The Cost of Apple

I had to attend a conference in Prague earlier this week and while on my way back to my hotel I walked past an Apple Authorized Retail Store near Andel Metro Station. I did some window shopping and was happily converting Czech Koruna to Euro, but just wouldn’t believe my calculations. Prices here were considerably higher than at home.

The next day I asked a Czech friend, whether I was missing something and he confirmed that indeed there had been quite a bit of bad press about Apple’s pricing policy in their country. According to his recollection of the press coverage only Brazilians were paying more for their iPod.

I decided to do a price comparison when I would be back home to see what was really going on. This short article presents my findings, but before we can take a look at those finding, we need to understand how I did the comparison.

Methods
First of all I compared net prices directly from the Apple Store Website for each country. I then took down the price of a 4GB iPod Nano and the entry level MacBook (1.83GHz Core 2 Duo, 512MB RAM, 60GB HDD) in local currency.

My next step was to get the current Value Added Tax (VAT) rate for every country in my comparison and I found this data at http://en.wikipedia.org/wiki/Value_added_tax. The values were right for those countries for which I knew it off the top of my head and the others seemed good as well. With this value I then had all I needed to get net prices in local currency by doing simple math. We are looking for X, let the price be Y, let the VAT rate be Z and thus our formula would look like this X = Y / (100+Z) * 100.

Still we cannot compare values since we are using different currencies. I decided to convert all prices to US Dollar (USD) based on todays exchange rate as obtainable at http://www.oanda.com. The value taken was the median price reported at this site. I then did the conversion and had figures that were “roughly” comparable.

For the sake of argument I wanted to get a feeling on whether the price variance correlated in any way with the Gross Domestic Product (GDP) per capita in USD, as estimated for 2006 and published by https://www.cia.gov/cia/publications/factbook/index.html.

The reason I wanted the GDP figure was that it measures the size of a countries economy. The assumption (and please remember this isn’t an Economics paper) that I am making here, is that if the GDP of a country is higher it can be assumed that the people in that country are better off than in a country where the GDP is lower. The correlation between the two is evident in most nations, however it most certainly isn’t a 1 to 1 relationship. It is merely an rough indicator. However since this isn’t serious science, I am okay with that.

Prices were collected for 15 countries in Europe, 9 of which adopted the Euro (EUR) as their currency, and 6 of which had their own national currencies. Of the 15 countries surveyed 13 were members of the European Union.

The countries were (in alphabetical order):

Austria, Belgium, Czech Republic, Denmark, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Norway, Spain, Sweden, Switzerland, UK

Please remember all findings are based on NET prices – Apple cannot be blamed for European tax laws, forcing them to collect substantial VAT rates for the local government.

Findings
A 4GB iPod Nano is on average 12.68% more expensive in Europe than in the US, when comparing net prices, converted to US Dollars; an entry level MacBook is on average 11.78% more expensive.

But let’s look at the figures in a little more detail. In Germany an iPod is 9.45% more expensive, while in the UK it is only 8.45% more expensive than in the US. However in the Czech Republic an iPod is a whopping 32.41% more expensive than in the United States.

In Germany the MacBook is 11.44% more expensive than in the US, in the UK it is 14.02% more expensive, and yet again it is the Czech Republic where the MacBook costs most, at 26.32% above the US price.

If you live in Europe, you want to buy your iPod in the United Kingdom, your MacBook you would want to buy in Switzerland, where these products are cheapest, considering net prices. If you consider the amount of money you have to hand over, you definitely want to buy in Switzerland – as it would be cheapest at only US$232.36 (incl. VAT) – the MacBook retails (incl. VAT) at US$ 1269.55. (Don’t get caught at customs though).

The one place you don’t want to be when you buy either an iPod or a MacBook is the Czech Republic, where you pay retail (incl. VAT) US$ 313.56 for the iPod and US$ 1651.97 for the MacBook.

Germany is looking fairly good in the net price comparisons, mostly because Apple didn’t increase prices when VAT was raised by 3% earlier this year. I am not going to make any bets as to how long this generosity will last – but for right now it means prices remained stable and Apple pays for the higher VAT.

If you want all the figures, send me an eMail and I shall forward you the spreadsheet.

So is the Czech Republic a particularly rich country?

That is what I had the GDP figures prepared for, just to get a rough indication. GDP per capita in the US stands at an estimates US$ 43500, Germany US$ 31400, UK US$ 31400, Switzerland US$ 33600 and Czech Republic US$ 21600. So looking at these figures one would come to believe that things in the Czech Republic should cost less than elsewhere (or at least cost the same).

So do they usually cost less? Yes – usually prices in the Czech Republic are lower than in Germany – depending on where in the Czech Republic you are, they can be substantially lower. The Czech Republic isn’t a poor country, but it most definitely isn’t a rich nation either. From my point of view I cannot understand why Apple products here are higher than elsewhere in the European Union.

And this is why I cannot understand this difference: If you can sell an iPod at US$ 259.19 in Berlin, you should be able to sell it at the same price in Prague. VAT rates in Germany and the Czech Republic are the same, the distant the product has to travel is very much comparable and import tariffs are the same across the entire European Union.

So, Mr Jobs feel ashamed of yourself. In Switzerland where goods usually are more expensive than in Germany the prices are lowest, while in the country where prices usually are far less expensive than in Germany prices are highest. Did you get your math wrong? Or did you happen to look at that infamous CNN map, where Switzerland and the Czech Republic had changes places back in 2001? (http://www.riehle.org/humorous-takes/fun-photos/ch-according-to-cnn.jpg)

Online I found an article at the Prague Post Online (http://www.praguepost.com/P03/2006/Art/0202/busi4.php), which quotes an Apple Representative as saying “The iPod is more expensive here because of the 19 percent value-added tax on electronics. It is also only available with a two-year warranty, instead of the less-expensive one-year warranty, which is available in the United States”.

Now excuse me – Mr. Apple Representative, but I just outlined how that still doesn’t explain why the iPod is more expensive in Prague then in neighboring Germany or Austria.

Does Apple have a point with the warranty – yes, BUT… the two year warranty is a European Union standard, so they still have some explaining to do.

In general, are prices too high?

If I lived and worked in the Czech Republic I am sure that the iPod and most Apple products would be well beyond my means, in Germany it is kind of ok.

I still would like to see the net price be the same. When I bought my iPod Nano, I had a friend bring it over from the US. I ordered it at amazon and didn’t pay Sales Tax and with my friend not being stopped at customs I made a serious bargain, even though that meant I couldn’t get the benefit of the 2 year warranty and theoretically my iPod being an illegal import.

Discussion is very much desired, especially if you are from Europe, but please remember I wasn’t trying to get my PhD in economics, so go easy on me, if you found the methodology flawed…