How Qantas might have done all Australians a favour by making refunds so hard to get

I’m not sure whether I’ve got any unclaimed Qantas flight credits.

I haven’t looked, either because I’m too busy or can’t be bothered. Which is exactly what Qantas wants. And not only Qantas. Separating out those people who are desperate or determined to get their money from those who give up is a standard business practice.

It’s called price discrimination, although Qantas appears to have added a twist.

Washing machine, fridge and computer manufacturers all do it. They sell their products for a standard price, and then offer a $200 or $400 “cash back” to buyers who fill in and send off a form when they get home.

The manufacturers know time-poor, lazy or well-off customers won’t bother, so they won’t need to send them cash. But the customers who do bother will really need the cash, and probably wouldn’t buy the products without it.

That way they can sell to people who otherwise wouldn’t have bought, while at the same time charging a high price to people prepared to pay it. They’ve arranged things so the two groups sort themselves out.

A tax on the time-poor

Qantas (and Virgin) could have easily refunded money to people who bought flights during the first years of COVID and had to cancel because of lockdowns. In most cases, Qantas had their credit card numbers. It still has them. It could refund the best part of A$500 million right now.

Instead, it makes it really difficult to get money back. It requires phone calls, waiting on the line and fishing out old emails and customer codes.

For a while, until it backed down days ahead of its chief executive bringing forward his retirement, Qantas said those credits would expire unless they were reclaimed, knowing full well many would not be.

But it’s not only Qantas imposing a tax on the time-poor.

A tax on those who won’t pick up the phone

News Corporation will allow you to subscribe to its papers with a click and a card. But when you hit “unsubscribe”, you get given a phone number.

When (and if) you get around to ringing it, you are subjected to an ordeal in which the operator gives you reason after reason not to unsubscribe, instead of acting on your request. You can insist, of course, but it takes time and effort.

The (NewsCorp-owned) Wall Street Journal also makes it impossible to unsubscribe without a phone call… unless you live in California. There, and only there – not in Australia, not in the rest of the United States – you are allowed to unsubscribe online because of a law forcing providers to offer the option.

Australia’s banks are experts at separating lazy customers from diligent shoppers, as are electricity companies.

They routinely offer customers who switch (or say they are about to switch) better rates than customers who stay, turning a time-poor tax into a loyalty tax.

A tax on loyal customers

You might think a tax on those who don’t chase the best deals is effectively a tax on the better-off, as they are the least likely to need savings.

Yet an array of evidence across a wide range of industries assembled by David Byrne and Leslie Martin finds loyalty taxes hit the poorest the hardest.

In an intriguing and expensive experiment in 2017, Byrne and Martin attempted to find out why this was.

They staffed a call centre at The University of Melbourne, in which actors phoned electricity companies, provided or let slip a few details, and said they were thinking of switching.

Among those details was eligibility for Victoria’s low-income energy subsidy.

Byrne and Martin found no discrimination against low-income callers because they said they had low incomes. But they did find that where the callers sounded as if they lacked information, they were presented with worse offers.

A premium price dispute

Disturbing evidence tendered in the Federal Court suggests some Australian insurance companies may be systematising discrimination against Australians who lack access to information.

The Australian Securities and Investments Commission has alleged some insurers set premiums not only on the basis of risk, but also on the basis of what a computer model tells them about the likelihood of each customer tolerating a price hike.

ASIC says the alleged practice is known internally as “renewal optimisation”.

Those claims are disputed, with insurer IAG telling The Australian Financial Review: “We don’t agree with how ASIC has characterised the process by which we calculate renewal premiums, and the impact on our customers.”

Enough for a government inquiry

Where immorality starts and standard business practice stops will be a question for a newly-established taskforce on competition. It will be headed by the Grattan Institute’s Danielle Wood (who will also head the Productivity Commission) and the former head of the Competition and Consumer Commission, Rod Sims.

One thing they might be able to agree on immediately is that something else Qantas has been accused of doing with flight credits is beyond the pale.

Evidence supplied to the ABC in 2022 suggests that not only has Qantas been hanging on to customers’ money by directing them to use credits for flights rather than refunds, it has been jacking up the price of flights when they do – by 50% to 300%, imposing what amounts to an extra (enforced) loyalty tax.

