I don't think it's that strange. Let's compare the cost of the same MacBook Air in the US and France.
1. MacBook Air 11-inch : 64GB in US is $999.
2. MacBook Air 11-inch : 64GB in France is €1,049
3. $1 = €0.80 at the current time.
So you might think the MacBook Air should be €800 (999 * 0.80). So why it is €249 more? France levies 19.6% TVA (sales tax) on goods and the tax is included in the display price; the US levies sales taxes by state and these are not shown in the displayed prices (sales tax calculated based on destination).
So, what you need to compare is the pre-tax price on both machine. The pre-tax price of the MacBook Air in France is €877. Thus Apple is charging €77 more for the MacBook Air in France than in the US.
The issue is tax rates not Apple.
If you look at the UK you'll find that
4. MacBook Air 11-inch : 64GB is £849
5. $1 = £0.65
So, the £ equivalent of the $999 machine is £650. UK VAT (sales tax) is 20% and thus the pre-tax price of the machine is £707. So Apple is charging £57 more in the UK than in the US.
The other thing is that the price they set at launch doesn't change when the exchange rate changes. So Apple doesn't set the price relative to current exchange rates, but relative to whatever rate they're hedging against. So don't look at the current rates, look at the long term futures rates.
Yes, its likely the Euro will reduce further against the dollar (given the current situation in Europe), so Apple needs to build in a buffer to account for this.
Maybe, but did it need to do that since the Euro was introduced? The crazy USD-Euro price differences have persisted since the Euro was introduced. Apple is not the only offender, by the way.
Although not as massive as it looks in the first place, there is still a discrepancy.
The new MBP-Retina top config is 2799 USD -> 1805 GBP.
In the UK store, it's 2299 GBP, less 20% vat -> 1916 GBP.
So they're taking more than a 100 quid extra from each UK customer, "just because".
Well, don't forget our lovely European regulations. The costs of hiring employees and handling business in Europe is higher than in US if I'm not mistaken.
Finally, I'd guess that Apple pays its contractors in USD. So if today 1 USD = 0.8 EUR, Apple needs to consider the fact that tomorrow it may be 1 USD = 0.9 EUR, and the price needs to reflect this scenario as well (they cannot change the price every single month to reflect the current USD/EUR conversion ratios).
These are details, but add them together, and you'll arrive at that 10% price difference (I guess)
The european regulations are cheap compared to the legal risks of operating in the states. So, thats not it.
Exchange rate? You keep assuming prices are based on costs. They are not. They are based on profit.
So, when the population in a country has more money to spent, or better but, there where the median, rather than the average, income is the highest, the prices will be too.
So, its cheap in the US because americans are generally more poor, except for a few that throw the average. Off course, "poor" is a very relative concept in this regard.
Income inequality leads to lower prices, and lower margins.
The european regulations are cheap compared to the legal risks of operating in the states. So, thats not it.
You would need to provide some evidence of this since it is completely counter intuitive. Just look at where US treasuries compared with European bonds to compare which countries/continents are viewed as having less legal risks.
Exchange rate? You keep assuming prices are based on costs. They are not. They are based on profit.
You are correct, if French people will pay more for an Apple product and Apple can price discriminate, they will.
So, when the population in a country has more money to spent, or better but, there where the median, rather than the average, income is the highest, the prices will be too.
Well, median income is not the deciding factor for willingness to pay, but would certainly be a contributing factor. Supply and demand equations could be more complex or less complex depending on the situation.
So, its cheap in the US because americans are generally more poor, except for a few that throw the average. Off course, "poor" is a very relative concept in this regard.
This is untrue, proven by the other person's link to wiki.
Income inequality leads to lower prices, and lower margins.
This is untrue also. The price of gold watches and private jet flights are not affected by income inequality, but rather the size of the target segment (wealthy people). A highly polorized economy with 50% really rich vs 50% really poor would by far more jet rides than a country with a distribution toward the center.
> Just look at where US treasuries compared with European bonds to compare which countries/continents are viewed as having less legal risks.
To be fair, you're comparing apples to oranges. Government bond prices reflect the default risk of the government in question. 'Legal risks' include things like getting sued because of perceived defects of your product. Some statistics about that would be interesting, but probably vary greatly by sector: medical devices probably involve lots of ass-covering, whereas something like paper notebooks probably incur fewer lawsuits.
To be fair, you're comparing apples to oranges. Government bond prices reflect the default risk of the government in question.
