UK vs US prices – why are we paying more for tech?

Money in hands

When our sister blog Which? Tech Daily set out to settle an argument about whether tech products in the UK really do cost more than those in the US, we weren’t surprised by the results. But why are we paying more?

Complaints about UK vs US price differences are nothing new – they usually come generously stamped with ‘rip-off Britain’ in bold red type. The standard defence is that US price tags aren’t all they seem to be, and that once you punch in state sales tax, prices are far more balanced.

They aren’t. Last week we went shopping; we looked at the price of five different tech products at five different shops; Currys, Comet and Amazon in the UK, and Best Buy and Amazon in the US. We included state and local taxes in our calculations and the numbers we came up with weren’t fun.

The average price difference between the cheapest price in the UK and the cheapest price in the US was a hefty 16%. One of the more mismatched prices was an Apple Macbook Air – an extra 21% in the UK, or £142 out of your pocket. You can see all the gory details over on our Which? Tech Daily blog.

Our survey wasn’t scientific – we looked at a limited range of products on just a single day, but the results were a conclusive indication that UK consumers are being asked to dig deeper into their pockets than their US counterparts.

Bargaining power, wages and getting business done

We’ve had a number of Which? Tech Daily readers wade in on why we’re paying more in the UK. A fairly sound argument suggested was that a larger customer base in the US means shops place bigger orders for products and so can negotiate a better price. It’s a reason the retailers themselves also give, but can bulk buying really save 21%?

Other common reasons given by UK retailers is our hefty 20% VAT rate; although with taxes in California (where we based our research) adding up to just over 12.1%, that’s a difference of 8%, not 21%. Companies also claim the cost of operating a business in the UK is higher.

Over on social news site Reddit, one commenter claimed the higher prices were down to the fact that UK pay packets are fatter than those in US. Our own policy advisor James Tallack agreed that wages are an important issue on product pricing:

‘Taking variations in disposable income – what you have left after tax – into account paints a more realistic picture of the relative cost of an item to someone actually living and earning in a particular country.’

However, James also pointed us to a study by financial services firm UBS that showed that not only are wages in the US comparatively higher, but that our cousins across the pond also have more purchasing power – they can buy more stuff. So perhaps they should be paying more for tech in America?

Yet, the most convincing argument I’ve seen came from commenter Topher, who said:

‘I think everyone has missed the point, and it is a very simple one. People who sell things, price them at what the market will bear.’

Is that it? Is the only reason we’re being charged £142 more for a Macbook Air because we’re actually willing to pay more?

@MackyDee1977 says:
17 July 2012

I think Topher is absolutely right! You wil notice London prices are more expensive than the Midlands / North. It’s purely about what people will pay!

This argument has been going on for decades, I am sitting typing this wearing shoes trousers, shirt, cufflinks, watch and tie all bought in the US at less than half the equivalent UK price. {socks, shorts and singlet M&S in case you are wondering}
The answer given years ago was UK prices are set by what our market will bear, it is well known that Brits don’t like to haggle, don’t like to cause a fuss, and generally pay what is asked, no matter how unreasonable.

Don’t compare the tax included prices, but the tax excluded prices. Therefore rather than adding on the many US sales taxes to the US price and comparing with the full UK price, remove VAT from the UK price by dividing by 1.20. Then compare the prices excluding tax, which gives a much more useful comparison as it removes tax from the equation; tax is set by the government, not by manufacturers or retailers, so it is not fair to include it in the comparison.

For example an iPhone 4S 16GB costs $649 + tax in the US, whereas it costs £499 including VAT in the UK (which is £415.83 excluding VAT).

Therefore compare $649 with £415.83. $649 at the current GBP/USD rate of 1.5630 comes out at £415.23, so Apple are being fair in this case, as it’s the same price excluding tax in both countries.

Lots of other products don’t compare so well with plenty of cases of rip-off Britain, and it’s not confined to technology. A pair of Levi’s that I bought on Levi’s US web site cost me $26.40 (£16.50) but on the Levi’s UK web site the identical product was on sale for £90 at the time.

Michell Ed says:
18 July 2012

I disagree with the poster above I’m glad Which? has added the taxes on as that’s what we really care about – how much we pay at the till at the end of the day. It’s obviously more.

I’m not sure I agree with the it’s what the market will bear excuse. If Americans are richer than us than surely their market can bear more? We are simply being forced to pay more.

When determining whether manufacturers and retailers are overcharging in one country compared to another, you have to exclude tax because tax is outside the manufacturers’ and retailers’ control. It is not appropriate to include tax in the comparison because this is set by governments on top of the price set by the retailer.

However, I do believe it is an unfair commercial practice when retailers exclude taxes in displayed prices in some countries (e.g. the United States), even when local laws allow this. There are good reasons why this practice is outlawed in the European Union.

What the market will bear is retail shorthand for ‘as much as you can get for it’. Apparently we Brits are renowned for paying over the odds for goods and services.
The Americans are not as willing to be ripped off as we are.

I notice the shopping experience is completely different in the US than here. For example I can walk into any US relater and buy a suit, if I buy a second I immediately get a discount, if I buy more a shirt or 2 or a couple of ties are thrown in, it’s been this way for years.
In the UK you have to collar someone if you need attention, and the reaction you get when asking for a discount is the same as if you asked them to hand over the till. Though I must say since the recession started retailers are more willing to provide a better service.

Bob says:
3 August 2012

My experience has been that American shops are better at selling. Assistants are better trained and happier. Waiting to be served, or to pay, is much less common because when you’re ready to buy, or to pay, they’re ready to sell or take your money. Returning a product is usually fairly stress-free. That may allow America retailers to profit at lower prices.

Whilst price fixing is supposed to be illegal, just look at any price comparison site for a TV, for example. All, exactly the same price, all saying “we have the best price and will match any other retailers price safe in the knowledge their isn’t going to be a better price out there, because the manufacturer says so. Then when the manufacturer says/supports a price reduction they all drop the exact same amount at the same time. It is what the market will bear, but when the manufacturer controls the market there is no competition so you have to bear it up or shut up.

Another example are music streaming services for example arbitrary $10, €10 , £10 no exchange rate considerations. Let’s rip off the Brits again, just leaves a nasty taste.