‘Decay rates’ contribute to bargain prospects
It often seems that everything just keeps getting more expensive. But Statistics NZ figures show that on some items, consumers are getting a better deal than they would have 10 years ago.
Of the prices monitored as part of the Consumer Price Index, it is the cost of technology that has dropped most sharply.
The price of televisions has dropped 92.1 per cent over the decade and cellphones 91 per cent, when adjusted for the increased quality of the products.
Your connection to the internet is 51.1 per cent cheaper than it was at the end of 2007.
Vehicle licensing costs also fell – down 45.2 per cent. Video game downloads are now 20 per cent cheaper.
White bread is 2.4 per cent more expensive than it was 10 years ago, the CPI figures show, but its price increased 50 per cent over the decade, before falling sharply from 2014.
Inflation was 18.9 per cent over the decade, according to the Reserve Bank.
Bodo Lang, of the University of Auckland Business School’s marketing department, said there were a number of factors behind falling prices.
‘‘Lower production costs are likely to lead to lower sales prices in a category,’’ he said.
‘‘Another way to look at the costs of a product category is to look at a product category’s life cycle. Think CDs, versus buying music online versus streaming music. At the beginning of a product category’s life cycle prices are typically high, whereas towards the end they tend to continually decrease so that companies can still realise a profit but not prematurely kill the product category by extinguishing demand through sky-high prices.
‘‘A good example of this is Sky TV’s recent price drops for its basic packages. That business model is likely to face a slow decline, thus prices will continue to decrease steadily. A new product displacing an existing category is a key driver to lower prices in the threatened category.’’
Consumers would be willing to pay more for a desirable product.
‘‘The desirability of a product consists of various factors, such as functional benefits and psychosocial factors, for example a brand’s appeal. Less desirable brands simply cannot charge as much as more desirable brands. Smartphone brands are a good example of this. There is a clear hierarchy of brands in the smartphone market. Functionally there may be relatively little difference between them but the brands are vastly different, hence they have different price points.’’
Hadyn Green, technology writer at Consumer NZ, said the ‘‘decay rate’’ of technology items helped consumers get better deals. Anyone willing to wait a year for a new device would pay much less.
‘‘You can have that technology if you’re an early adopter and pay a premium. But you don’t have to wait long for the price to drop substantially.’’
He said LCD televisions had started out at $40,000 but now sold at about $3000. Bluetooth speakers had also become a lot cheaper.
Green expected laptops to drop in price over the coming years as people started to use tablets more extensively. ‘‘I see the cost of fibre broadband coming down heaps.’’
‘‘There is a clear hierarchy of brands in the smartphone market.’’
Bodo Lang, University of Auckland Business School’s marketing department