They also reflect overall competitiveness of the country in question which by definition includes legal risks. This is primarily driven from currency fluctuations. In Europe, the German Bund is currently priced stronger than Spanish bonds which is due to default risk.
If each country had their own currency (compare US to Europe as a whole), the bigger fear would not be default risk, it would be inflation risk. This inflation risk is a function of competitiveness.
'Legal risks' include things like getting sued because of perceived defects of your product. Some statistics about that would be interesting, but probably vary greatly by sector: medical devices probably involve lots of ass-covering, whereas something like paper notebooks probably incur fewer lawsuits.
I agree with your assessment of what legal risks are, but keep in mind it is more to do with the change in legal structures rather than current legal structure. If there is no change, businesses can make projections and be confident in them. If there is a risk of change, that is perceived as a larger legal risk.
I don't have statistics, but I would say that a country (France) which elects a president that is perceived as socialist (radical change from previous president) has far more legal risks than the relatively stable US.
I think the OP was talking about the costs of lawsuits and their effects on business, not risk of doing business in general in various places.
Also: I don't think that, in the context of France, the change in presidents is really all that radical. I suppose I could be proven wrong, but I don't see them as being that much further apart than, say, GWB and Obama, even if the latter two are shifted 'rightwards' compared to what the center is in France.
Agreed - it seems once a week or so, someone says this on HN, but I don't see any references to a source.
It presents an odd, and totally unscientific, conundrum: I see people on HN claiming it's very legally risky to do business in the US, and many of the people I work with and socialize with who are in leadership positions here see doing business in the EU as overly regulated and difficult to make a profit at. I suspect both of them have missed the mark. Largely, I suspect that both groups have built their opinions out of news articles or other fractional views - which tend to focus on the most sensational, rather than the most common.
That being said, there are some interesting contrasts to be made, and at least some scholars have indicated a growing convergence between the nature of the two legal systems, at least in some regards.[1]
This is true, price is based on purchasing power. If the public has more money to spend OR IS WILLING TO SPEND MORE then the business will set the price higher.
Well, don't forget our lovely European regulations. The costs of hiring employees and handling business in Europe is higher than in US if I'm not mistaken.
That's a cost I'm willing to take. I don't want sweatshops like China, or CEOs who can threaten all employees with at will firings if they don't give up their stock options (Zynga IIRC). Give me good old fashioned rights any day.
The MacBook was built in a sweatshop in China -- unless your nation has import tariffs, European regulations won't help that. But the price of a MacBook is still higher than in the US.
I believe the UK also has better consumer protection laws than the US like being able to return a product within 28 days of purchase to get a full refund.
In Europe you are forced to give your customer 2 years of warranty on certain products. E.g. computer hardware or electronics.
Apple refused to in the past (and still had their crazy EUR prices then). But now, after being dragged to court about it in Italy, and loosing, they at least have a good reason to charge more in Europe. ;)
This is the case for most vendors. E.g. my Panasonic GH2 camera did cost a bit more in Europe than it would have in the US. But I get 24 months of warranty.
But this 1$ = 1€ rule has been there for much more time. This can't be the main reason. As another poster wrote, I think the reason is rather "because they can". They may have charged a premium back in the 80s or 90s and just kept it because it worked.
As I wrote, they did have crazy EUR prices before, compared to USD.
When you ask any sales rep. of any big brand in Europe about this, they always use the "24 months warranty vs 12 months elsewhere" excuse.
I'd never buy anything from Apple, so I don't know what excuse they used, being that they illegally dodged the warranty in the past. All I am saying is that they now have both a good excuse as well as a good reason. Anything mechanical is heaps more likely to fail after 24 months than it is after 12.
The 24-months legislation was introduced only recently. IT companies have had these prices for a long time. It's just that multinational sellers will always ask for the maximum price the specific market can bear, regardless of costs.
Italy half-assedly implemented it in late 2002, and then reworked it in 2005 -- so it's about 7 years since it was fully implemented and enforced, which is still "recently" from an industrial point of view. Considering that Apple kept ignoring it until at least December 2011 (!) when they finally lost the trial, I wouldn't be surprised if they were doing the same in other EU countries.
TL;DR: Apple only "felt" this legislation in the last 12 months.
Apple's warranty policies in Europe are still a disgrace, unfortunately. The warranty on a laptop charger is only one year, instead of two, for example. They aren't cheap to replace either (€80 for a simple cable?!). The warranty on an iPod is useless when there's a crack in the screen: defects that have nothing to do with the screen will only be fixed for a hefty price. The advice is to "just buy a new one".
