5 - We set prices according to local market conditions

Posted on 12 Jul 2007 at 11:13

Verdict: Give them an inch...

Adobe says it sets its pricing in each market "based on customer research", which means someone must have a fairly low opinion of our intelligence. "These are companies with a global market and a sophisticated marketing machine - they'll look at each market and think: 'What's the competition, what's the disposable income?'" says the LSE's Grous. "More importantly, it's about revisiting the formula: 'What can I sell this here for at maximum profit?'"

To put it simply, the shareholders, legally, are more important than customers. Software companies are obliged to maximise profits and share dividends - not to win popularity contests. "There are two possible reasons for the higher retail pricing," says Fender. "If it's more expensive because costs are higher here then that's fair enough, but if it's just because the margins are higher then people get angry.

"If it's a discriminating monopoly, if they can differentiate between regions then they might want to charge more where they can," he continues. "There are various ways of exploiting a position as a discriminating monopoly, from licences and guarantees to customer support. We often get software just because that's what everybody else uses, so there isn't a huge incentive to change or refuse to pay. This makes them far less price elastic and so people are far more willing to pay."

How long will people be willing to stump up is a question that haunts any intellectual property owner and has already changed the pricing structure in Asia, where widespread piracy meant no-one was buying "genuine" software.

"Go somewhere like China and there's a very high elasticity of demand, because there's so much piracy. Why would someone pay $100 for software when there's someone selling the same software, but pirated, for $5 down the road? So companies charge much less where there's a lot of piracy," says Grous.

Perhaps we need more piracy in the UK? Certainly, more competition would be a bonus, according to Libine. "After purchasing one of its serious competitors - Macromedia - Adobe virtually gained a monopolistic position in the world of design and web development," she says.

"Users feel that Adobe is taking advantage of this position to 'subsidise' its US customers and generate maximum profit for its shareholders with complete disregard for its non-US customers. Just like Quark, its only real 'serious' competitor, which is also applying highly exaggerated prices outside the US."

Back to 'Rip-off Britain: excuses exposed'.

Author: Stewart Mitchell