It’s easy to understand why Adobe’s costs of creating, marketing, and selling software in North America are lower than the costs of doing the same in, for example, the European Union. The North American version of Creative Suite 3 is available in English, French, and Spanish. In the EU, CS3 comes in 14 languages. The large, and largely homogenous, North American market means that Adobe can realize much greater economies of scale there than in the fragmented EU.
Higher costs of doing business translate into higher software prices, a reasonable cause and effect. However, some people are protesting that Adobe’s EU pricing is sky-high, shooting far beyond the higher costs of doing business there.
Swiss citizen Danielle Libine is leading the protest with a petition requesting fairer prices. Libine, who was a financial analyst before becoming a designer, has also published a 20-page article that goes deep into cost comparisons. Her numbers were startling to me; for instance, her research shows that CS3 upgrade prices in the EU can be as much as 102% higher than the North American upgrade price.
I asked Dave Burkett, the vice president of product management in the Creative Solutions Business Unit at Adobe, to respond to the criticism that its EU prices are unfairly high.
"We use two broad criteria to establish pricing in each local currency where we do business," Burkett told me. "The first is the historical cost of doing business in each region. Pricing varies widely. This is not unique to the software market; other markets, such as prescription drugs and automobiles, also have pricing that varies significantly between regions. In the software industry, it comes down to the degree in which a market is homogenous and how companies can establish economy of scale.
"The European Union is not one big market," Burkett continued. "There are four major currencies with very diverse business channels, and each market has very different channels aligned to the ways customers prefer to buy software and engage with the distribution channels.
"The EU is fragmented by region and smaller retailers," said Burkett. "For example, Adobe has four times as many field market people as we do in the US per dollar of revenue we generate. We also have 46% higher variable marketing costs than in North America. That includes ad campaigns, marketing seminars, facility rentals, etc. We also compensate the distribution channel and that costs about 25% more per dollar of revenue in the EU than in the US. Language localization also costs us more, of course. And it costs five times as much to manufacture and maintain inventory in the EU than in the US."
Burkett said that the second criterion Adobe uses to establish pricing is "market research that establishes the value customers place on the products"; in other words, what the market will bear.
"We do testing in each region and get feedback from customers," Burkett explained. "We have not found that the value fluctuates much over the years. The value associated with CS3 is incredible, and customers react to that. What I’ve been hearing from customers is that they see the value and appreciate it."
I asked Burkett whether prices between regions are the same, once you take into account average exchange rates. "There are large differences between regions aside from exchange rates," he replied. "Many companies have established pricing in local currencies. Relative to the region, our pricing stays the same. Other than the adjustments we make with each new release, the value customers would perceive would be consistent over the entire period, even though the exchange rate could have changed significantly.
"You can lock to the dollar or the euro," he continued. "We’ve chosen to lock to the euro. We don’t take into account the currency per se when we’re determining the value of the products in the local market."
In her article, Libine also looks at EU/US pricing differences for software from Apple, Avid, Corel, and Quark. Her research shows that those companies’ pricing differences are less pronounced than Adobe’s differences. When I mentioned this, Burkett said, "I can’t comment on how other companies come to their pricing. I can really just talk about ours in particular. We establish pricing in each of the regions based on what we’ve seen historically and the value of the product."
Finally, I asked Burkett whether he had seen Libine’s petition. After a short pause, he said, "We’re aware of it.
Many of us at Adobe are very close to our customers. That said, we have an established policy in how we do business in Europe. It’s difficult to figure out how to reconcile those two extremes. I feel like in many ways the situation isn’t unique to this release or this period in history or even to software in general. Many categories of products have had this issue come up.
"We’re aware that this is a sensitive issue," Burkett went on, "and we’re continuing to monitor and talk with our customers to determine if there’s anything different we should be doing going forward. We’ve traditionally set our pricing with each product cycle and not varied it within the cycle. The process of establishing pricing is rigorous; we go through extensive market research. We believe we have the approach that makes the most sense for us. Establish pricing and stick with it."
If you’re interested in reading more about this issue, check out the following URLs:
– "Adobe CS3 Costs 1,000 Pounds More in UK"; ZDNet UK
– "Is Adobe Ripping Off UK Customers?"; Macworld UK blog
– "Photographers Take Stand Against Adobe"; The British Journal of Photography
– "Adobe Pricing in the EU"; Danielle Libine’s aforementioned article
If you know of any other resources that shed light on the pricing issue, please share them by posting in the Vox Box to the left of this article. If you’re not already a member of creativepro.com, you have to register before you can post, but registration is free.Tags