Analysis: MacBook UK pricing

A quick look at some of Macworld’s reader comments surrounding the launch of the new MacBooks tells its own story: “Seriously, how stupid does Apple think we are” said Alex; “once again we are struck by ‘rip off Britain’ it’s disgusting how we are treated” said David; and “I have no problem paying extra for the Mac brand, the problem is when they announce lower prices, and yet the UK store prices go up.” said TW, Colchester.

We think it’s fair to say that there is general discomfort surrounding Apple’s latest laptop launch; amongst both consumers and business partners.

With regards to pricing, complaints seem to hover around three main points of consternation:

• First: The price of MacBooks has risen across the board and there is a general concern that they are now “too expensive” compared to the models they replace.
• Second: This price increase has not occurred in the US therefore we are living in “rip-off Britain”.
• Third: The white MacBook that saw its price slashed in America by $100 now actually costs more in the UK than it did before the announcement. Again, “rip-off Britain” but also rip-off Apple for increasing the price of a product.

So let’s start with the first problem. The situation is that the price of Apple’s MacBooks has – across the board – risen by around £100-£200 per machine. The sole exception being the MacBook Air with SSD drive, which has seen a price drop of £229 (largely reflective of the falling price of SSD drives).

Direct comparisons are, of course, somewhat unfair because the new machines offer vastly improved feature sets (with the exception of FireWire, which we’re dealing with elsewhere). Most notably the MacBook now has a rather impressive graphics card and new unibody casing. In short, it is a different machine to the model it replaces. This may go some way to explaining why the mid-range model MacBook shows the largest price discrepancy. Here is a complete breakdown of comparable products and prices.

Prices for Apple’s range of MacBooks have increased across the board

Old vs New MacBook price comparison

• Old MacBook White 2.1GHz £699
• New MacBook White 2.1GHz £719 Price difference £20 increase

• Old MacBook White 2.4GHz £829
• New MacBook 2.0GHz £949 Price difference £120 increase

• Old MacBook Black 2.4 GHz £949
• New MacBook 2.4 GHz £1,149 Price difference £200 increase

• Old MacBook Pro 2.4GHz £1,299
• New MacBook Pro 2.4GHz £1,399 Price difference £100 increase

• Old MacBook Pro 2.5GHz £1,599
• New MacBook Pro 2.53GHz £1,749 Price difference £150 increase

• Old MacBook Air 1.6GHz £1,199
• New MacBook Air 1.6GHz £1,299 Price difference £100 increase

• Old MacBook Air 1.8GHz £2,028
• New MacBook Air 1.8GHz £1,799 Price difference £229 decrease

Apple has long used product upgrades to maintain price structures and phase out products with older technology, rather than go the route of continuously pushing down prices. As Steve Jobs famously said on the launch of the iMac: “it is next year’s computer for $1,299, not last year’s computer for $999.”

So in that context, the high price of the replacement range is hardly new or unexpected. It is perhaps a little controversial given the current economic climate, but it’s Apple’s call as to whether it goes down the premium-priced product route (that has worked for it in the past), or the lower priced product route that some customers wish it would go down.

The company has consistently compared itself to the Mercedes Benz and BMWs of this world, rather than the Honda or Ford-style car manufacturers so in this sense it is consistent with Apple – even if we’d all like to be able to afford a new MacBook.

Rip off Britain? Of course, the real consternation is regarding the pricing structure in the UK when compared to the US. Which brings us on to point two: “This price increase has not occurred in the US therefore we are living in rip-off Britain”.

As one Macworld reader called Duncan said: “I don’t get it. As far as I recall the old mid-range white MacBook retailed at $1,299 in US and £839 in UK. Now the entry-level aluminium version retails at $1,299 in US and £949 in UK. What happened to the dollar overnight?” Good question. Well it may not have happened overnight, but the dollar to pound exchange has changed dramatically over the last 12 months, as a visit to exchangerate.com testifies.

The US to UK exchange rate over the last 12 months, from www.exchangerate.com

Put simply, a year ago today (17 October 2007) £1 would give you $2.05 (and rising) whereas today (18 October 2008) £1 gives you $1.73.

Taxing situation And, as the more astute of our readers pointed out, there is also the tax difference between the United States and the UK. Prices in the UK contain VAT (currently at 17.5 per cent). So if a product costs £235 the retailer gives £35 of that straight to the government. Americans (who are probably horrified by that amount) may want to take pause for thought at the 25 per cent that the Swedish pay or the 19.6 per cent that the French government charges.

America however, is a diverse country and VAT (or Sales Tax, as they call it) is set independently at state, and even, county level. Alaska has 0 per cent, rising to 9.4 per cent in Tennessee.

