Swiss consumers are just sheep to be sheared
Many supposedly reputable foreign companies are taking Swiss consumers to the cleaners. Their marketing is masterful in its obfuscation. Some recent product launches exemplify how such companies seek to make excessive profits by charging “Swiss prices” when they have no need to, and how they abuse consumers’ trust here.
Netflix charging Swiss consumers an ugly premium
Netflix, the US-based video on demand service, announced its arrival here in Switzerland to great fanfare. Fans of the company and media alike hailed the company’s entry to the Swiss market with a collective cheer. Prevailing sentiment reflected widespread delight at a cheaper competitor with huge muscle arriving to take on the virtual duopoly of Swisscom and UPC Cablecom.
But like so many foreign companies seeking to exploit the high pricing potential of Switzerland, all is not quite as rosy as their smiling marketing folk would have us believe. As reported previously in Le News, Netflix is charging Swiss customers a premium over the rates it charges elsewhere in Europe. And for a very reduced service. It only offers a catalogue of 300 films in French, and its English list is woefully old. The most recent films are at least three years old (against four months for Swisscom and UPC Cablecom). Even terrestrial TV station RTS, broadcasts films that are 22 months old. What galls is being told by Netflix over the phone that only subscribers can see the catalogue. This should probably be read as Netflix doesn’t want potential customers to see how poor its selection is until they’ve signed up. And even though Netflix offers a free one month trial, it will be relying on customer inertia together with a claim that it will be adding new material in the future to keep most people signed up after they’ve started paying (through the nose).
Netflix in the US costs $7.99 (CHF 7.74) for basic monthly plan – one viewer – while in Austria, France, Germany and Belgium it costs EUR 7.99 (CHF 9.60) but in Switzerland it is CHF 11.90 ($12.26) which means Swiss residents are being charged an eye-popping 53% premium).
But Netflix is not alone in slimming down Swiss consumers’ wallets. Spotify in the US costs $9.99 per month but in Switzerland it’s a whopping 33% more at $13.35 (CHF 12.95).
Apple is also charging excessively in Switzerland
And then there is Apple. The company recently launched its latest smart phone. As far as it was possible to tell the main marketing message was that there would be long queues outside the shops. The specific attributes of the product barely warranted a mention. And the price is CHF 684 ($706 incl tax) in the US or if you have no other option, CHF 759 from Apple in Switzerland – a handsome 11% premium.
And the company is also trying to launch a wrist watch. Again, its marketing appeared not to be so focused on the product’s attributes (other than pictures) but was centred on creating spurious controversy by boasting that its whizzy gadgetry poses a serious threat to the Swiss watch industry. This is a fallacious claim that verges on the exploitative. Sadly it was not identified as such by most media professionals and Swiss watch industry executives.
Adobe also has a policy resulting in grossly unfair pricing
Adobe is another super-charging company. For a small business to buy a one year subscription to Adobe’s industry standard Creative Cloud product costs CHF 88.95 per month in Switzerland while in the US it’s a mere CHF 67.84 (US 69.99) a hefty 24% premium. Adding insult to injury, there is no real alternative to Creative Cloud for most individual designers and small companies.
While prices of most things are high in Switzerland. So are wages. The two are linked (although interestingly the cost of employing a person is France is marginally higher). You just need to look around any Swiss town to see a population that is affluent, educated and employed.
The grubby poverty so apparent in even major western cities such as London, Berlin and New York is not evident here every time you use public transport or you enter a public building. Social problems are contained and managed by a well-funded state. There is a de facto social contract: Get paid a good living wage, and in return pay local prices and give your custom to those companies that ensure employment, dignity and decent wages. Not everyone sticks to their side of the deal. People who shop routinely across the border for groceries and services; shops who do not pass on savings to customers, (for example, from importing on a strong franc) and foreign companies (as detailed above) who export into Switzerland. These foreign companies do not have to pay high Swiss employment and other costs but they charge excessively for their products – because they can – and their Swiss competitors cannot compete by reducing their prices because they must pay high Swiss costs. These foreign companies are at best exploitative and at worst guilty of stripping out value that they have not earned from Switzerland. And these companies all proclaim corporate social or ethical responsibility policies.
Dan says
Well, I’m a US citizen living here and do not agree with your argument. I think the reason is much more simpler…it costs more to do business here than in other EU countries. Plus there are instances where Switzerland is less expensive.
Take the base iphone 6 for example. An 16gb unlocked model in US comes to about $805.00 after sales tax of 7.5% or CHF 777.00. The same model in Switzerland costs CHF 879.00 or about 11% as you say.
However, just the hourly salary of an Apple Store employee in Switzerland is approximately double that of an employee in the US. Take into account higher building costs, rents, utilities, etc in Switzerland, and one could easily say that the iphone 6 is a bargain here.
Even more damaging is the fact that today, that same iphone 6 is selling in Germany for 799.00 euro or CHF 960.00, a 19% premium over Switzerland.
