Nexus 5 - Black vs White

Today has been another big news day for Nexus 5 developments, and hot on the heels of announcements from Telstra and LG regarding carrier and retail availability respectively, we’ve now got a bit of an insight into why there’s such a huge difference in price between the Nexus 5 via the Play Store and via retail channels.

Ausdroid was surprised to learn that while the 16GB Nexus 5 is available for $399 online, the retail version will go for $699, representing a 75% markup in price. This is a significant markup — we as Australians are used to paying an ‘Australia tax’ for products launched overseas when they reach our shores, but a 75% markup is quite a lot to stomach, considering that (on average) this usually reaches around the 20% mark.

LG gave this statement to Delimiter earlier this afternoon regarding retail pricing:

“Nexus 5 handsets sold through the Play Store are done so by Google and are subject to pricing decisions made by Google.

Offline and retail sales through local Australian retail outlets and sales channels are the subject of a completely separate pricing structure that provides for a different support and service model for consumers.

To this end, this provides for a range of different cost elements, including transport and logistics, local service and support costs associated with retail sales staff, physical stores, live sample devices for demonstration, and many other services functions that consumers can access when a device is purchased at a physical store location.”

We have heard rumours that Google sells the Nexus 5 online at almost zero profit, or even at a loss, in order to stimulate interest in the products and the operating system. Considering the hardware contained in the Nexus 5, and the price of equivalent models in retail, today’s announcement of retail pricing certainly seems to support this rumour.

That being the case, Ausdroid can really only recommend one course of action. If you want a Nexus 5, you really should be looking at buying online (links in the site header, above). The kind of pricing Telstra and LG are pushing for the Nexus 5 is nothing short of poor value.. and we’d recommend buying your own handset online at half the price, and connecting it to a SIM-only plan without a 24 month contract.

Thanks: Delimiter.
  • mark0Z

    Understandable tactic from LG for trying to protect their flagship G2 on the retail shelves. Yet, it’s truly an atrocious price nevertheless. Could have gone $549 instead at a $100 premium over the Play Store.

  • Julian Williams

    All this proves is that it definitely pays to be informed and read articles like this from Ausdroid, and do your research. Don’t know why everyone is complaining, a company can charge what they like for the product, if people buy it, company wins, consumer loses, but its fair game.

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  • vtwkang

    A few points in defence of LG:

    Most high-end phones selling outright for >$600. LG almost certainly had to be dragged kicking and screaming to accept the Google Play Store pricing in the first place (unless Google is covering the difference for LG).

    LG makes money from hardware sales, so hardware margins are important for the company. Google on the other hand doesn’t have to worry about that, because its revenue stream comes from the web.

    Most Australians don’t buy their phones outright — most phones are subsidised by plans. LG’s pricing only inconveniences a small segment of the market.

    And finally, the Play Store pricing offers so much value for money that I can personally live with the lack of bricks-and-mortar channels with the same pricing.

  • Happy Dog

    Just buy it from the Play Store.

    I understand where LG is coming from. Just because Google are willing to not make any money off it, doesn’t mean Telstra or other retailers have to. At the end of the day its business. That business needs to get it shipped tobtge store and then hire a someone to sell it and then all the other costs that needs to be taken in account for it.

    Not every business is bringing in as much as Google. Telstra doesn’t have the advantage of gaining money back from play store purchases.

    Stop complaining. Buy it online and if you cant afford to buy it outright then maybe you will just have to get it on a plan.

  • Avon Perera

    Well the Google Play Nexus 5s seem to be directly shipped from Singapore/HK etc, so if LG are planning on stocking them in Aus warehouses then there’s quite a few more middlemen that the product has to go through.

    It’s still B.S. though compared to Play prices, and smacks of maximizing profits, protecting the market and ensuring that they don’t cannibalize sales of their “LG experience” models ala G2. Who would buy a G2 for $600ish when you can have basically the same specs in the N5 for $450?

    In the end, LG is a hardware manufacturer and a public company. They have their profits and investors to protect, but this really leaves a sour taste in my mouth as they’re basically playing the Australian public for fools. I can understand a reasonable markup to cover costs and give them some profit, but $300??? Really??

  • rend2688

    Why the complaining? Just buy online. Not rocket science. If it was priced high on the Aus Play store, sure, complain, but its not, so…………………

  • Fred

    That’s industrial strength bullsh*t – premium grade.

