Friday, 17 September 2010

Fantasy Exchange Rates

Last time I looked, one of my U.K. pounds sterling was worth a little over one and a half U.S. dollars (actually $1.56696 according to earlier today). The U.K. pound to U.S. dollar rate has been pretty stable for a while now, pegged at around one and a half dollars to the pound.

You really wouldn't know this if you visited the U.S. and U.K. LEGO brand stores, however, or had a look on the respective U.S. and U.K. LEGO shop@home websites. In fact, you might be forgiven for thinking that your pound is worth just one U.S. dollar. Would you like a Slave 1 set, sir ? That'll be £79.99 if you're in the U.K., or $79.99 in the U.S., which works out at a whopping 50% mark-up for the UK shopper, assuming an exchange rate of $1.5 to the pound (it's actually an even bigger mark-up if I use the more accurate figure above). Or perhaps the stunning new UCS Imperial Shuttle, which will set you back £239.99 in the U.K., or $259.99 in the U.S. - that's around a 40% mark-up if you're in the U.K., equivalent to paying about £66 extra. These aren't isolated examples - there are many more - and I'm told that the pricing disparities in certain other countries are even greater.

Yes, I realise that stuff is often cheaper in the U.S. - economies of scale, cheaper distribution costs, cheaper rental costs (although not perhaps on Chicago's magnificent mile, or at the LEGO brand store at New York's Rockefeller Center....). But a 40-50% mark-up ? As much as that ? Also, given that many purchases are now online, it's hard to believe that many of the old arguments trotted out to explain the massive disparity in U.S. versus. U.K. prices apply any more. U.S. sales tax very slightly redresses the balance, although it doesn't even apply on some internet purchases depending on which state you're in etc.

And there's another seriously confusing aspect to all this. Some sets DO reflect the difference in exchange rates..... The superb new Cargo Train set has an RRP of £129.99 in the U.K. and $179.99 in the U.S., so the price is virtually identical. And the Grand Carousel retails for £179.99 in the U.K. and a not-dissimilar $249.99 in the U.S.. So is it therefore something to do with the licensing process ? Do the LEGO company have to pay more in Europe for the rights to the licenced themes ? Well if so, why does the (licensed) Death Star cost almost the same in the U.S. ($399.99) as it does in the U.K. (£274.99). And why is there such a massive mark-up (£139.99 versus $149.99) on the (unlicensed) Grand Emporium ?! Absolutely baffling.

Gratuitous Grand Emporium picture - lovely set!

I'm sure that someone, somewhere within the LEGO organisation understands and can explain these blatant pricing inconsistencies and contradictions, but the rest of us will I'm afraid just have to live with it because I doubt we'll ever get a credible explanation. I'd really love to know, though....


  1. Anonymous17/9/10

    I do recall a post from a LEGO rep long ago (no luck finding it) that one consideration was consumer expectation. As I understood the explanation, it went something like this: a US (or UK, Australian, whatever) consumer has an expectation for what a $20 set will contain (based partially on a history of LEGO prices and partially on what else that amount of money buys in the toy market). If that set were priced at $10, the consumer would wonder what was wrong with it. Are the materials substandard? Is this a cleverly disguised knock-off? What's wrong with this particular set? Am I better off buying a different toy? I don't think was given as a sole reason for price differences, but as merely one factor. And I do think economies of scale are a bigger factor for lower priced, larger production run sets. Matt

  2. This is actually pretty simple economics. Lego sets the price, as best they can, at the profit-maximizing point. However, some markets are more competitive than others. In more competitive markets, a firm is unable to set the price as high as they would like. The U.S. market is so big and so competitive that Lego simply doesn't have the ability to add much of a markup.

    If I recall correctly, a Lego rep spoke about the WalMart effect - probably from the same source mentioned above. The U.S. has Target, Toys R Us, KMart, Krogers, Sears, and dozens of other huge retailers plus hundreds of small shops all in very fierce competition. Add in a behemoth like WalMart, which has been known to demand lower prices on certain items as a prerequisite for stocking the item, and Lego just doesn't have the same market power in the U.S. that it does in Europe, Asia, and beyond where Lego can be considered more like a luxury item with few substitutes.

    So anyway, don't think of it as a big markup in Europe over the U.S. prices. Think of the European price as what Lego would like to charge while the U.S. price gets a big discount purely due to the market dynamics of the highly competitive U.S. consumer economy.

  3. Thanks, Phloo - this is helpful, and makes sense, particularly the part about viewing the lower U.S. prices as discounted rather than the prices elsewhere as mark-ups. It doesn't quite explain the big discrepancy in UK : US prices of some items and not of others, but it's a good starting point.

    Earlier comments by Matt about customer expectation are also interesting. I'm sure the LEGO company have "brand equity"-type data from different countries which capture customer attitudes to the LEGO Brand, and perhaps there data show that compared with U.S. customers, U.K. buyers see LEGO as more of a luxury toy which they're willing to pay more for.

    Whatever the basis for their decisions, their profits would suggest that they're doing something right, but I'm a little concerned that they may be approaching a point where people either can't or just won't shell out the increased prices that are being asked. But then again, I guess we say that every year !!

  4. Anonymous18/9/10

    It might seem at face value that the discounting idea might have some merit, but this will only hold true if TLG actually manufactured in the US (and I couldn't see anything on the website to verify this). The situation gets worse for the UK buyer if the relative cost of shipping is factored in. It simply stands to reason that if everything is manufactured in Denmark and shipped around the world from there, the UK should by all means be significantly cheaper than the US, even with discounting.

    Anyway try this for size: Grand Emporium, cheapest discounted price in USD: 249.15, Death Star: USD 686.94. I live in South Africa, where a 14% VAT, Excessive Customs and excise duty, low demand and major shipping costs is a fact of life. The above was also done on and factored in my 10% frequent buyer discount, without it the Death Star come to over USD700!! This is the major reason I've started viewing my set buying habits and have shifted focus to rather import parts directly off Bricklink. This often works out a lot cheaper, even with shipping and the VAT and customs and all the other add-ons before you actually get your hands on some brand new baggies of Lego (oh and the wait, its killing me - order today wait ten days. As an AFOL I get to feel like a kid counting to Christmas again 9..8..7 ARGHH!!)

    I also know that the UK has VAT, and if I remember correctly, this could be as high as 25%, but the US only have state and local taxes, at significantly lower rates than VAT in other countries. So maybe there is something to be said for government takings in our hobby?!

    As for the increased prices every year, I don't see myself dropping the Lego hobby anytime soon - Especially not after seeing one of my cousins with his first ever big set, the sheer joy of of this product will long outlast its pricing.


  5. Anonymous19/9/10

    Yes, I agree the big differences in price can be a little frustrating. But consider most countries already look with envy to the UK prices.
    Fx I just bought the Grand Carousel in Legoland Denmark (the home of lego), where the price was 280£. That's a markup of around 35% to UK prices!

  6. Anonymous19/9/10

    (edit for the post above) Actually, the markup is close to 60% compared to UK :-)

  7. Yep - I heard that prices in some other countries were even more brutal. Australia is one place which seems to get hammered, as is South Africa according to Jean above. It does however seem particularly unfair that in Denmark of all places you get charged so much....!

  8. Jabba the Taff19/9/10

    The recent ruling on the trademark issue may mean that prices, in Europe at least, will come down a bit.