or Connect
AppleInsider › Forums › General › General Discussion › Shifting currencies lead to 'stealth' price drop for Apple in emerging markets
New Posts  All Forums:Forum Nav:

Shifting currencies lead to 'stealth' price drop for Apple in emerging markets

post #1 of 19
Thread Starter 
As emerging market currencies fall against the U.S. dollar, Apple appears to have chosen not to raise its prices, possibly signaling Cupertino's intention to use the devaluations to increase market share.

Apple Reseller


Currency Challenges

Companies that sell across international borders face a unique pricing problem: how to account for fluctuating currency exchange rates that can erase tens of percentage points of a product's profit margin in a single month. To compensate, many businesses choose to reset their pricing either on a recurring schedule or when exchange rates pass a certain threshold. Still others hold prices steady, absorbing currency devaluations in reduced margins.

Apple traditionally falls into the latter camp; only a significant swing in rates will lead Cupertino to alter its pricing strategy. In Japan, for instance, where the yen began a precipitous decline in September of 2012, Apple waited nearly nine months from the start of the yen's devaluation to raise prices in its Japanese retail stores, absorbing a cut of more than 25 percent to its famously high margins in the interim.

Apple appears to have embraced the U.S. dollar's recent decline as an expansion strategy in some emerging markets, where the prices for Apple gear from the company's resellers has remained level despite tumbling currencies.

Asian focus

In India, where the rupee has fallen nearly 22 percent in the past year, prices from Apple Premium Resellers ??essentially third-party Apple stores ? have scarcely risen. In one example, Reliance Retail, Apple's largest premium reseller partner in India, continues to offer the base model 13" MacBook Pro for the same price it did over one year ago, RS 81,900 ($1310). Since it is improbable that resellers are absorbing the loss themselves, Apple's stance means that it likely brings home nearly $250 less per unit than it did at this point last year.

The company has additionally undertaken a more "aggressive" sales approach in India, with its operational staff reportedly swelling to more than 150 alongside significant ad budget increases for the iPhone. The world's second most populous nation features a smartphone penetration rate of less than 10 percent and analysts predict that India could surpass the United States as the world's second largest smartphone market by 2017.

Another emerging market, Indonesia, has received similar treatment as the southeast asian country's rupiah has fallen 18 percent year-over-year. Apple's official Indonesian site, which does not sell products but instead lists prices and refers customers to Apple's reseller partners, shows an increase of only Rp 600,000 ($52) for the same laptop since September of 2012 ??just 5 percent ??although it is not clear whether the 2012 version of Apple's site included Indonesia's sales tax, or PPN, in its display pricing as it does now.

Apple announced plans to re-enter Indonesia with its online store and a first-party retail presence in Jakarta in January of this year after a two year absence, signaling the company's belief that the Indonesian market is on the upswing.

Execution is important

For companies that stay the course on pricing during a period of devaluation, the strategy can pay off, especially in markets where relatively low sales volume means that the impact to quarterly financials is low. As products become "cheaper" in the local currency, they become affordable for consumers for whom the product would otherwise be too expensive, expanding the long-term customer base at the expense of short-term margins.

Not every company is equipped to absorb these hits. European aerospace conglomerate EADS's Airbus nearly went bankrupt as a result of the U.S. dollar's decline in 2007, as the A380 manufacturer pays the majority of its suppliers in euros while its aircraft are priced in dollars. Airbus's CEO called the dollar decline "life threatening for Airbus" at the time.

