Why Apple Products Are So Expensive?

We all know Apple is an American company and enjoys making an outsized chunk of their revenue domestically. But Apple sells its products in many international markets and even has retail stores in 24 foreign countries. Some of those markets, like Japan, have access to Apple products at a price like the US. For example, an iPhone XS costs 112,800 yen in Japan, which is about 1,058 USD. And when you consider the country’s 8% sales tax is included in that price, it actually makes the iPhone XS about $20 cheaper than in the US. Although this fluctuates depending on the conversion rate. But not every country is lucky enough to pay comparable prices for Apple products. To buy the bottom model iPhone XS, you’d need to pay $1,235 in Mexico, $1,285 in India, $1,454 in Sweden, and $1,800 in Brazil. And these high prices have prompted customers to fly to the US just to buy a new iPhone. So why exactly are Apple products so expensive in these countries? Well, that’s exactly what we’re getting to determine today.

So one of the most important reasons why Apple products are so expensive overseas is due to taxes. And the perfect example of this is often the worth Added Tax or VAT, which exists in over 140 countries around the world. But despite its prevalence, it isn’t something that exists in the US. So let me explain how it works. In places just like the European Union, a VAT may be a consumption tax added to the worth of products and services. Products exported abroad aren’t typically subject to the worth Added Tax, but imported goods, like Apple products, are. And counting on the country, prices of those goods can increase up to 25%. And unlike the US, consumption taxes in most countries abroad are included during a product’s retail price. So when you notice the iPhone XS selling for $1,454 in Sweden compared to $1,000 in the US, that isn’t really a fair comparison, since US prices don’t include local sales tax. Now if you’re doing the math, you’ll find that iPhone prices in countries like Sweden still don’t add up. Because if their Value Added Tax is 25% on a $1,000 phone, they should be paying $1,250. But instead, the iPhone XS is priced about $200 higher. And that’s because taxes are simply a part of the complex equation companies like Apple use when calculating retail prices. Another factor to think about are any associated costs with importation. Things like import duties, shipping, insurance costs, and tariffs all contribute to cost inflation when selling products overseas. India is a great example of this. They've enacted something called the Foreign Direct Investment policy which punishes foreign companies who don’t source at least 30% of the components of their products from Indian suppliers. And since Apple doesn’t meet that standard, they’re restricted from opening retail stores within the country additionally to being hit with a 20% tariff. There’s also an 11.4% customs duty on imported products in addition to the Value Added Tax that we discussed earlier. And when you add all that up, it isn’t surprising that customers in India pay a 28% premium for products like the iPhone. Now Apple is taking steps to not only price their products more competitively in India but also to open their first mercantile establishment within the country. I’ll talk about that in more detail near the end of the video. Now you'll imagine import costs only being an element in foreign markets, but they will also affect customers within the US. Recently President Trump planned to implement a 10% tax on Chinese imports by September 1 which would affect tech companies like Apple. Now that deadline was pushed back to December 15th, but Tim Cook would really like to ascertain the tax eliminated altogether.

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In fact, he met with Trump in the week and apparently made a convincing argument since Trump told reporters, “Tim was lecture me about tariffs and ... he made an honest case ... that Samsung is their favorite competitor and Samsung isn't paying tariffs. I assumed he made a really compelling argument so I'm brooding about it." Now if the choice isn’t reversed and Apple has got to pay the ten tax, they’d need to make a decision: Increase prices within the US by 10%, or keep prices an equivalent and permit their profit margin to require a serious hit. Both of which are dangerous for the corporate. If Apple raises prices it might exacerbate the difficulty of slowing hardware sales, but if they permit their margins to fall 10%, it might severely damage their profit potential.