If Qantas and others have taken standard business practices just that little bit further in recent years, there’s a small chance they’ve done us a favour. They’ve given the taskforce something to sink its teeth into.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Hotel booking sites actually make it hard to get cheap deals, but there’s a way around it

Booking a place to stay on holidays has become a reflex action.

The first thing many of us do is open a site such as Wotif, Hotels.com or trivago (all of which are these days owned by the US firm Expedia), or their only big competitor, Booking.com from the Netherlands.

Checking what rooms are available – anywhere – is wonderfully easy, as is booking, at what usually seems to be the lowest available price.

But Australia’s Assistant Competition Minister Andrew Leigh is concerned there might be a reason the price seems to be the lowest available. It might be an agreement not to compete, or the fear of reprisals against hotel owners who offer better prices.

Agreements to not compete

Leigh has asked the treasury to investigate, and if that’s what it finds, it may be the booking sites have the perverse effect of keeping prices high, especially when the substantial fees they charge hotels are taken into account.

For now, the treasury is seeking information. It has set a deadline of January 6 for hotel operators and booking sites to tell it:

• the typical fees charged by online booking platforms

• the details of any agreements not to compete on price

• whether hotels that try to compete get ranked lower on booking sites.

What’s likely to come out of it is a ban on so-called price-parity clauses that prevent discounting, or a ban on “algorithmic punishment,” whereby hotels that do discount get pushed way down the rankings on the sites.

But in the meantime, there are things we can do to get better prices, and they’ll help more broadly, as I’ll explain.

Flight Centre precedent

Back in 2018, in a case that went all the way to the High Court, the Australian Competition and Consumer Commission (ACCC) forced Flight Centre to pay a penalty of A$12.5 million for attempting to induce airlines not to undercut it on ticket prices.

That the ACCC eventually won the case might be an indication price-parity clauses are already illegal under Australian law. But it’s a difficult law to enforce. This is why the treasury is considering special legislation of the kind in force in France, Austria, Italy and Belgium.

The ACCC has known for some time that Expedia and Booking.com have included clauses in their contracts preventing hotels offering the same room for any less than they do, even directly.

Rather than take the big two to court, in 2016 the ACCC “reached agreement” with them to delete the clauses that prevented hotels offering better deals face-to-face.

The concession that conceded little

From then on, hotels were able to offer better deals than the sites over the phone or in person, but not on their own websites. Given we are less and less likely to walk in off the street or even use the phone to book a hotel, it wasn’t much of a concession.

Then, in 2019, with the Commission under renewed pressure from hotel owners for another investigation, Expedia (but not Booking.com) reportedly waived the rest of the clauses, giving hotel owners the apparent freedom to advertise cheaper prices wherever they liked including on their own sites without fear of retribution.

Except several appear to fear retribution, and very few seem to have jumped at the opportunity.

Algorithmic punishment

An Expedia spokesman gave an indication of what might be in store when he was quoted as saying a hotel that undercut Expedia might “find itself ranked below its competitors, just as it would if it had worse reviews or fewer high-quality pictures of its property”.

Being ranked at the bottom of a site is much the same as not being ranked at all, something Leigh refers to as “algorithmic punishment”.

It’s not at all clear the present law prevents it, which is why Leigh is open to the idea of legislating against it.

Although you and I may not often think about what hotels are paying to be booked through sites such as Wotif and Booking.com, and although what’s charged to the hotel isn’t publicised, it appeard to be a large chunk of the cost of providing the room.

One figure quoted is 20%. Leigh says hotel owners have told him the fees are in the “double digits”, something he says is quite a lot when you consider the sites don’t need to clean the toilets, change the sheets or help on the front desk.

‘Chokepoint capitalism’

What this seems to mean (the treasury will find out) is almost all bookings are more expensive than they need to be because firms that sit at the “chokepoint” between buyers and sellers are squeezing sellers.

A hotel could always abandon the sites and offer much cheaper prices, but for a while – perhaps forever – it will be much harder to find.

In their defence, the operators of the platforms might say they need to get the best offers from hotels in order to make it worthwhile for the operators to invest in their sites, an argument the treasury is inviting them to put.

In the meantime, with some hotels reluctant to put their best rates on their websites, but with them perfectly able to offer better rates over the phone, there’s a fairly simple way we can all get a better deal – and help fix the broader problem by weight of numbers.

If we look up the best deal wherever we want online, and then phone and ask for a better one (or a better room), we might well find we get it. We might be saving the owner a lot of money.