To save confusion, Sales Tax is not included in the price but added afterwards. So if you buy a laptop marked at $1000 in a shop window in Iowa (with sales tax set at 5 per cent) you actually pay $1,050 when you get to the till.

So when doing a price comparison between the US and the UK you must add 17.5 per cent onto the US price for an accurate price comparison. If you do this you find that the price difference between the two areas narrows dramatically. But there is still a mark-up between 4.49 per cent and 9.08 per cent. Although this seems quite small, the mark-up of 9.08 per cent accounts for £86.16 of the price of the new MacBook – that’s a considerable saving that would make the new MacBook a more palatable £863.

Here is a table that shows the US price, the US price converted to UK currency, the addition of the 17.5 per cent VAT and the comparison with the UK price.

Why the difference? Some people have attributed this difference to import duty, but so far as we can tell this isn’t the case. We called HM Revenue and Customs to check and laptops under 10KG in weight are “Zero Rated” for import duty (ref code: 8471300000).

It is more likely that the price difference can be put down to the higher cost overall of doing business in the UK. When we quizzed Steve Jobs about the price difference of the iPhone in the UK versus the US he explained that the vast majority of it was Sales Tax (or VAT) and a smaller amount was simply “because it’s a little bit more expensive to do business here; to move stuff around and service product.” Here is Steve Jobs making the explanation:

We asked Apple for its stance on the situation, while the company is usually reticent about pricing Apple’s Tanya Ridd did offer us this “official line” on Apple’s price structure:

“Prices in the US are quoted excluding tax and prices in the UK are quoted including tax. Other factors influencing pricing include currency exchange rates, local import laws, business practices, taxes and the cost of doing business. These factors vary from region to region and over time, such that international prices are not always comparable to US suggested retail prices.”

The price discrepancy may not have attracted quite so much ire if it wasn’t for the unfortunate (and somewhat surprising) retention of a white MacBook model with its price slashed by $100 in the States but upped by £20 in the UK. Again, this can largely be put down to the difference in the exchange rate with a bit added on for the “higher cost of doing business in the UK”.

However, we feel our reader’s ire is somewhat justified. After all, it is fair to expect the price of technology to go down over time. This is why Apple tends to make models obsolete when it launches new ones; so it can maintain its prices and – we assume – its high margins.

Customers interested in the white MacBook can take a small measure of comfort in the knowledge that it is a higher-spec machine than the entry-level model it replaces. The combo CD/DVD drive has been replaced with a SuperDrive so we can finally wave goodbye to the age of CD burning. Still, we think Apple could have saved itself a whole bunch of trouble by somehow keeping it at the £699 mark – but we suspect this would have impacted its profit level in a way that its accountancy department felt unacceptable.

It is worth remembering this quote from iTunes VP Eddie Cue when faced with demands for higher royalties from artists:

“Apple has repeatedly made it clear that it is in this business to make money, and most likely would not continue to operate if it were no longer possible to do so profitably.”

Food for thought While it would be easy to end on that note, we do have a couple of thoughts for our readers. One is for investors or companies with a vested interest in Apple: will the new MacBooks sell as well as the old ones? Some analysts think not, but Apple’s success over the last few years has frequently defied naysayers, and it’s possible that the new MacBooks will drive the Mac platform forward. Time will tell.

The other thought is for consumers looking to buy a new MacBook. Those seriously disgruntled at the price can always opt to purchase a Windows or Linux-based laptop, but that raises the question of how much is OS X and Apple’s propriety software worth? Most of the Macworld team couldn’t switch to either of these operating systems. Even if it you did you may find that comparable laptops aren’t that much cheaper. Direct comparisons are also difficult at the moment because the Nvidia 9400m graphics card can only be found in the MacBooks for the time being. As PC laptops arrive with similar specifications we will be able to do a closer analysis.

Heading over the pond? Alternatively, you can always purchase a laptop from America, either by mail order or when you are visiting the country. You are legally responsible to declare it and will have to pay the 17.5 per cent VAT. We should note that our understanding is that you cannot claim back the Sales Tax from the USA, but even so you may save a small amount on the UK price.

For example: if you purchased a MacBook in San Francisco it would cost $1,299, plus 8.5 per cent sales tax, making the actual total $1,409. This is £814 in UK money, which, if you declare it at customs, will cost you a further £142.45 in VAT. Making for a total of £946 and a grand saving of £4. We should note that if you’re visiting Alaska, or a place with lower Sales Tax, the saving can be higher.

If you purchase the extended three year AppleCare extended plan you’ll get world-wide cover (Apple recommends doing this in your country of residence). It’s worth noting that every member of the Macworld UK team visits San Francisco at least once a year, and not a single laptop we are currently running was purchased in the States. Although if you’re popping over to Alaska it may make some sense.