Now that Apple has retail stores in three countries, I've received several questions about the pricing of products in the stores.
The price of products in the retail stores mirrors those posted Apple's Web sites for the countries--United States, UK and Japan. In general, the price of Apple's products in other countries is more expensive when using U.S. dollars. You might think it's a pretty simple equation. But in an interview with the BBC, Sr. V-P Retail Ron Johnson, a Stanford/Harvard graduate, couldn't explain why the store prices between the UK and U.S. were so different. I myself was assailed by a Londoner during the Regent Street store grand opening, demanding to know why UK iTunes Music Store users had to pay more than France and Germany--or any other country. Uh, sorry.
Of course, for non-physical products that have no traditional manufacturing or transportation expenses, the answer is obvious. In a BBC report, an Apple spokesperson explained, "the underlying economic model in each country has an impact on how we price our track downloads." That is, the music is priced at what the market will bear, or what record labels are charging Apple.
The UK's Office of Fair Trading has just investigated the price differences of iTunes music, and has referred the matter to the European Commission for action. The OFT says the price differences are in opposition to the free movement of goods and services in Europe.
For physical products, there are added manufacturing costs to meet other country requirements, transportation costs, import duties and even currency exchange rates. At some point, competition also figures into the equation, as does the cost-of-living differences among the various countries.
In the end, the actual price in dollars isn't as relevant. The real focus becomes the price in the other currency, and how relatively expensive the item is compared to other products in the same category.
For example, when you purchase a Sony TV, do you ever wonder how much the same set costs in Tokyo, either in Japanese yen, or converted to U.S. dollars? No, you don't. You simply judge the price based on other similar models of televisions available in your country, and make your buying decision.
On the other hand, Apple products aren't a commodity product like a toaster or TV--one that has become generalized, with many suppliers. If you're on the market for a computer in the U.K. or in Japan, you consider Apple, and then look at all the PCs available, and would then no doubt conclude that Apple is way over-priced.
How expensive are Apple's products in the three retail store countries? Here's a sample of Apple products, with their corresponding prices in U.S. dollars:
Ah...but this comparison is only valid on the day it was made (mid-Dec. 2004), since currency rates change all the time. But you can see that the Japanese products are about 12%-17% more expensive, and the UK products are about 16%-48% more expensive. [There are also tax differences--check this chart.]
Let's take a closer look at the currency differences.
As you may know, the value of the dollar compared to other currencies has been changing dramatically during the past six months. That is, US$1 will buy less of many foreign currencies lately, including the Japanese yen and British pound.
For Americans, it means that it takes more dollars to purchase any item priced in yen or pounds. If you wanted to buy a TV set in Japan, or a Mini-Cooper in the UK, you'd have to fork over more dollars these days to pay for the item in the other currency. The price tag on the item didn't change, but the value of the dollar has "slipped," as the currency traders say.
Conversely, the value of the pound and yen has gained over the past year, compared to the U.S. dollar. One yen now buys more of a dollar than it did before, so you need fewer yen to buy anything priced in dollars.
For comparison, here's a chart of value of the dollar compared to the British pound over the past year, showing that one dollar formerly purchased 58 pence, but now buys slightly less than 52p, or about a 10% dip. A chart of the U.S. dollar compared to the Japanese yen is similar, although the decline was about 15%.
Since 2002, the value of the dollar has declined even more, from 22% to 35% across the Pound, Yen and Euro.
Now, most of the buying and selling activity among currencies is limited to the import-export business: giant companies buying and selling their products wholesale to each other. Sony exports TV sets to the U.S., and the United States sends wheat and produce to Japan. That's where most currency exchanges are made. But then there's the world of retail, and in the case of Apple, having identical retail operations in three different countries.
As of Dec. 2004, the value of the dollar compared to the Euro, pound and yen is almost at a 5-year low (the Pound is at a 12-year low). Japanese and European banks are considering what actions they can take to bolster the value of the dollar, to keep their exportable products competitive in the marketplace. If the dollar continues to slide, American-made products could provide some competition within Japan and the UK for products made within those two countries. The Bush administration has said they want market forces to determine the value of the dollar--they really have no incentive to intervene, since a continued slide of the dollar would make U.S. goods cheaper in other countries, which in turn would help the U.S. export more goods, and decrease the traditionally huge different between imports and exports (the U.S. imports much more than it exports, generally).
Lately, tourists from the UK and othe European countries, as well as Japan, are coming to the U.S. and unloading their wallets. They're buying up all sorts of U.S.-made items, since they're relatively cheap when compared to purchasing them in their own country. Of course, there are duties on some products when the tourists return home, but even so it doesn't offset the bargain of U.S.-priced goods.
So, back to the store prices. In Japan, what exchange rate would provide the equivalent price in the United States? In the chart above, the two computers hover around 120 yen to the dollar (around early 2003), while the iPod, Cinema Displays and OS X hover around 106-114 yen to the dollar (early 2004).
For UK prices, the equivalent UK/US price equals an exchange rate of 62-76 cents per pound, rates which were reached in early to mid-2003.
So at some point the Apple store retail prices were "equal," but only briefly as the currency rates fluctuate.
Now, having considered all this, you might be asking one final question-- Is £219 for a 20 Gb iPod considered "expensive" by UK's standard of living. When converted to U.S. dollars ($362.14), it certainly seems expensive. But is it really expensive in the UK? The answer is, "Yes." It's expensive when compared to the price of milk, clothing, a newspaper, housing or other standard items. By one measure, the cost of living in London is 27% less than in New York City, yet the cost of Apple products in the UK is 16%-48% more than in the U.S. The cost-of-living difference between NYC and Tokyo is only about 2%, and yet Apple products in Japan are 12%-17% more than the U.S., according to my comparison.
So after all this, what's the bottom line? Japan retail store prices are closer to U.S. store prices, and not coincidentally, the product supply is also much closer to Japan (usually Korea). Store prices in the UK are higher than in the U.S., but then, so are the shipping costs (Korea and London are separated by 5,960 miles). If you add in the costs of transportation, and then tweak the store prices to account for currency fluctuations, you'll probably wind up accounting for the price differences.
Hopefully you now know more than you did before. I'm sure there are a lot more considerations about the store price differences. But then, if Ron Johnson can't explain it, neither can I.
As always, feel free to provide feedback or insights.