Now turning things around, 100 grams of Gruyere cheese sold in the US is about 30% higher than is sold in Switzerland. Is there a conspiracy in Gruyere to fleece the US consumers?
Bottom line is that while there MAY be some truth in what you are saying, there are too many other reasons for the price differences and even exceptions where things are less expensive here, to come to your conclusion.
I suggest better research in the future.
Phillip says
Hi Dan, I agree with you. The US is a larger, more competitive, lower cost operating market than Switzerland. Another element is sales tax. This would account for some of the i-phone price difference between Germany (19%) and Switzerland (8%). Before tax in Germany it would be CHF 807 and in Switzerland CHF 813. The remaining difference of CHF 5 could be explained by exchange rate.
In addition, pricing is nearly always done by reference to each market’s pricing context or what competitors are charging (what micro-economists term demand side) and not only by considering costs. In any case pricing is complex. To understand it requires a detailed analysis of the many moving parts that sit behind it.
Jeremy McTeague says
Thanks for your comments. We have different prices. Apple in Germany sells the iPhone 6 you describe for EUR 699 incl VAT (at 19%). That equates to EUR 587 (CHF 706) before VAT. The cost of the same phone in Switzerland before VAT is almost the same at CHF 699. There are only 4 Apple Stores in Switzerland. Most iPhones are sold via other retailers. Your point about Gruyère cheese resonates well, but I would point out that persihable high-cost groceries invariably attract a premium due to high wastage. I would also ask if the volumes sold to stores in the US warrant the bulk discounts that are negotiated by the supermarkets in Switzerland.
Phillip says
This analysis is full of holes. With the exception of Netflix the price differences could probably be explained by exchange rates. Companies have to take a guess at future exchange rates when they price. If they didn’t they would be forever changing their prices. In addition, the US is nearly always cheaper than any country in Europe. It’s a bigger more competitive market with lower operating costs – support costs for software and web delivered services are lower in the US.
Possible reasons why Netflix is relatively more expensive and lighter on film selection could be the cost and complexity of dealing with a non-EU legal system (obtaining additional film IP rights) and marketing and managing a business in a small market with three languages (and cultures).
I’m not convinced by the defacto social contract conclusion either. I think it’s much more complex than this. High employer social security payments (effectively hidden tax deductions) in many EU countries, which when included, sometimes bring EU employee costs almost into line with the costs of employing someone in Switzerland. This turns the generous pay assumption into a tax difference. Why people buy in Switzerland instead of abroad might have more to do with tight customs allowances, convenience (not everyone lives next to a border), a belief in Swiss quality, a preference for familiar products, habit or any number of other reasons.
The suggestion of exploitation in the context of these non-essential products is flawed. There are alternatives to the expensive i-phone 6 and spotify and netflix are nice but hardly essential. No one needs any of these items. They can easily choose to live without them.
Companies set their prices based on exchange rates, operating costs and the level of competition in a particular market and people choose to buy or not. I’m buying Swiss spotify at Fr. 12.95. In the UK I’d have to pay Fr. 15 (£10) – yes it’s cheaper in Switzerland than in the UK. I’ll probably pass on Netflix though.
Jeremy McTeague says
Thanks for your constructive and diplomatically worded comments. These companies are more able than most to hedge their forex risk rather than having to overcharge customers on the possibility of taking an exchange rate hit. If they do suffer a forex loss they can still put their prices up. People are used to companies changing their prices – take petrol prices for example. Sure everyone can live without some of these products — but just ask a graphic designer if he can make a living without using Adobe Indesign and Photoshop. Regarding why Netflix is lighter on film selection is unclear. Sweden and Norway are also non-EU countries and they have much larger selections (more than 1000 extra titles than Switzerland), yet their languages are not as widely used as Switzerland’s. Sorry it doesn’t wash. The Swiss are being taken advantage of by these companies.
Phillip says
Constantly adjusting the price of an i-phone 6 to exchange rate movements in the same way that fuel prices are adjusted would be an unworkable pricing strategy. It would also create additional administrative costs (ultimately borne by the customer) and would be confusing for customers. In any case there is only an 11% price difference and most of this might be required to cover higher rent and support costs associated with employing French, German and Italian speaking support staff.
Exchange rate hedging is possible however it’s costly and would just be another cost ultimately passed on to the consumer. Furthermore hedging won’t always give you today’s exchange rate tomorrow so some currency price appreciation might need to be built into the price of the product.
While it is true that Adobe software is an unavoidable purchase for some, the same cost and exchange arguments apply. Here the price premium is higher (24%). This suggests they have been slow to bring prices into line with exchange rate movements. It could also be that their products require more support time, than an i-phone for example, and the relatively more expensive French, German and Italian speaking support staff are driving the price differential.
Your criticism of the Netflix offer in Switzerland seems valid: a poor selection at a high price. On the surface this is puzzling so it’s reasonable to ask why. I merely put forward a possible explanation which makes more sense than the one in this article: that they have a particular desire to deceive and exploit Swiss residents. I am happy to be proved wrong. I just think that your explanation is unsatisfactory.