So counting on how this story plays out, US customers made soon be feeling the consequences of tariffs that foreign countries are handling for years. Something else which will contribute to high prices is legally binding consumer guarantees that exist in places just like the EU. for instance, once you buy an Apple product within the US, you receive a typical one-year limited warranty that covers faulty parts, product defects, or other conditions that the manufacturer is liable for. But the matter is companies are liberal to define their warranty terms as they see fit. That’s why only certain components could also be covered, otherwise, you may need to pay a fee to ship the merchandise back to the manufacturer. And that’s exactly why the EU established a consumer guarantee that gives customers far more protection than a typical warranty. Customers within the EU are entitled to a minimum two-year warranty in addition to the quality manufacturer’s warranty. And this adds quite a little bit of liability for companies like Apple who typically offset the danger by increasing the worth of their products. But when it involves foreign markets, a serious concern is that the volatility of every country’s currency. Just take the united kingdom for instance. When Brexit happened, there was a 19% drop in the worth of their currency compared to the dollar, which caught tons of companies off guard and caused them to quickly adjust their prices to stay pace with the UK’s currency fluctuation Apple understands which foreign markets are most vulnerable to this volatility and preemptively raises their prices. you'll see this clearly with South Africa. Notice how the worth of its currency has fluctuated over the past five years compared to the EU, Australia, and Mexico. which volatility may be a major reason why Apple inflates their product’s prices in South Africa beyond what’s typically seen in other foreign markets. But so as to really understand Apple’s pricing overseas, we've to think about the American market. Because consumer behavior within the US is often quite different than those in other regions, mainly because American society is extremely consumption-based. we have the foremost credit cards issued per capita within the world, with everyone charging a mean of $4,000 annually. Compare this to other countries just like the UK or France, which opt instead for Debit Cards and thus charge but $300 on their credit cards per annum. you'll see companies like Apple capitalizing on America’s “buy now, pay later” mindset by offering monthly payment plans for his or her products. and every one of these amounts to US customers buying a better volume of products more frequently, allowing Apple to charge but other countries which don’t have a comparable level of consumerism. 

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Now up to the present point, we’ve discussed pretty concrete reasons why Apple prices their products higher in some foreign countries. But there’s one last fibrinogen want to debate that’s less easy to prove with hard facts, which is the brand image. Apple is taken into account as a premium brand in countries like India where the typical smartphone asking price is $200. So when it involves the iPhone XS price of $1,285, it is sensible that only the rich class in India could afford them. And if Apple knows their product will only be accessible to the upper crust, why not charge the maximum amount as you can? It’s an approach taken by many luxury clothing brands, whose customers haven't any problem overspending on items that ultimately function as a standing symbol. And you'll find evidence of this when comparing the iPhone’s price to other flagship smartphones. for instance, the Galaxy S10 retails for $900 within the US and $935 in India. a rise of just $35. The LG V40 retails for $900 within the US and $700 in India. That’s a reduction of $200. And once you compare those prices to the iPhone’s $285 premium in India, it supports the thought that Apple is just extracting the maximum amount of revenue from customers in India as possible, since they know people with money with pay any price for his or her premium phones anyway. it might also add up then that iPhones have only captured about one-hundredth of India’s smartphone market, which may be a shame considering India’s sizable population. But Tim Cook has made it clear that Apple has an aggressive decision to grow their presence within the region and make India one of their biggest sources of revenue. It all started earlier this year when Foxconn began trial runs of iPhone production in India, setting the inspiration for Apple to at least one day manufacture their smartphones within the region and satisfy the 30% local sourcing rule. this is able to allow Apple to avoid India’s 20% tariff additionally to opening their own retail stores within the country for the very first time.

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In fact, Apple has already finalized an inventory of several locations within the country where they could build their store. But they're going a step further by saying they’d overhaul the company's relationship with independent retailers, and improve apps and services aimed more closely at Indians. So while Apple is understood for being a dear brand within the US, their products are typically even costlier abroad. Perhaps they will take measures like those in India to scale back their tax burden and drop prices, but it’s more likely that customers in foreign markets will need to continue biting the bullet and distribute the additional money for his or her favorite products.