    “including transport and logistics” – it’s expensive to transport 0.5kg of phone, particularly when it doesn’t have to go via fedex, honest we use the backs of swans

    “local service and support costs” – spotty oik in local telstra shop trying to upsell you to an iphone

    “associated with retail sales staff” – it’s spotty oik again

    “physical stores” – which is where the main costs are – 30% margin it used to be, including oik. This is why Oz retail is crumbling, because really, is it worth $150 for you to get it from a pretty shop, with oik in attendance? Well, no, not even close.

    “live sample devices for demonstration” – right, anyone seen a Nexus 5 on display?

    “and many other services functions” – otherwise known as ‘if we priced it without the con, you wouldn’t buy our G2, would you?’

    When they were selling the Nexus 7, they were sold in the shops for the same price as the Play store, with the low margins – because that’s the price they sell for. Now suddenly it’s a phone, things are expected to be played by different rules?

    Seems to me that the mobile phone industry is the *problem*; not enough competition, not enough regulation – such that they think they’re entitled to the gravy train and 70% markup.

    • kjmci

      Hi. You’re wrong on nearly every level. Allow me to address this: - Transport and Logistics: When phones are sold at-retail in Australia it requires local supply-chain management and warehousing. Play Store Edition phones are shipped directly from Hong Kong/Singapore to end users which does not require local warehousing which keeps costs down.

      - Local Service & Support: Call centres, repair centres, face to face customer service and support triaging, reverse logistics and management. All real, legitimate costs that have to be built into the price of the device when sold at-retail in Australia to be compliant with ACL.

      - Retail sales staff: I’ll set aside your dismissive comment about retail staff, but the costs to train and pay retail staff are not insignificant.

      - Physical stores: While you might be comfortable in buying online, reading forums to get answers to technical issues or digging around in support KBs to solve problems, many people are not. Don’t assume that you are in the majority, because you simply aren’t.

      - Live devices: No, you probably haven’t seen any on display yet because it’s not launched yet. Telstra would have at least 300 company-owned retail points of presence several times more licensed or partner stores. Putting a live device in each is not cheap.

      I might point out that ASUS was the manufacturer for the Nexus 7, not LG – so I’m not really sure why you’re suggesting that they’re changing their tack for a phone?

      Let’s be honest here. Google don’t need to make profit on this device. Remember when Android was first mooted? Google would give you a free device subsidised by ads! The fact is that LG and their retail partners have very real costs associated with ranging a phone and bringing it to life in retail.

      Just because Google has elected not to make any margin on the device does not mean that their partners need to make the same choice. Just because you have a warped sense of value driven by Google dropping the bottom out of the market doesn’t make your ill-informed rant justified.

      The mobile industry is one of the most competitive industries in both Australia and around the world. Margins are razor thin and every day people infinitely more for substantially less.

      You think you’re part of the solution, but really you’re just contributing to the problem.

      • hazchem

        Nailed it kjmci!

      • peter__

        Wow! Extremely costs! Much transport and logistics! High retail staffs! Insert picture of doge here.

        I weep. I Weep for Australian retailers and their exorbitant costs. They give me very sad. But whatever those costs are, it’s all irrelevant to consumers, who are not compelled to support these real or imaginary costs. Supply and demand bitchz. The fact is a $699 phone is not going to ship many units, when the same thing can be obtained $270 cheaper with not much more fuss. Actually with less fuss. So as Happy Dog (Doge?) pointed out, at the end of the day Telstra is a business, and they are going to find out that there is no business in selling $419 phones for $699.

      • Fred

        Sorry kjmci, but you’re wrong – mainly on the level of missing the point.

        Whilst I was being facetious in my post, the serious point is that the Australian retail and it’s margins are an old, dead, business model. You predicate your points on the supposed value attributed to shop on the high street, the ‘expert’ ‘sales staff’, the ‘live’ devices, etc. and try to justify the excessive margin as being needed for the benefit of the proletariat; who of course know no better.

        The reality is different.

        Australia retail space is massively overpriced, based on that old business model and a closed market. Owners of retail space are unwilling to reduce rents to a workable level, and in consequence expect the Australian public to gift them money for old times sake. That’s never going to be sustainable.

        The sales staff are not expert, not even close. Frankly the level of blatant lying that goes on to upsell the poor ignorant punter to the higher margin items is disgusting. You pay poorly, you cannot expect to get good staff – so why should the public pay to get fleeced?

        As for ‘live’ devices – the devices are rarely really ‘live’ and the costs amortised over the life of the phone and sales generated are low.

