe that's just me...)

Let’s return to the Gittins article for a moment:

“Price discrimination is a great way to maximise profits - provided you can keep the various markets separate and stop people in high-price markets switching their purchases to low-price markets.

“Various global industries have long used legislated restrictions on ‘parallel imports’ to protect their price discrimination arrangements - against which economic rationalists have long fought mainly losing battles.”

Mainly, but not entirely, losing battles. In Australia, the Competition and Consumer Act bestows parallel importation not as a “winked at but illegal” activity (as implied by the weasel-phrase “grey market”), but as a right, with certain exceptions (these days, chiefly books).

While America is trying to use international treaties to reverse this, it’s so far failed; and with two powerful government organs – the Productivity Commission and the ACCC – on the consumers’ side, I doubt if we’ll see a return to the bad old days when parallel imports were illegal.

Vendors don’t like that right – strike that, they passionately hate it – but they won’t get any dinner from the ACCC if they try to enforce exclusive dealing.

Which is where the firmware issue comes in.

Nikon appears to be warning Australian consumers that its firmware downloads are (or can be) geolocked: only “Australian” serial numbers will be able to download firmware from Australian IP addresses.

In other words, having failed – many years ago now – to get the Australian government to mandate monopoly import channels for products, thereby spoiling what used to be a handy little price-fixing mechanism, vendors have realized that the software might let them reinstate the cozy ripoffs they miss so badly.

I wonder whether anyone’s asked the ACCC what it thinks?

And the retailers? Going parallel is probably the only lever they have in negotiation. Get some popcorn; this is going to get ugly. ®

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