Australians call the difference between what they and Americans pay for the same technology the Apple tax.
These days the name is unfair to Apple. Once the company was among the worst offenders, today New Zealanders pay a lower mark-up for Apple hardware than for most other companies’ gadgets.
How much is the Apple tax?
Using Apple as an example, the bottom-of-the-range 16GB Wi-Fi iPad costs US$500* in America. Here it costs NZ$800.
Convert our price to American currency and you’ll see we pay roughly US$635. That’s over 25% more than the American price.
New Zealanders have to pay 15% GST. If we add GST to the US price for a fairer comparison and we get US$575.
So, after taking GST into account we pay 10% more than US customers for the iPad.
Maybe we should call it the Dell tax
Apple’s mark-up isn’t too bad. If we apply the same calculation for, say, a Dell XPS 15z laptop which costs US$800 in America and NZ$1614 here, we find New Zealanders pay 40% more than Americans for some Dell hardware.
You can try the numbers with other computers, with printers, phones and all kinds of gadgets. In general you’ll find New Zealanders pay 10 to 40% more than Americans for the same hardware.
Why do we pay more?
I heard plenty of arguments to explain why New Zealanders pay more than Americans for hardware. Some have a ring of plausibility.
Top of the list is: “Supplying a small and relatively remote country is more costly than shipping goods around the US mainland”.
Whatever people say and whatever customers think, our retailers aren’t profiting from higher prices. Or at least their bottom line profits aren’t higher than overseas retailers.
We have more retail outlets per head of population than the US and more retail workers need to be paid off the back of each sale. New Zealand retailers often pay proportionally more rent than their overseas counterparts and I’m told the cost of reaching customers through marketing is higher here too.
Software is the biggest rip-off
Frankly these arguments are blown out of the water when you look at software.
Americans pay US$500 for Microsoft Office Professional sold retail. New Zealanders pay NZ$1039. That’s 25% higher than the US price after accounting for GST.
Those prices are for boxed software, which arguably compare to buying hardware. Those arguments hold no weight when it comes to downloaded software.
The Microsoft tax?
Americans pay US$350 for a Microsoft Office licence card – that is when there’s no physical product. New Zealanders pay NZ$700. Our price is 35% higher after GST.
Online distribution costs are effectively zero, so that 35% is a pure mark-up.
No doubt someone at Microsoft can justify the company’s decision to charge New Zealanders 35% more than Americans for an identical product.
It’s better than it was
Twenty years ago I heard a story about someone who flew from Wellington to Los Angles return, spent a week in decent hotels, ate like a king, visited Disneyland, shopped for a Macintosh and still ended up paying less than the NZ price for his computer. The story could have been made-up, but it sounds plausible. Today the price differences tend to be measure in hundreds of dollars rather than thousands.
* I don’t play mind games with advertised prices.
I think it’s important in such comparisons to state what exchange rate you’re using, as these do vary over time.
Based on the US$635 = NZ$800 you seem to be using about 0.794.
While the NZ dollar has certainly been that high (and higher) at times recently, it is lower at the moment (0.767 as I write this), and historically something around 0.65 – 0.7 is much more typical. Hell, I often seem to managed to time my visits to the US for when it’s 0.48 or 0.49.
Using a lower exchange rate makes a big difference. Even today’s 0.767 makes that NZ$800 into US$614, only 6.7% over the US price, not 10%.
At an exchange rate of 0.72 (which could easily happen this year) the price would be identical in the two countries.
Of course companies should (and do) reprice items as exchange rates move, but it would be chaos to do that every week. Price lists would have to be sent out, signs in shops changed, advertising updated. And there is always a certain amount of stock already imported at the old exchange rate.
99% of the time, Apple changes prices only when a new model is introduced. In recent years the NZ price has been pretty reasonable at that point. Sometimes we then drift above the US price, and sometimes below. With the rising NZ$ (or sinking US$) over the last couple of years we’ve lost out more often than we’ve gained, but that has not always been the case.
I suspect that companies such as Apple may take out forward contracts for foreign exchange for the expected sales during the lifetime of a given model, to insulate their profits from exchange rate movements. They certainly *could* do that, with a fair degree of certainty.
I do remember the bad old days when commercial parallel importing was illegal and NZ retail margins were 100%. I bought my PowerBook 100, PowerMac 6100AV, Duo 230, and PowerBook G3/266 all mail-order from the US, or while I was visiting the US.
Those days are long gone.
Now it’s only worth it for products which simply aren’t available in NZ, for example my first iPhone (2G, never sold in NZ), or the original iPad (which took six months to be released here).
@Bruce. Point taken. My numbers are meant to be indicative. The issue here is the big picture.
The premium Apple charges New Zealand customers is reasonable considering currency fluctuation – not something worth complaining about.
On the other hand 40% margins found elsewhere are hard to justify.
It’s interesting how Apple’s pricing makes the company’s products relatively more attractive to New Zealand buyers than to Americans.
Over there rival tablets and non-Apple ultrabooks may sell at a substantial discount to Apple gear, here they are priced at the same level as clearly superior products.
Check the Steam website! Rage on steam is $59 USD when coming from the US, but $89 USD when coming from NZ. It’s a digital download so there is no shipping costs and no GST. Many other games are the same way.
@Sean. I ran some numbers for games and music downloads but decided to keep the story simple
You make a good point, that’s a 50% mark-up for New Zealanders with no apparent justification or rationale. I’ve also noticed services like Steam and iTunes often have special offers for Americans on top of what to us look like deep discounts.
Back in 2001, I bought a Dell laptop in Canada and the different in price paid for the flight from NZ and a two week vacation including car hire to go pick it up.