In the mean time, they do reel in this extra money, for apparently no good reason. It really made me think twice about buying an Apple product again. The products are exquisite, but the service is just terrible.
The warranty policies in the US however seem to be exquisite as well (or were a while ago at least).
The warranty on a laptop charger is only one year, instead of two, for example.
They might claim that, but it isn't, and a small claims court or equivalent will prove it to them. All new non-perishable products have two years of warranty, period.
I had my laptop charger replaced four years after purchase. The Sale of Goods act trumps Apple's policies. The power cable is a vital component of the overall product.
Many shops will claim that their warrenty is such-and-such, or that store policy says such-and-such. Sometimes this does not match Law. In this case the Law wins.
In Europe you are forced to give your customer 2 years of warranty on certain products. E.g. computer hardware or electronics.
To be honest, one would hope that a warranty term of 2 years would force manufacturers to make their products more reliable, rather than keeping the quality constant and increasing the price.
But, in an industry where it is normal to deprecate products in two years now (hi, iPad 1), I guess that's too much to ask.
Individual states can have laws that force vendors to give more than 24 months. But 24 months is the legally required minimum warranty timespan for anyone selling tech in the EU.
I feel obliged to repost this. Updated prices in Brazil:
Air 11": R$2699 -> R$3699 (1849 USD)
MBP 13": R$3599 -> R$3999 (2000 USD)
New MBP: R$9999 (4500 USD - WHAT??)
New MBP maxed out: R$15973 (~8000 USD...)
Import tax is 60% for individuals, around 40%, maybe less for importers. $2199 * 1.4 * 2.06 (today's USD, predicted to go < 1.90) = R$6340. How 2199 turns into 9999 (4.5x), or 2799 into 16000 (5.71x) is a mystery.
Now, what were you saying about being ripped off?
[edit] just for kicks I maxed out a Mac Pro: R$ 48.959,00, or 1/4 of a nice brand-new apartment.
I came here to post on Brazilian prices, too. Luckily, it's not like buying a(n imported) car, in which case I would basically never buy one. To the point that I'm leaning on the side of buying an MBA here, it's not the end of the world if I have to pay 500US more (entry-level MBA here is actually R$3000/US$1500, according to Apple's Brazil site). It sucks...but everyone travels with their own computers these days so getting someone to bring one for me from the States is not likely.
The iPad 3 is still priced at R$1599, iPad 2 R$1299, which is not that bad. Apparently they are already producing iPhones over there, but the price hasn't been affected.
If, for some reason, you are using AWS as shorthand for Amazon's general site, they haven't landed here yet, but I'm very interested to see their entrance into the market and how they perform against Ponto Frio, Submarino, MercadoLivre, etc.
Brazil really needs centralized sites (Amazon, CL, etc) because having to check dozens of sites and services just to maybe find something similar to what you need, it can get tedious...and I'm sure I'm not the only one. At least there's Estante Virtual for used books. That's a great service.
As long as we're on the subject, it'd be really nice if there was a way for non-Brazilians to buy things online here. This would be solved if PayPal upped their marketing and really made themselves known on the Brazilian market.
No, I mean't the webservices. If Amazon came to Brazil I really wish they'd disrupt the market in terms of customer service. Americanas/Submarino are lousy in customer service sometimes.
Estante Virtual is really great - the moment I found out about them I stopped going downtown to hunt for books (the good thing is that they're just "forcing" owners to index their collections, and they get to be the middle man).
You pretty much can't buy Lenovo in Brazil (I mean the Thinkpads).
Dell is established, affordable, good customer service. Competes here with Acer, HP, Toshiba and even cheaper brands probably assembled in Brazil (like Positivo).
Sony Vaios are normally a little bit higher priced, closer to Apple.
The lower end Dells start around R$ 1700 (820 USD): Core i5, 4GB Ram and 1 TB HD. The higher end (gaming or slim) ones, my guess would probably be around R$ 3500 (1700 USD).
A friend of mine who has family in Brazil would buy electronics like game consoles in the US and take them down on the plane, because it was significantly cheaper that way.
Partly, selling into another country is a bit of a headache. That's one reason why US businesses can do so well - they only need to succeed in a single jurisdiction and they'll make a lot of money. Yes, there's different state laws, but pretty much all countries have annoying state laws, and not all countries are as lucrative a market as California alone.
