Why Apple products is very expensive?
We all know Apple is an American company and enjoys making a large chunk of their revenue domestically. But Apple sells their products in many international markets and even has retail stores in 24 foreign countries. Some of those 17markets, like Japan, have accessto Apple products at a price comparable to the US. For example an iPhone XS costs 112,800 yenin Japan, which is about 1,058 USD. And when you consider the country’s 8% salestax 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 base model iPhone XS, you’d haveto pay $1,235 in Mexico, $1,285 in India, $1,454 in Sweden, and $1,800 in Brazil. And these high prices have prompted customersto fly to the US just to buy a new iPhone. So why exactly are Apple products so expensivein these countries? Well, that’s exactly what we’re goingto find out today. This is Greg with Apple Explained and if you want to help decide which topics I cover, make sure you’re subscribed and these voting polls will show up in your mobile activity feed. So one of the biggest reasons why Apple products are so expensive overseas is because of taxes. And the perfect example of this is the Value-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 like the European Union a VAT isa consumption tax added to the price of goods and services. Products exported abroad aren’t typicallys ubject to the Value Added Tax, but imported goods, like Apple products, are. And depending on the country, prices of thesegoods can increase up to 25%. And unlike the US, consumption taxes in mostcountries abroad are included in 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 findthat iPhone prices in countries like Sweden still don’t add up. Because if their Value Added Tax is 25% ona $1,000 phone, they should be paying $1,250. But instead, the iPhone XS is priced about$200 higher. And that’s because taxes is just one partof the complex equation companies like Apple use when calculating retail prices. Another factor to consider are any associatedcosts with importation. Things like import duties, shipping, insurancecosts, and tariffs all contribute to price inflation when selling products overseas. India is a great example of this. They've enacted something called the ForeignDirect Investment policy which punishes foreign companies who don’t source at least 30%of their products components from Indian suppliers. And since Apple doesn’t meet that standard,they’re restricted from opening retail stores in the country in addition to being hit witha 20% tariff. There’s also an 11.4% custom duty on importedproducts in addition to the Value Added Tax that we discussed earlier. And when you add all that up, it isn’t surprisingthat customers in India pay a 28% premium for products like the iPhone. Now Apple is taking steps to not only pricetheir products more competitively in India but also to open their first retail storein the country. I’ll talk about that in more detail nearthe end of the video. Now you may imagine import costs only beinga factor in foreign markets, but they can also effect customers in the US. Recently President Trump planned to implementa 10% tax on Chinese imports by September 1 which would effect tech companies like Apple. Now that deadline was pushed back to December15th, but Tim Cook would like to see the tax eliminated altogether. In fact, he met with Trump this week and apparentlymade a convincing argument since Trump told reporters, “Tim was talking to me abouttariffs and ... he made a good case ... that Samsung is their number one competitor andSamsung is not paying tariffs. I thought he made a very compelling argumentso I'm thinking about it." Now if the decision isn’t reversed and Applehas to pay the 10% tax, they’d have to make a decision: Increase prices in the US by 10%,or keep prices the same and allow their profit margin to take a major hit. Both of which are dangerous for the company. If Apple raises prices it would exacerbatethe issue of slowing of hardware sales, but if they allow their margins to fall 10%, itwould severely damage their profit potential. So depending on how this story plays out,US customers made soon be feeling the effects of tariffs that foreign countries have beendealing with for years. Something else that may contribute to highprices are legally binding consumer guarantees that exist in places like the EU. For example, when you buy an Apple productin the US, you receive a standard one year limited warranty that covers faulty parts,product defects, or other conditions that the manufacturer is responsible for. But the problem is companies are free to definetheir warranty terms as they see fit. That’s why only certain components may becovered, or you may have to pay a fee to ship the product back to the manufacturer. And that’s exactly why the EU establisheda consumer guarantee that offers customers much more protection than a standard warranty. Customers in the EU are entitled to a minimumtwo year warranty in addition to the standard manufacturer’s warranty. And this adds quite a bit of liability forcompanies like Apple who typically offset the risk by increasing the price of theirproducts. But when it comes to foreign markets, a majorconcern is the volatility of each country’s currency. Just take the UK for example. When Brexit happened, there was a 19% dropin the value of their currency compared to the dollar, which caught a lot of companiesoff guard and caused them to quickly adjust their prices to keep pace with the UK’scurrency fluctuation. Apple understands which foreign markets aremost susceptible to this volatility and preemptively raises their prices. You can see this clearly with South Africa. Notice how the value of its currency has fluctuatedover the past five years compared to the EU, Australia, and Mexico. And that volatility is a major reason whyApple inflates their product’s prices in South Africa beyond what’s typically seenin other foreign markets. But in order to truly understand Apple’spricing overseas, we have to consider the American market. Because consumer behavior in the US can bequite different than those in other regions, mainly because American society is very consumption-based. We have the most credit cards issued per capitain the world, with each person charging an average of $4,000 annually. Compare this to other countries like the UKor France, who opt instead for Debit Cards and therefore charge less than $300 on theircredit cards every year. You can see companies like Apple capitalizingon America’s “buy now, pay later” mindset by offering monthly payment plans for theirproducts. And all of this amounts to US customers buyinga higher volume of products more frequently, allowing Apple to charge less than other countrieswhich don’t have a comparable level of consumerism. Now up to this point we’ve discussed prettyconcrete reasons why Apple prices their products higher in some foreign countries. But there’s one last factor I want to discussthat’s less easy to prove with hard facts, and that is brand image. Apple is considered a premium brand in countrieslike India where the average smartphone selling price is $200. So when it comes to the iPhone XS price of$1,285, it makes sense that only the wealthy class in India could afford them. And if Apple knows their product will onlybe accessible to the upper class, why not charge as much as you can? It’s an approach taken by many luxury clothingbrands, whose customers have no problem overspending on items that ultimately serve as a statussymbol. And you can find evidence of this when comparingthe iPhone’s price to other flagship smartphones. For example, the Galaxy S10 retails for $900in the US, and $935 in India. An increase of just $35. The LG V40 retails for $900 in the US, and$700 in India. That’s a discount of $200. And when you compare those prices to the iPhone’s$285 premium in India, it supports the idea that Apple is simply extracting as much revenuefrom customers in India as possible, since they know people with money with pay any pricefor their premium phones anyway. It would also make sense then that iPhoneshave only captured about one percent of India’s smartphone market, which is a shame consideringIndia’s sizable population. But Tim Cook has made it clear that Applehas an aggressive plan to grow their presence in the region and make India one of theirbiggest sources of revenue. It all started earlier this year when Foxconnbegan trial runs of iPhone production in India, setting the foundation for Apple to one daymanufacture their smartphones in the region and satisfy the 30% local sourcing rule. This would allow Apple to avoid India’s20% tariff in addition to opening their own retail stores in the country for the veryfirst time. In fact, Apple has already finalized a listof several locations in the country where they might build their store. But they’re went a step further by sayingthey’d overhaul the company's relationship with independent retailers, and improve appsand services aimed more closely at Indians. So while Apple is known for being a priceybrand in the US, their products are typically even more expensive abroad. Perhaps they can take measures like thosein India to reduce their tax burden and drop prices, but it’s more likely that customersin foreign markets will have to continue biting the bullet and shell out the extra money fortheir favorite products. Although there is one product you can 75%-offno matter what country you’re in, and that’s NordVPN. If you aren’t already using a VPN to protectyour online privacy this is the time to finally get one. I use NordVPN and cannot recommend them enough. 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