Given the recent publicity about the cost of ebooks, iPhones and many other items in Australia compared to elsewhere it should come as no surprise to find that LEGO is ridiculously expensive locally compared with the USA in particular.
As an example I spent some time trawling around for the price of the 9446 Destiny’s Bounty Ninjago set (which my son just got for his birthday). Here in Australia the average price seems to be A$130. In the USA, Canada and the UK the same set retails for the equivalent of A$80. That is a serious difference.
This pricing differential is not new; although it does seem to be spreading to markets outside the USA with Canada and the UK also falling below Australian pricing. I found a rare 2008 quote from LEGO management explaining why prices were lowest in the USA:
Our selling costs in Europe and Asia are higher than in the US because of the size of US market and retailers (economies of scale). Furthermore, the US market is by far the most price competitive in the world. These factors combined mean that we have for years priced our products higher in eg Europe than the US. In recent years, the difference has been increased due to the weakening US dollar – but we have consciously decided not to let this (hopefully short term) weakening of the dollar hurt the US consumer. And in order to stay profitable as a company, we cannot decrease our European prices – especially seen in the light of increasing cost pressure on oil, labor etc. Finally, final pricing in the market place is obviously determined by retailers, which is something we cannot and will not influence.
There’s a couple of things we can extract from this quote. First the US prices are low because the market is incredibly competitive and that drives prices down. It’s not that LEGO wants lower prices it’s just that the retailers’ cut-throat competition requires it. Secondly, there is the fact that in order to stay profitable LEGO can’t lower its prices outside the US. So in effect the rest of the world is subsidising US prices simply because the other markets will bear it.
Why is LEGO prepared to let the rest of the world subsidise the USA or wear prices being ground to a minimum in the States? Well my theory is that they must have the US market to be considered a viable toy. The US is benefiting from being the style- and thought-leaders of the world in the space that LEGO operates. The movies that LEGO is now continually tieing into are all American and the US is simply the World’s largest toy market. In addition, or in parallel, the LEGO Group has as one of its seven corporate growth initiatives to grow market share in the USA. In 2010 the Lego share of the US market stood at roughly 5 per cent and Lego believes there is room for further growth. Their 2011 Annual Report makes clear that growth targets in the US and UK are being successfully met even in tough economic times.
In Australian terms this comes down once again to us paying for being an affluent country with few competitive alternatives. Other often cited arguments such as taxation and shipping costs seem to fade in the face of this harsh fact. And let’s not forget that these days a lot of this stuff is shipped from the same global distribution chain no matter where you buy it, so the whole economies of scale argument fades even for a real-good such as LEGO.
Realistically LEGO’s strategy is working fine for them. Their global market share is increasing, by significant amounts in key markets. They are once again a profitable company – a major turnaround over the course of the last five years. Their pricing decisions are rational from their perspective. Thus nothing is likely to change any time soon.
So what do we do? As usual locals either just pay the price and deal with the pain, or go through the fiddly process of buying in the USA and shipping via a re-shipper to Australia. Even with postage costs factored in that’s cheaper than buying locally. Why don’t more people do it? Some, because they don’t realise they are being ripped off. Some, because they are buying that Christmas or Birthday present now. Some, because it’s more trouble than the cost-saving is worth – pretty much the definition of us being affluent enough to wear the higher prices. In any case the number of people going around the system is certainly not enough to influence LEGO’s pricing policy.
LEGO is in some ways an expensive product and I don’t begrudge that – it may only be little bits of plastic but there is a quality in the manufacturing and ingenuity in the design that is worth paying for. What I begrudge is paying disproportionately more in Australia. Are high local prices for LEGO the end of the world? No, of course not; but as Dennis Denuto put it in The Castle: “It’s the vibe of the thing, your Honour.”