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I have often heard people talk about to an Apple tax in reference to Apple products (especially their Mac products). This is one of many references to Apple having overly high prices compared with competitors, and is particularly popular on-line.

Regardless of how this is worded, the following graphic illustrates one example of such belief - that Apple charges considerably more than the cost to manufacture

http://www.bhatnaturally.com/wp-content/uploads/2008/11/apple-tax.jpg

However, for every proponent of Apple tax existing, there seems to be just as many who are ready to offer a "Apple products are higher quality and use higher quality components" or similar answer.

Whether or not Apple products are higher quality or not is not what I care about. I am interested in the multitude of claims which essentially state Apple has prices ridiculously higher than other products, resulting in a "tax" or premium requirement to purchase Apple products in addition to normal cost, etc.

Does such a premium exist when purchasing Apple products - ie does Apple have abnormally high prices on their products relative to functionally equivalent products from competitors?

matt_black
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enderland
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  • That image is clearly meant to be a joke. So, what type of answer are you looking for? "Yes, Apple sets a price for their products that maximizes their profit margin?" – ESultanik Nov 02 '12 at 17:13
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    @ESultanik regardless of whether the graphic is a joke, there are a lot of people who believe Apple has considerably higher profit margins than other manufacturers. There are also a lot of people who counter saying "Apple products are higher quality and cost more to make!" or other variants. I want to know whether this "tax" (call it a premium if you don't like the word) actually exists, or, if this idea has been falsely created. – enderland Nov 02 '12 at 17:25
  • The issue, I think, is the idea that Apple products which are functionally equivalent to some competitor product cost significantly more. The core issue is whether this is true; there are secondary issues if it is true as to why (after all BMW cars and Prada branded handbags sell for more than the functionally equivalent GM cars or unbranded handbags but not many complaints are heard). – matt_black Nov 02 '12 at 22:02
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    "Are Apple products sold at a premium price because of the brand?" and "Does Apple have abnormally high profit margins on their products relative to competitors?" are not even close to the same question. –  Nov 03 '12 at 12:51
  • Abnormally high *profit margins* is the wrong point of debate: the issue is abnormally high *prices*. – matt_black Nov 03 '12 at 17:15
  • The "Apple tax" is what manufacturers pay in order to use Apple's connectors and say "Made for iPod" on the box – endolith Nov 04 '12 at 01:32
  • Price out a Hackintosh vs any similar hardware Mac and you'll have your answer. – jdstankosky Nov 06 '12 at 13:31
  • @enderland I apologise if my edits have altered the intent of your question, but questions about *pricing* are much clearer than questions about *margins* and won't need speculation to result in an answer. If you think the issue is about margins, I would pose a separate new question on that (depending, of course, on whether this question turns up clear evidence about the prices.) – matt_black Nov 06 '12 at 16:46
  • Also, most people don't realize that there's a lot that goes into an apple product. You can't just look at the specs and claim they are the same machine. I was listening over a conversation between a Best Buy employee and a customer. They offered as part of the sale price to clean off all the bloatware. The price of this service was over $100. The guy went for it. When you buy an Apple computer, you don't have to worry about that cost because they don't include bloatware. Sure you could do this yourself, but not everybody has these skills. Not all costs come across in teardowns. – Kibbee Nov 06 '12 at 19:07

1 Answers1

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The product often mentioned as having "high Apple tax" is iPad. But in fact Samsung has higher margin on Galaxy Note 10.1, than Apple on iPad. On the other hand however, Samsung also makes Nexus 10 for Google, which sells at much, much lower margin.

Apple gets hefty margin from iPhone 5, however Samsung gets similarly high margin from Galaxy S3. Again, there is Nexus 4 from Google (this time it's made by LG, not Samsung), which will sell at much, much lower margin.

So generally speaking, the margin on Apple products is similar to margin of other brand name premium products. However, there are exceptions, where equally capable premium products are sold with significantly lower margins (eg. Google's Nexus products).

BTW. Overall tendency is for Apple's margin to go down due higher production costs and tighter competition. Hence investors' reaction on NASDAQ.

vartec
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    Do you have a source for the Galaxy S3 margin? I can't find anything on that. – Mad Scientist Nov 03 '12 at 18:15
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    Margins are not the issue. Prices are the issue. It is perfectly possible for two very similar products to sell at the same *price* but have very different *margins* because one manufacturer has inefficient supply or manufacturing. – matt_black Nov 03 '12 at 19:43
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    @matt_black The question is asking about price differences not based on the manufacturing cost, so the margin would seem to be exactly what they're asking about. – Brendan Long Nov 05 '12 at 03:33
  • @Fabian: can't find exact tear-down, only estimates which land BOM of S3 at $160-$200; Thing is, that unlike Apple-Foxconn, which only assembles the phone from externally supplied components, Samsung actually makes the components, so it has no external suppliers. It makes it more difficult to estimate the cost. – vartec Nov 05 '12 at 09:58
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    @BrendanLong My point is that the price differences have *nothing to do with* the manufacturing costs. Competition in the retail market determines the relationship between price and volume. Firms who can't make a margin at that price/volume can't stay in the market long term. That is the only link between price and manufacturing cost. Besides, **price** is easy to observe but **cost** is not (teardowns give an indication but ignore learning curves and setup). – matt_black Nov 05 '12 at 10:05
  • All these comparisons ignore one of the most significant costs of a device, it's design and R&D costs. – DJClayworth Nov 06 '12 at 17:10
  • @DJClayworth: significant? Apple spends less than 2% of it's revenue on R&D. – vartec Nov 06 '12 at 17:31
  • When the smart phone market becomes saturated with capable 4G phones those premiums will mostly disappear. However look at the Mac line to see that Apple does not discount their brand. I would expect this trend to continue through the explosion of the Smartphone and tablet market. – Chad Nov 06 '12 at 19:57
  • @Chad: I really doubt that 4G is any selling point, especially given limited coverage and that HSPA+ is more than enough for most people. And the premiums are pretty much the same, they used to be 15 years ago with high end Nokia or Ericsson phones – vartec Nov 09 '12 at 12:39
  • @vartec - the market is not saturated with the 4G phones. you can already get 3G smart phones for <100 on Ebay. The 4G phones are holding their value pretty well because the demand still out paces the supply. In a few years I doubt that will still be true. – Chad Nov 09 '12 at 14:12
  • @Chad: so you're basically saying, that for example Nexus 4 will not sell, because it hasn't got LTE? And currently best selling phone, Galaxy S3, does not have LTE in European, Asian or Australian versions. Nor does it's direct competitor HTC One X. So I don't see how 4G is that relevant. Unless you call HSPA+ a 4G technology. Normally it's considered to be 3.75G, but AT&T and Apple call it 4G. – vartec Nov 09 '12 at 14:29
  • @Vartec - No I am saying that when 4G phones saturate the market that the profit margins on all smartphones(except the IPhone) will drop significantly. That does not mean that 3G phones will not still sell. – Chad Nov 09 '12 at 14:56
  • @vartec For fast growing companies the ration of current sales to R&D spend is meaningless. Apple's current products depend on the cumulative R&D over more than 20 years of OS and hardware development. – matt_black Nov 09 '12 at 20:38
  • @matt_black: you mean like http://www.folklore.org/StoryView.py?story=Round_Rects_Are_Everywhere.txt ;-) – vartec Nov 12 '12 at 10:08