Leigh reckons the more we do ring up, the more the sites might feel pressure to discount their own fees, helping bring prices down even before he starts to think about writing legislation.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Geoblocks. How Netflix, Apple et al take us for a ride

How's this for rewarding loyalty?

Netflix is about to come to Australia and as a thank you to the 200,000 Australians who've been devotedly buying its content for years it's reportedly about to pull the plug.

Until now $US8.99 per month has bought unlimited access to as many 100,000 movies and TV shows for any Australian able to trick the Netflix computer into thinking they're in the US. It's been easy, and it's been legal.

The High Court declared in 2005 that it was legal to circumvent geoblocks. A geoblock is a technological device designed to limit someone's access to a product or service depending on where they live.

The region codes on DVDs are geoblocks. They are intended to stop viewers in some parts of the world watching DVDs intended for viewers in other parts. They cause heartbreak for travellers returning from overseas attempting to play what they've bought, bemusement on the part of workers who move between countries and are required to nominate a single region code and embarrassment for international figures such President Obama who once gave his British counterpart a gift of 25 classic American movies that were unwatchable in Britain.

Sony PlayStations were designed so that PlayStation games bought in some parts of the globe weren't playable on PlayStations sold in others, an absurd restriction that encouraged a Sydney engineer named Eddy Stevens to develop a $45 computer chip that turned any PlayStation into a device that could play any PlayStation game. Sony took him all the way to the High Court where it lost in a unanimous judgement that held that it was legal for Australians to circumvent attempts to prevent them accessing products they had bought.

He was backed by the Australian Competition and Consumer Commission and later by the Howard government, which took care in implementing the Australia-US Free Trade Agreement to ensure Australians remained free to jump around geoblocks.

The Howard government had an excellent record in fighting geoblocks, in whatever form they took. Until 2008 record companies misused the copyright law to prevent retailers from sourcing legally produced CDs from overseas. They had to buy them from the Australian distributor at the Australian price regardless of how cheaply they could be bought elsewhere. Howard made imports legal fending off claims from Labor and musicians such as Peter Garrett that Australian music wouldn't survive if Australians were able to buy it cheaply.

Now the draft report of Abbott's competition review wants to go further...

At the moment in many circumstances it is still illegal for retailers to source books from overseas without the permission of the local distributors. They divide the world into regions giving each a local monopoly and the right to charge monopoly prices. The Australian Digital Alliance says on average Australian libraries pay 58 per cent more for print books than they would in the US.

The Harper review wants this remaining restriction removed unless it can be shown it is in the public interest. And it backs a recommendation of a parliamentary inquiry that the government educate Australians about the extent to which they can get around geoblocks and the tools they can use to do it.

It sees geoblocks as a restraint on trade, a block on competition, artificially imposed red tape. While companies such as Apple are quite rightly able to shop around the world for cheapest parts and labour they design their products to make sure that we can't.

The Apple website prices the latest Taylor Swift single at $US1.29 on iTunes. But use an Australian credit card to buy it and you'll be told its $2.19. That's a surcharge of more than one third at the current exchange rate.

Submissions to the parliament's 2013 information technology inquiry found music was typically 67 per cent more expensive than for customers in the US, games 61 per cent more expensive and e-books 13 per cent more expensive. Professional software was 49 per cent more expensive and hardware 26 per cent more expensive.

Apple, Adobe and Microsoft refused to take part in the inquiry, and so were summonsed, forced to appear. They tried to muddy the waters, talking about the GST, which can only explain a portion of the differences and isn't applied to many internet purchases in any event.

The unacknowledged reason they charge Australians more is because they can. It's called price discrimination and it's one of the most effective ways of turning a profit. The method is to find a group of customers not particularly resistant to high prices (in this case Australians), isolate them, and charge them a premium.

The inquiry went further than the Harper review proposes and recommended that the government consider banning geoblocking if other measures didn't bring prices into line. Adobe warned it the move would hit business confidence, but Canada has just announced plans to prohibit unjustified cross-border price discrimination and New Zealand has embraced a new internet service provider that disables geoblocks by default.

Even Australia Post is getting into the act, setting up ShopMate, a service that gives Australian customers a US address they can use with a prepaid credit card to buy whatever is offer overseas at the price charged overseas.

