SMART COOKIES: Buying the World - The internet gives consumers direct access to global purchasing - and 'big savings'. We look at where and why these big savings exist, and at the bargains to be had

SMART COOKIES: Buying the World - The internet gives consumers direct access to global purchasing - and 'big savings'. We look at where and why these big savings exist, and at the bargains to be had - Is this about 'online shopping agents' that seem to be

by ANDREW WILEMAN, a strategy and organisation consultant; e-mail:wilemanae@aol.com
Last Updated: 31 Aug 2010

Is this about 'online shopping agents' that seem to be popping up everywhere?

Shopping agents ('shopbots') search across e-commerce sites to find something at the best price, a Sony TV or an airline ticket, for example - but so far they only search domestic sites: US sites for US consumers etc. That works in the US, because US prices are very competitive. But elsewhere prices are higher, and they vary a lot across borders. So consumers outside the US need to go global - and they will, online.

Can you give us a concrete example?

I just ordered CDs from Amazon.com (the US site). I paid dollars 13 + dollars 1.50 shipping - that works out at pounds 9 per CD.

Exactly the same order from amazon.co.uk (the UK site) would cost me pounds 12 per CD.

I saved 25% by buying from the US site.

The old rule of thumb for transatlantic shoppers always used to be that a UK item retailing at pounds 100 would retail in the US at dollars 100, or 35%-40% less.

In some cases that's changed (for example, Dell's UK and US ex-VAT prices are now pretty close), but the difference persists for lots of products - and it's these differences that the internet will erode.

How about examples in Europe?

New cars. The ripped-off UK consumer can save 40% on a new Range Rover by buying in Holland or Spain. Until now most people haven't bothered: it was hard to find the car you wanted, European dealers wouldn't trade, the paperwork was a hassle and UK officials muttered darkly about the risks. Now web sites will make the search, ordering, purchase and paperwork as easy as going to a local dealer. (That's 'will make', not 'are making' - Totalise, a new UK ISP and e-commerce site, has generated lots of traffic by offering a car import service, but so far can't deliver anything useful, even an e-mail reply.)

Car rental. One of my clients recently booked me an Avis car at Madrid airport, via their travel agent in Spain and using their (supposedly high) corporate discount. I got a quote myself, booking as an individual (no corporate discount) with Avis' UK office: the price was 30% less. That kind of price arbitrage is easy meat for the internet.

Cigarettes. If I visit Tobaccofromspain.com I can buy Marlboro for around pounds 2 a packet - that's almost 50% less than the UK high street price.

(I can also go to winedirect.net, which has given up on Rioja and is just selling nicotine).

Isn't this mainly about tax differences - and won't tax authorities find a way of clamping down?

Tax is a big issue with tobacco and alcohol, where UK taxes are much higher than elsewhere in the EEC. But as for clamping down, it's perfectly legal to import within the EEC for personal consumption, whether it's booze from Boulogne or cyber-ciggies from Seville.

Tax is also a factor in lower prices from the US, which has no VAT (and e-commerce sites can be based in a state with zero sales tax). In the Amazon example, half the saving comes from tax - which is also perfectly legal, within limits.

But that still leaves half the US saving on CDs to explain - and in the new car and car rental examples (all within Europe) tax isn't the main issue.

So what else is creating these price differences?

Differences in competitive situation and practice.

Range Rover may have a premium brand and high market share in the UK, but it has a weak position in Spain - so it offers lower prices to attract Spanish customers.

Amazon.com prices CDs to undercut US bricks-and-mortar retail stores.

The UK has higher retail cost structures (and lower purchase volumes) - so when Amazon.com prices for the US market, it comes in way under amazon.co.uk's 'local market' price level.

Avis is charging a high price to core local customers, while also trying to capture profitable incremental business: bookings from outside the local market, or late bookings. (Likewise, BA and other flag-carrier airlines charge high prices on business fares sold in their home market, but sell the same flights at big discounts elsewhere to capture transit passengers - all backed by IATA 'laws'.)

And the internet will break all that down?

Yes. The internet will allow all customers to pose and purchase as anybody, anywhere - and give them the search and transaction tools to get the lowest world price.

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