        The new model, the one that you are fighting against, sees online sales, centralised distribution/servicing that gets the phone delivered express from Hong Kong in a few days for $19 to the door, puts much more information, most of it roughly impartial and much more expert, in the hands of the customer. No up-selling, no lying, no 70% margins.

        Whilst I’d agree there are still steps to be travelled to enhance the experience, the market is shifting towards this inexhaustibly. Most people will now research online, and often buy there as well when they see the prices. Sorry, but when even my technophobe mother will do that, your claim that I’m not in the majority rings extremely hollow. This will only increase over time; and we should aid it with education of those still in the dark – the digital-have-nots. I think they number ~20% at the last count?

        I gather from the way you phrase your diatribe, that you have a stake in the BAU game; feel you are entitled? You see that game collapsing and you seek to bolster and sustain it against the reality that it *should* die – through the market realities you are ignoring. You think you’re part of the solution, but really you’re just contributing to the problem.

      • kjmci

        For the sake of disclosure, I do have “stake” in the game as I’m a former device launch manager for one of the big three telcos in Australia. I’m now a product manager for a major telco in the UK.

        However, this gives me a unique insight into how the market operates and responds to the launch of products in a way that a casual outside observer could never have. While you’re basing assertions on subjective and anecdotal evidence, I have a grounding in the statistics, sales figures, channel-splits and feedback that comes from launching hundreds of devices into market.

        That being said, telcos operate in a multi-channel sales environment (online, telesales, retail, dealer partner, business principal dealer etc) so my commitment to maintain the “BAU retail game” isn’t huge.

        There are three core points to this issue: - There are unavoidable, very real costs involved in launching a product in a “retail” environment in Australia. – LG is a hardware manufacturer who make their profit on the sale of devices to retailers - Google is a platform vendor who make their profit on search advertising, data mining and content sales

        Just because Google makes a choice to sell the device with little or no margin, that does not mean that LG and its retail partners must sell the device at a loss.

        You can commend Google for their strategy, but you should not condemn LG for theirs.

      • peter__

        They give me very sad! [Shoo! Bad doge!]

        Whatever the costs are, it’s all irrelevant to consumers, who are not compelled to support these real or imaginary costs. Economics bitchz. Go and look up perfect supply elasticity. That’s what Google is offering. Bored by elasticity? Try this: A $699 phone is going to ship very few units, when same can be obtained $270 cheaper with not much more fuss. Actually with less fuss. As Happy Dog (Doge?) pointed out above, at the end of the day Telstra is a business, and they are going to find out that there is no business in selling $419 phones for $699.

        Presumably that’s why no Oz retailers sold Nexus 1, 2 3 or 4s, and why I’ll bet they won’t sell the Nexus 6 (I hear it’s going to be great!)

      • peter__

        ..

      • Guest

        They give me very sad! [Shoo! Bad doge!]

        Whatever the costs are, it’s all irrelevant to consumers, who are not compelled to support these real or imaginary costs. Economics bitchz. Go and look up perfect supply elasticity. That’s what Google is offering. Bored by elasticity? Try this: A $699 phone is going to ship very few units, when same can be obtained $270 cheaper with not much more fuss. Actually with less fuss. As Happy Dog (Doge?) pointed out above, at the end of the day Telstra is a business, and they are going to find out that there is no business in selling $419 phones for $699.

        Presumably that’s why no Oz retailers sold Nexus 1, 2 3 or 4s, and why I’ll bet they won’t sell the Nexus 6 (I hear it’s going to be great!)

      • Guest

        ..

      • peter__

    • vtwkang

      In the case of the Nexus 7, I think based on what I’ve read that Asus had always intended for the tablet to be a budget device before it was repurposed by Google into the Nexus. That probably at least in part explains Asus’s willingness to price it on par with the Play Store.

  • Jonathon Neaves

    I feel sad for Australia’s tech industry. So often it seems to be pushed aside as a fad or something. Rumours were that Google was interested in buying the old Gold Coast Hospital…the council knocked them back.. now it’s been announced that they’re going to demolish it, divide the land and sell it off.

    • http://ausdroid.net/ Chris

      It’s kind of sad really. Australia’s a great place to live for so many reasons… but the price of technology here, compared to other places… my goodness.

  • Abhijeet Mishra

    Wow, and I thought we had it bad in India. Here the price starts at $475 on Play Store, while LG will sell it for around $20 more, so not exactly that much of a hike,