It's why Netflix's existing Australian customers are keen to hang on to their US subscriptions even after the local service launches in March - not necessarily because the local service will be more expensive (the price hasn't been announced) but because it'll offer many fewer movies than the one in the US. The film industry divides the world into regions, doling out rights as if by decree. It's a practice that goes back a century, and for books much longer. It's time it stopped.

In The Age and Sydney Morning Herald


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Rich? Australian? You're targeted.

Wednesday column

Have you heard about the trick they use in fruit shops?

If they want to make money from a large load of lettuce they divide it into two. They put half in a “bargain bin” and charge something like $3 a kilo. They put the other half at the quality end of the store and charge $6. The well-heeled and uncertain pay $6. Those with less money and keener for value pay $3.

It earns the shop much more than if it had just charged $6 (if mightn’t have been able to shift all the lettuce) and much more than if it had just charged $3 (rich folks would have kept the extra $3 in their pockets). It also makes more than if the shop had just charged a single price somewhere in between, such as $4.50. Well-off customers would have still hung on the extra dollars and some needy customers would have still been priced out.

The technique is called price discrimination. It may be retail’s most clever invention, and it’s everywhere.

Arnotts once made a near-identical but cheaper brand of biscuits called Sunshine. It placed the packs at the bottom of racks where the well-heeled wouldn’t look but the bargain hunters would.

Restaurants in Manly quietly ask whether patrons are locals before offering cheaper prices. They don’t want to scare off locals looking after their dollars but they do want to get the most out of visitors primed to spend.

The trick in price discrimination is to hide what you are doing. And to let someone else do the work of sorting your customers.

Sometimes they’ll do it themselves. Computer manufacturers offer “cash backs” with expensive machines. Money-conscious buyers send in the certificates (it’s one of the reasons they buy the machines). Well-off buyers don’t bother.

Banks offer discount or honeymoon rates to customers who switch but not to those that stay. They figure those who don’t move don’t much mind paying more, unless they threaten to leave in which case they are quickly looked after. Phone companies are masters of the manoeuvre.

General practitioners are in a very good position to assess for themselves the paying potential of their patients... In a just-published study of 267,000 medical records Meliyanni Johar of the University of Technology finds low-income patients are typically bulk billed while high income patients are charged 15 per cent more.

New technology is being applied to the task. This newspaper has reported that Australian web-based retailers charge higher prices to customers from wealthier suburbs. Amazon has experimented with charging its regular customers more. The online customers don’t know it’s happening: they are only presented with one price (which is sometimes a higher price if they are accessing the web from an Apple machine).

One of the easiest ways to divide up your customers is to let the government or an educational institution do it for you. Cinemas don’t charge less for students out of the goodness of their hearts. They do it to fill cinemas without cutting everyone’s price. If they are at risk of filling their cinemas with full-paying customers they often suspend their discounts. McDonalds offers a seniors’ discount. It does it not because it is partial to seniors but to free-ride on the work the government has already done issuing cards to price sensitive customers.

The easiest way of all to price discriminate is to brand an entire country. DVDs are region-coded in part to make it hard for Australians to take advantage of the cheaper prices in the United States and Indonesia. Nescafe attempted to cut off supplies to Aldi when it had the temerity to import lower-priced Indonesian jars labelled "For sale in Indonesia only." For many years Australian music companies succeeded in making it illegal to import legally-produced cheaper versions of their own songs. These days although it is legal to import music at overseas prices iTunes won’t let you. If you’re from Australia it’ll charge $20.99 for an album. If you’re from the US it’ll charge $12.99. If you make the mistake of getting an Amazon Kindle delivered to an Australian address each eBook you buy from then on will cost more than if you had had it delivered to the US.

The consumer group Choice says one of the Microsoft software development packages is so expensive here it costs $8500 less to buy it in the US. It is worthwhile paying someone’s to fly the US, buy the package and fly back here.

(Except you would have to pay Australian prices for the flight, often double the price of tickets bought overseas.)

Why would international commerce discriminate against against an entire nation? “Willingness to pay” is one of the answers the Treasury comes up with in its submission to the parliament's IT pricing inquiry, due to report soon. Affluent and not too concerned about value, we’ve globally classified as soft touches.