However, Apple, thanks to gross margins that regularly exceed 30 percent and its hoard of more than $140 billion in cash and cash equivalents, is uniquely positioned to take advantage of the situation to make headway in these new markets. Customers are traditionally fiercely loyal to the company, and the iPhone serves as an ideal, low cost gateway to Cupertino's other products.
post #2 of 19
Apple seems to have given up that practice in Canada, what with the iPhone 5S having a $70 premium on only a 3% currency difference.
post #3 of 19
Apple only adjusts prices once a quarter if that much. So perhaps they aren't doing anything on purpose but it's just the timing of when they scheduled to do price adjustments versus the timing of the drops. They may just be sticking to their plans and it was a lucky thing for those folks

They got in trouble for not adjusting for currency changes but they don't want to be doing it every day or it makes a mess when someone wants to get a price adjustment due to favorable movements. So a 'scheduled' periodic change is now they deal with both issues.

In Asia etc the currency just changed that much in favor of the customers. In other places not so much. Plus there could be tax changes as well

A non tech's thoughts on Apple stuff 

(She's family so I'm a little biased)

Reply

A non tech's thoughts on Apple stuff 

(She's family so I'm a little biased)

Reply
post #4 of 19
@Mark
Do you think other factors such as tariffs or taxes could be at play as well?
post #5 of 19
Peter Misek said Tim Cook doesn't know what the hell he's doing and Apple is charging way too much for iPhones in overseas markets especially China. Not enough consumers in China are willing to spend extra money for iPhones because they don't have enough value. Misek that iPhone sales in China will be nearly non-existent because Tim Cook is stupid. Misek is sure Apple should lower the cost on iPhones to have a 2% profit margin like all the Android manufacturers are doing. That's what it takes to win major market share in China.


/s
post #6 of 19
When it comes to numbers, this monkey swings in the trees. However, since Apple products are mostly made in South Korea, China and Taiwan wouldn't the price be more affected by those currency swings? Of course, $US profits would still be affected I presume but Apple seems in tune to the sense of number nimbos across boarders like myself. Though, as Mike B, I am stumbled by the boarder tax across the 49th.

When I find time to rewrite the laws of Physics, there'll Finally be some changes made round here!

I am not crazy! Three out of five court appointed psychiatrists said so.

Reply

When I find time to rewrite the laws of Physics, there'll Finally be some changes made round here!

I am not crazy! Three out of five court appointed psychiatrists said so.

Reply
post #7 of 19
Quote: "...and the iPhone serves as an ideal, low cost gateway to Cupertino's other products."

You're joking aren't you? You can't be serious. Apple admits to high profit margins on its iPhones and apparently those profits are even higher on the latest two models. Someone may pay less for an iPhone than a MacBook Pro, but they also get less.

Also, the article should have compared the new prices (translated into dollars) with U.S. prices. Products are often overpriced in 'emerging markets,' where the only customers are rich people who like the status pricey products give and can afford them. Apple may have a larger profit margin to play with.
post #8 of 19
Quote:
Originally Posted by kerryb View Post

@Mark
Do you think other factors such as tariffs or taxes could be at play as well?

 

Assume you meant @Mike. Counter to many European countries, advertised prices in both Canada and US exclude VAT, so the advertised price is the same across the country even though you might end up paying different province-to-province/state-to-state. NAFTA basically makes the importation a non-issue, and while we have our own regulations regarding wireless devices, Industry Canada I believe follows suit pretty well with FCC, so no need to retest for the country. Price differences in Canada from the US are almost entirely (supposed to be) due to exchange rate differences.

post #9 of 19
Quote:
Originally Posted by Inkling View Post

Quote: "...and the iPhone serves as an ideal, low cost gateway to Cupertino's other products."

You're joking aren't you? You can't be serious. Apple admits to high profit margins on its iPhones and apparently those profits are even higher on the latest two models. Someone may pay less for an iPhone than a MacBook Pro, but they also get less.

Also, the article should have compared the new prices (translated into dollars) with U.S. prices. Products are often overpriced in 'emerging markets,' where the only customers are rich people who like the status pricey products give and can afford them. Apple may have a larger profit margin to play with.

What does high profit margins have to do with anything? An iPhone starts $550. An iMac starts at $1300. An MacBook starts at $1200. I don't know where you went to school but $550<$1200.

