Sweet Price Point: Britain's VAT rise upsets Apple's pricing
Yesterday I plonked an Apple TV in my basket and was a bit shocked to find it costing £1011 when, less than a month ago, it was £99. I know that's only £2 more - caused entirely by the rise in Value Added Tax from 17.5% to 20% on January 4. But I had to think twice. It just seemed much more expensive. The 9.99, 99, 199 and 999 pricing structure is so ingrained in all of us that we actually think we're getting a bargain when compared with the unattractive alternatives of 10, 100, 200, 1,000.
Retailers in Britain appear to have fallen into three camps: those who absorbed the tax increase, those who took the opportunity to raise prices by more than the tax rise; and those, like Apple, who simply calculated the new tax and applied it to the existing prices. As a result Apple's inventory is now very untidily priced and this can't last forever. iPads now go "from £439", iPhones from £428 while MacBook Airs are from £867 and MacBook Pros from £1,020 (instead of last month's £999).
These new prices, especially the baseline MacBook Pro, have lost the advantage of the come-on tags ending in 99. It's only a matter of time before Apple revert to the original structure because, I suspect, people are thinking twice and some could be discouraged by the new figures. As I said, an Apple TV at £101 looks much more expensive than it did at £99.
Apple also has to juggle with ever-changing exchange rates, particularly the pound sterling, the dollar and the yuan. I imagine some of their billions are used to buy currency as a hedge against volatility, but the rates still have to be taken into account when pricing. It can't be easy setting prices that will attract the punters. Equally, it isn't logical that they can carry on with prices like £101 and £1,020.
They also claim that the cost of doing business in Europe is higher than in the States and this is supposed to explain the much higher prices charged here. But this is a different subject.
1 American readers should bear in mind that prices quoted in Europe almost always include Value Added Tax. This tax works in a completely different way to a simple sales tax as applied in US States and cannot be compared directly. All VAT incurred in the stages of production, distribution and marketing of a product is refunded by the authorities. The product thus arrives at the retailer in a sort of tax-free bubble. The end user pays all the tax - which he does anyway, even in the USA. It's just that with the VAT system we see the actual tax bill which, in the case of the UK, is now 20%. My Apple TV, which cost £101 including VAT is really £84 plus tax. This is still much more expensive than in the USA where the same product costs $99 (£61.90) plus tax. If we add, say, 6% as a sample US state tax, the ATV is $105.95 at the cash till. Here it costs the equivalent of $161, including our 20% tax. All a bit dispiriting but a fact of European life.