At home, there’s always the risk we’ll see through the ruse of someone selling the same product for two different prices. So retailers will often roughen the product up, metaphorically punching and bruising half the lettuces so they are genuinely worse than the other half. In the US white goods retailers are said to take hammers to some of their fridges so they can sell them as “shop soiled”.

Australian first computing mainframes were given big brains and then hobbled for entry-level customers. When the customer wanted an upgrade a technician would arrive, charge for the extra memory, and then remove the hobbling device while no-one was watching.

These practices offend our sensibilities. But, appallingly, they are what our own government’s new $37 billion national broadband network is planning in the prices it charges retailers. It wants to hobble the speed for ordinary users and remove the block for users who pay a higher price.

The constraint is artificial. There is nothing to stop it giving all Australians the truly phenomenal speeds of which it is capable. If it wants to charge for usage it can charge for data.

Former Telstra economist John de Ridder has told the Competition Commission its thinking is mired in the past. It is imposing scarcity where none exists, “building a motorway and then only using one lane”.

Unless we are given what we have already paid to build, most of us might never know what its truly capable of.

In today's Sydney Morning Herald and Age







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Sunday dollars+sense: Dumb rich shoppers

Wondering where to shop?

The Treasurer has taken time out from preparing the Budget to offer advice.

ALDI has better prices than just about anywhere else (just as Coles has worse petrol prices, according to his Petrol Prices Commissioner).

Here’s Wayne Swan at a pre-Budget press conferences:

“I’ll tell you what, how many people here shop at Aldi?”

“I can tell you this, out there in my electorate, a lot more do. You want to know why? Because they get a better price.”

He is right. Although such plain speaking from the top is unusual.

How does Aldi get its prices so much lower? ...

Partly by stocking only one brand of most of the things it sells – usually its own.

That keeps prices down by cutting shelf space and the floor area that the store needs to rent.

Some big brands it has to stock, such as Nescafe. To many of us Nescafe is instant coffee.

So Aldi has done what any retailer serious about low prices would do and sourced its Nescafe from the cheapest place it could find it.

Which is Indonesia.

It tells people so. It is Nescafe coffee in a Nescafe jar, but just from somewhere else where the maker, Nestle charges cheaper prices.

When it started, Nestle hit the roof. It withdrew its supplies of “Australian” Nescafe and Milo in protest.

Its complaints were comical.

It said the Nescafe sold in Indonesia had “not been blended specifically for Australian tastes”.

Selling perfectly good Nescafe as if it was Nescafe would cause “confusion”.

Its real complaint probably wasn’t as much confusion as knowledge.

When Australian consumers realised how much more they were being charged for a near-identical product they might feel they were being ripped off.

Nestle isn’t alone. Until three years ago Arnotts sold near-identical biscuits to its own cheaply at the bottom of supermarket shelves using the brand “Sunshine”. It hoped its loyal customers wouldn’t notice.

The trick in business is to charge rich customers who want your product a high price while at the same time making big sales to poor customers by keeping another price low.

Economists call it “price discrimination”. Aldi has exposed the way it works.

Sometimes it works even if it is blatant.

Retailers say they can more money selling lettuce by dividing it in two separate bins side by side. One has a high price - for the well-heeled - and the other a low price - for the battlers.

The well-heeled aren’t too bright.

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Tuesday column: "I'm from Telstra, I want you to campaign for higher prices"

If you are ever asked to join a “grassroots movement”, run. It’ll be no such thing.

A year ago Coca-Cola launched a fake “zero movement” in order to make it seem as if its latest soft drink was part of a social phenomena.

Now Telstra is bombarding its shareholders, customers and employees with glossy brochures, fact sheets and DVDs promoting a “Broadband Australia Campaign”.

It's a “grassroots” campaign. The brochures say so..

They ask us to “talk to family, friends and colleagues, contact local federal MPs, organize community meetings, set up supporters groups, write letters to the editor and ring talkback radio”.

In my view they’ve got about as much chance of building such a movement as Coca-Cola had of creating “the zero movement”. And they could be spending as much of their shareholders, customers and employees’ money trying.

Telstra’s complaint, apparently serious, is that someone in Australia is holding up the development of Broadband.

Gee – I wonder who that would be. Much of Gungahlin can’t get broadband at all. What was the name of the telecommunications company that wired those suburbs?

Even where Telstra has installed high-speed broadband equipment in its exchanges, it won’t allow it to run at full speed until someone else, another company, puts in competing equipment. Really.