It's called the halo effect, if you're satisfied with one product you may consider other offerings from the company.
post #10 of 19
Such a shame that they seen to make up for the shortfall in countries such as the UK. Recent £100 imac price increase for example despite the steady exchange rate in our favour.
iPad, Macbook Pro, iPhone, heck I even have iLife! :-)
Reply
iPad, Macbook Pro, iPhone, heck I even have iLife! :-)
Reply
post #11 of 19

Apple should raise prices in these "emerging" markets and third world countries.

 

A 22% drop in Indian prices? An 18% drop in Indonesian prices? That is too much, and Apple should adjust accordingly.

post #12 of 19
So apparently Apple IS smarter than the a holes on Wall Street.. shocker! Apple would not be in a good position had they priced the iPhone 5c $100 lower. Also, considering Apple's prescient bond deal just before the bond market dropped, it seems Apple can play the money game better than the so-called experts.

   

Reply

   

Reply
post #13 of 19
Quote:
Originally Posted by Mike Barriault View Post

Apple seems to have given up that practice in Canada, what with the iPhone 5S having a $70 premium on only a 3% currency difference.

Count yourself lucky because a 16GB iPhone 5S will cost you CAD$ 820 when federal and provincial taxes are factored in.

On the other hand in Germany that same iPhone 5S would set you back 699 euros or the equivalent of CAD$ 978 all taxes included. 

post #14 of 19
Australia's copped price rises with the iPhone, iMac, Mac mini (!), and a range of accessories. The iPad and MacBook Pro are likely along a similar route.
post #15 of 19
I completely don't agree with this article. Apple in INDIA has recently increased the price of MacMini from INR39900 to INR44990. With the recent iMac refresh, the price of the iMac from INR85900 gone up to as high as INR99900 for the new haswell iMacs and the price in US still remains at $1299 before and after the haswell iMac is released for the entry variant. Even the accessories prices has gone up as below
Minidisplay to VGA adapter - INR1600 to INR2500
Magic Mouse - INR3890 to 5300 and so on...
post #16 of 19
Quote:
Originally Posted by Mike Barriault View Post

Apple seems to have given up that practice in Canada, what with the iPhone 5S having a $70 premium on only a 3% currency difference.

 

The lost on currency rate has to be made up from some other places.

post #17 of 19
This seems sad when some people can buy them for half of what others can (also sound like buying them out at a certain time, wait a month then sale them for more than paid in other markets)
post #18 of 19
This article doesn't make a lot of sense.

To use India as an example, Indian workers don't have their wages adjusted with the exchange rate of the US$ to Rupee. So Apple is NOT reducing the price to the customers, they are simply taking less profit, which DOES NOT increase their market share unless other smart phone companies increase their prices.

This strikes me as highly unlikely, as local companies like Micromax would predominantly have costs (and profits) in Rupees and would have no need to increase prices if the US$ increased in value to the Rupee.
post #19 of 19
Quote:
Originally Posted by Mike Barriault View Post
 

 

Assume you meant @Mike. Counter to many European countries, advertised prices in both Canada and US exclude VAT, so the advertised price is the same across the country even though you might end up paying different province-to-province/state-to-state. NAFTA basically makes the importation a non-issue, and while we have our own regulations regarding wireless devices, Industry Canada I believe follows suit pretty well with FCC, so no need to retest for the country. Price differences in Canada from the US are almost entirely (supposed to be) due to exchange rate differences.

 

NAFTA doesn't enter into it, as the iPhones are not manufactured in the United States.  However, because China (and South Korea) are members of the WTO, the MFN tarriff is used, which for cell phones is zero.  So the only additional fee, as you suggest is the HST (VAT).

New Posts  All Forums:Forum Nav:
  Return Home
  Back to Forum: General Discussion
AppleInsider › Forums › General › General Discussion › Shifting currencies lead to 'stealth' price drop for Apple in emerging markets