I get the impression that state laws are significantly more uniform in Australia than the US... IMHO, it's more that distributors are "used to" a lower AUD, have exclusivity/best price guarantees, and so can prevent anyone importing goods (at retail scale) that undercuts them. They've got their business model worked out on the basis of higher prices, their customers are used to higher prices, and they make arguments like "hey, well, we ran a bit of an advertising campaign and submitted your product for regulatory approval". Perhaps true, but not necessarily worth the extra "tax". See the story about how the digital price for Australian buyers of The Witcher 2 got increased because the Australian distributor made a fuss: http://www.kotaku.com.au/2011/05/why-does-the-witcher-2-cost...
There's certainly that factor, but then it even happens with the app store. Though what I think happened is that the distributors kicked up a fuss when the iTunes store was made available in Australia, so the record companies made the prices higher. Apple learnt from this experience that they could make the prices higher, so they've replicated it across the board. I guess there's also the possibility that some larger app store developers have been able to convince Apple to make the price differential higher for Australia as well.
Theoretically, but setting up a business in Greece doesn't get you the same degree of market access to the EU as setting up a business in New Mexico gets you to the US.
You still have to deal with a lot of very different sovereign states, languages and mentalities. A Swedish customer is not going to feel much different about dealing with Greek business than dealing with a Russian one.
Imagine you want to start a business selling your own brand of briefcases. In the US, you can set yourself up to supply to the whole US (almost) as easily as you can to deal with your local state. Try organizing shipping, sales taxes, customer service etc. for all Europe and you'll probably decide to start with one or two countries.
As a citizen of a country in the EU, I certainly feel different about dealing with a Greek business than a Russian one. For one, I know they are required to provide me with a two year warranty by law. Likewise, there are other community directives that I know Greece was required to implement and that apply to them.
I also feel more confident about my ability to influence consumer protection entities in case something goes wrong, 'though I'm not sure if that's actually true.
Consumer protection laws are independent of the country where stuff is made or where the manufacturer legally resides. Every company selling to EU consumers must abide by them. For examples, google the complaints about Apple using "4G" in their iPad marketing materials, or discussions about the usefulness of AppleCare (most of what it promises you already is a consumer right)
hehe, except that Greece might not be under those obligations for long...
In general though I agree, (from the UK) I'm happy to buy stuff from EU places; I got my Das Keyboard and a Samsung phone (Galaxy Note, useless, sold on ebay) from Germany because it was cheaper (actually, it's also seemingly impossible to buy the Das anywhere in the UK.)
I also happily buy from the US and Canada though, as they make the funniest T-shirts, and the price ends up similar to custom printed in the UK even after import tax (not the £1.50 tax on a $20 t-shirt, but the £8 royal mail stick on any parcel with tax to pay), because of the exchange rate.
If I had to guess (and I guess I don't /have/ to), I'd say it's strictly psychological pricing, and is not intended to reflect some sort of idealized exchange rate or the like.
I think it's not just that though - there's the sales tax and the extra warranty mentioned elsewhere in thread, plus there's a bit more overhead of doing business in Europe. More languages, different rules, etc.
Adding all of that up, I can totally understand that Apple just slap on the same EUR/USD amount and call it a day.
Don't forget sales taxes as well. Depending upon where you are you are probably paying something like 20% VAT (TAV or whatever) - quoted in the consumer price.
In the USA, they have the annoying habit of excluding sales tax (presumably on the grounds that it varies wildly from place to place) and that is only added at the checkout.
Just to echo the sentiments here, it's certainly partly just because they can. If you want a hilarious example, look at Canada. I'm going to use Lenovo here as an example (but applies equally to other retailers). Baseline T420 on the US site? $1365.00. Baseline T420 in Canada? $1520.00. The exchange rate? Been within 5% of parity (either direction) for the last several years. Taxes? Canadian sale prices must be shown pre-tax (just like in the US). Supply chain? Practically the same thing. I ordered a T400 several years ago, and watched it get shipped from China to Alaska to their depot in Kentucky, and then trucked up to Toronto.
I guess there might be some problems with the Made in China part (doesn't completely fall under NAFTA), but I honestly can't figure out the tarrif /import duty laws.
But the point is that US prices almost always seem lower =/
IT IS lower! I've been buying stuff from the US for years now - even accounting for VAT, certain IT products are cheaper, not to mention there are a lot of products you can only find in the US or online...
To make it short: Because they can. As others have pointed out there are taxes, regulations and so on, but the main reason (in my opinion) is that they still make a very good profit in Europe, so why should they reduce prices? Apple is a business and businesses will do almost anything to make more profit (that's the reason they exist, nothing wrong here).
p.s.: Steam has a similar policy and one could note that Steam and Apple share a common trait: No real alternative.