Telstra confirms this. In the words of its website and glossy brochures: “Today BigPond broadband is available at speeds up to 20Mbps in some areas. That’s pretty quick compared to what we’ve been used to. However because of regulatory constraints, the up to 20 Mbps service is limited to exchanges where competitors are also offering those speeds.”

Telstra is prepared to speed things up, but it’ll only do so where someone else is offering high-speed competition.

What was that question again? Oh yes. Who is holding up the development of Australian broadband.

Telstra says it is “regulatory constraints”. What it means is that if it does turn on its high-speed equipment it will be forced to allow other internet companies to buy the high speed service from it at wholesale rates and compete against it.

If it doesn’t turn up the speed it won’t have to give what it sees as a leg-up to a retail competitor. But where a competitor goes to the expense of installing its own competing equipment, it will turn up its speed in order to match the competition.

It’s the commercial equivalent of a strike - the sporting equivalent of taking home its bat because it doesn’t like the rules.

Telstra’s Broadband Australia Campaign is about scaling up that tactic.

It is holding out the promise of spending what it says would be $4 billion building a state-of-the-art fibre to node network with a maximum speed of an impossibly fast 100 Mbps, about 100 times what fibre-to-node operations such as TransACT offer.

But it says it won’t build it if it has to provide wholesale access at prices decided by the Competition and Consumer Commission.

In its words, it wants a price “that enables Telstra to fully recover its costs and achieve a competitive rate of return on its investments.”

Oddly for an organisation so keen about putting forward its case, it hasn’t said what that price is, but the industry talk is that it wants $90 per line per month. That’s right: $90. Any competitor bold enough to take up the offer would have to charge more than $90 per month retail.

Telstra’s competitors would prefer to pay something closer to $20 per month, which they say would represent the actual cost to Telstra of adding them on to the service, and in any event they would like the ACCC to adjudicate, as the present law requires.

To an economist it is a straightforward debate over the merits of charging the average cost versus the marginal cost.

To Telstra, it is case of: give us what we want or we won’t build it.

The average cost would be the $4 billion Telstra says it would spend, divided by the likely number of customers. The marginal cost would be much lower - the cost to Telstra of adding another customer to an existing service.

Good economic arguments can be made for either charge, and most probably the ACCC would settle for a charge somewhere in between.

It might be interested in looking at the arguments made across the Tasman.

There a relatively small telecommunications provider is seeking access to the infrastructure built by the bigger Telecom New Zealand.

In its 2005 submission to New Zealand’s pricing regulator it has argued for “a lower, rather than a higher” price arguing that that will bring about lower prices to end-users, strengthen competition, promote innovation and reduce the need for competitors to needlessly duplicate Telecom NZ’s infrastructure.

That relatively small NZ telecommunications provider is TelstraClear, a wholly-owned subsidiary of Telstra.

Perhaps unwisely in these days of increasing use of the internet, Telstra is mounting one argument on one side of the Tasman and another on the other.

What’s disturbing for computer users on this side of the Tasman who don’t want to pay $90+ per month for high-speed internet, is that it looks as if Telstra is about to win.

Ever since Labor announced its own $4.7 billion broadband plan last month Telstra is thought to have been hunkered down with the Communications Minister working out a response.

So worried are Telstra’s competitors that Senator Coonan is about to give Telstra what it wants that 11 of them came to Parliament House last week to try to stir up opposition.

There was one notable exception. Optus – Australia’s second biggest telecommunications company declined to take part.

It is feared that the Minister will announce that Telstra has been given a holiday from the requirement to charge low access prices in return for building a fibre-to-node network in the cities and that Optus has been given $600 million to build a rudimentary network in the bush.

The plan would trump Labor’s because it would start straight away and would be seen to cost much less.

But anyone who was in a hurry to use high-speed broadband would end up paying much more.

Telstra would do what any company granted near monopoly pricing power would do. It would charge an extraordinarily high price at first to gouge money from the early adopters, and then lower the price slowly - just as it did 20 years ago when it introduced mobile phones to Australia.

The customers that Telstra is recruiting to its “grassroots” campaign may not fully understand what they are campaigning for.

Read more >>

Cheaper Nescafe?

All over Sydney we're getting our Nescafe out of different, cheaper, jars. Blend 43 costs somewhere between $6 and $7 for a 150-gram jar. But for the past few months it has been possible to buy instead a 200-gram jar of Nescafe Matinal or Classic Deluxe for only $4.69.

These Nescafes are in similarly coloured (although different-shaped) jars to Blend 43 and they taste much the same, if not better. They're available at Aldi and at small supermarkets in Chinatown.

The only disconcerting thing, as you unscrew the lid, are the words on the jar reading: "For sale in Indonesia only." At Aldi there is also an extra sign saying: "Whilst the blend is different to the locally sourced product we believe that the quality of the product is as good."

The company that makes Nescafe in Australia is upset. It has cut off supplies of products such as Milo to Aldi in retaliation. Which is odd because it is also the company that makes the product that it doesn't want Aldi putting on its shelves...

Nestle Australia and Nestle Indonesia (and also Nestle Brazil, from whom some of the coffee is sourced) are all subsidiaries of Nestle SA in Switzerland.

Nestle's official line is that it doesn't object to Aldi selling coffee from its Indonesian subsidiary, as such. (This sits oddly with the injunction it has printed on its jars of Indonesian coffee.)

It says what it does object to is the "confusion among consumers" that will result from an extra two varieties of Nescafe being on display on the supermarket shelves. This from a company that, when it can, displays about a dozen varieties of Nescafe on supermarket shelves.

In seeking approval from the Australian Competition and Consumer Commission to maintain its ban on supplying to Aldi, Nestle Australia says it has received a number of consumer complaints about the imported Nestle coffee.

It is reasonable to ask, what could possibly be wrong with imported Nestle coffee? Nestle Australia's answer - delivered, deadpan, in its letter to Aldi - is that the imported Nestle coffee "has not been blended specifically for Australian tastes".

It's the sort of explanation we are used to hearing from multinationals that want to stop the movement of their product between nations. Remember the fuss made by the record companies that managed for years to ban imports of records they had made for sale overseas? They said it was about piracy and copyright, nothing to do with price.

DVDs and computer games are region-coded, making it difficult to play those bought in the US in Australian machines. According to the film companies, it is done to ensure a money-saving staged release of films to cinemas. They say if the films are shown in the US first, the same copies can later be flown to projectors in other parts of the world.

But this doesn't explain why they also region-code classic and direct-to-DVD movies. Nor does it explain the ferocity with which software companies have used the courts in an attempt to stop Australians modifying their games machines so they can play games purchased overseas.

An economist would guess the surprising xenophobia of multinational corporations such as Nestle, Universal Music and Sony is really all about price - in particular, a practice known as "price discrimination".

In business it rarely makes sense to charge all of your customers the same price. If you set that price high and charge the most that an eager customer will bear, you will miss out on sales to a larger number of not-so-keen, or poor, customers.

If you set the price low in order to maximise your sales, you'll be giving away your product to the keen customers for much less than they would be prepared to pay for it.

Companies such as Nestle and Arnott's get around this by making two sets of products: one for people who are prepared to pay a lot, and the other for buyers who are canny or short of funds. They make the cheaper product less attractive in order to encourage buyers who can afford it to buy the higher-priced product and not the cheap one.

It is no accident that the packaging on International Roast coffee and Sunshine Biscuits is particularly ugly. International Roast is Nestle's second, cheaper brand (nothing on the packet tells you that - even the manufacturer's address is different). Arnott's makes Sunshine Biscuits, although it tries to keep that fact to itself.

The more you think about it, the more examples of price discrimination you find. Banks do it by offering discounted loans to new customers but not to the ones they've already got: new customers are looking for a good price; existing customers usually can't be bothered.

Cinemas do it by offering special prices to students - not because they have a love of education, but so they can move tickets they would not have been able to sell to these regular customers at a higher price.

Price discrimination works best when the people who are prepared to pay more don't get to find out about the cheaper price being offered to others.

In his book Retail Pricing Strategies and Market Power, Gordon Mills notes that in April 2000 a Sydney supermarket was selling special three-kilogram "budget bags" of apples for less than $3. The packaging made it hard to see what was inside. The apples were as good as those that were selling, loose, for up to $6 a kilogram. For the strategy to work, it was essential that the customers who were prepared to pay the high price could not find out.

That might be the real reason Nestle is so keen to discourage chains such as Aldi from displaying jars of its products at something approaching Indonesian prices: we might think we're being overcharged.

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