If I remember correctly you could buy with dollars at Steam as an European customer until one year ago, since then this isn't possible anymore. Was this change forced by the publishers?
Anyway, thanks for the hint. Pricing of Valve games is indeed near parity, so you are probably correct regarding publishers/Steam.
It's because of two years warranty, higher taxes, toll, and for more expensive items, smaller number of sold items.
It's not fair you singled-out Apple, since this is true for several gadgets I bought, software, or for example more expensive Canon lenses. It's not Apple specific thing.
My friend from the UK comes to the US to buy sports cars. His wife comes with him to buy clothes. While here, they also pick up iPhones. Not see what makes this a particularly Apple issue.
Europe is ripping off Apple customers, for values of "ripping off" which mean "more or less listening to their expressed preferences that certain favored goods cost nothing at the margin and everything else costs a lot more."
Summing it up - EU prices have VAT included and exchange rate is best possible for Apple in long term perspective.
But correct me if I'm wrong - if you buy Macbook in Apple store in US their adding some kind of local tax, right?
Also - if you're running a company in EU you can refund overpaid VAT, right? So the only difference is, that currency exchange rate is worst possible.
The first post by jgrahamc sums it all up nicely. On the additional 77 EUR Apple charges in Europe, one may have to consider strikter recycling laws. As far as I know, the cost of recycling is already charged at the time of purchase of an electronic product in Europe. That may, at least in part, explain the 77 EUR margin.
In Europe Apple must give 2 years of warranty. There was a recent court decision on that in Italy. That is additional cost that reflects also in the price.
Yeah, pretty much because they can. The average buyer doesn't compare USD to EURO - they just see the price in EURO and it seems normal. Keep in mind that the salaries are also similar in both countries USD=EURO (so technically US workers are paid less if you convert).
Running a company in the EU is also harder than the US, at least for smaller businesses and startups - that may account for something...
Not in the UK from it tech and engineeing jobs our pay is much lower compared to SV and housing costs a lot more. The only advatage we have is only paying 12% for NHS etc instead of 20%+ just for health insurance.
I was talking more about the mainland - Germany, Netherlands and Belgium to be more specific... But you can't really compare anything with the Silicon Valley directly - IT and engineering jobs are present all over the US, and they pay less than SV companies and startups, too...
Why is McDonalds ripping off European customers? In my somewhat limited experience (3 years in Belgium and 2 in Sweden), the only good that has anything to do with the exchange rate is the dollar itself. For everything else, $1 ~= 1 euro ~= 10 SEK ~= 1 pound. Look at the cost of a cheese burger at McDonalds.
Apart from Tax, there is also the problem with fluctuation of exchange rate. Then there are operating cost and other sorts of things.
There is still quite a margin, but same type of Electronics devices would have cost more in UK compare to US even without the tax difference. So it is not really a Apple thing at all.
It's simpler than that. They do it because they can.
Apple could charge allot less for everything they sell but they don't just because they can get away with it.
I'm sure nobody here really believes that the difference in price between countries has anything to do with keeping the profit margin the same everywhere :)
As opposed to the $769 Billion the US Federal government spends on Medicare, Medicaid, and CHIP ($2500 per capita, way more than e.g. France). And of course, the US doesn't have state-sponsored education, it's all private, right?
Yes, it's exactly what I'm saying: retail prices in Europe include VAT and it's about 20-25%, same as difference between the value of one dollar and one euro. And, in general, taxes are higher in Europe because of higher government spendings.
1. MacBook Air 11-inch : 64GB in US is $999.
2. MacBook Air 11-inch : 64GB in France is €1,049
3. $1 = €0.80 at the current time.
So you might think the MacBook Air should be €800 (999 * 0.80). So why it is €249 more? France levies 19.6% TVA (sales tax) on goods and the tax is included in the display price; the US levies sales taxes by state and these are not shown in the displayed prices (sales tax calculated based on destination).
So, what you need to compare is the pre-tax price on both machine. The pre-tax price of the MacBook Air in France is €877. Thus Apple is charging €77 more for the MacBook Air in France than in the US.
The issue is tax rates not Apple.
If you look at the UK you'll find that
4. MacBook Air 11-inch : 64GB is £849
5. $1 = £0.65
So, the £ equivalent of the $999 machine is £650. UK VAT (sales tax) is 20% and thus the pre-tax price of the machine is £707. So Apple is charging £57 more in the UK than in the US.