Buying a smartphone free of a contract can often be very expensive and sometimes, the location you’re buying it in can result in you paying even more for that handset.
A couple of days ago, Google announced its new Nexus handsets and with it, brought a key issue to the forefront of the market; the price. If you’re buying your new Nexus in Europe or the UK, you may end up paying over 40% more for the same handset than those buying in the US, but why is tech more expensive in the UK and Europe versus the same prices in the USA?
The Nexus pricing
To add some context to this topic, let’s take a look at the pricing for Google’s new Nexus 5X and Nexus 6P in the USA and how it compares to selected European countries (you can sort this table and it will display according to the US equivalent price). (Data originally compiled by Android Police):
As you can see, the pricing is rather affordable in the US but as you move East towards Europe, the price rises exponentially. In the UK, the Nexus devices are approximately 34-36% higher than the US dollar equivalent while in Europe, the costs can rise by over 50% in some countries.
So why does tech cost so much more outside the USA? Here’s just a few of the reasons that can have an impact on the overall price you pay for your handset.
Exchange rates play a very large part in the overall cost you pay for your handset and as a particular currency weakens or strengthens, the cost also makes a large difference.
In the case of the Euro, a year can make a large difference. A year ago, the Euro was a lot closer to the Pound and now, it’s almost identical to the US dollar. As an example, a year ago 1 Euro was worth 1.299 US dollars, while now it is worth 1.115 US dollars. The 16 percent drop in the value means the equivalent handset pricing has risen by roughly the same amount to account for the weaker currency.
While this is certainly true of the Euro, it also explains why the UK pricing is almost the same a year later. The Pound and the Dollar have been pegged at a very similar rate over the past year and while the Dollar has grown a little stronger – a year ago, 1 GBP was worth 1.514 USD while now it is worth 1.51246 – the rate is still similar to how it was last year.
With the UK especially, there are a lot of other factors that impact the overall cost of a handset, so let’s take a look at some of the other reasons you’ll pay more for your handset on this side of the pond.
Taxes, taxes, taxes; who needs them – apart from the government and those who need relief/benefits that is!
A key thing that I’ve been caught out on before is taxes when buying an item in the USA; as every state can charge their own tax rate (and some don’t charge any tax at all), most – if not all – items you buy show the pre-tax price. Once you enter your ZIP code, the shopping cart will then update with the final price including all taxes and subsidies.
In comparison, when you buy a handset in the UK or Europe, the price listed almost always includes the tax, which can be 20 percent or more depending on the country you’re buying in. For companies aiming to import their devices for sale in a particular country, a key barrier can be the fact that before any of the other associated costs are included (see below), taxes will be levied by the respective government.
At least in the UK, there’s no way to buy without paying the relevant taxes (including most of the times when importing from abroad) and as I discovered on a trip to New York a couple of years ago, 4 percent sales tax on an $800 item can increase the cost by quite a large amount.
Distribution and other costs
A lesser known element to pricing is the distribution channels, cost structures and tariffs, which all vary from country to country and, at least in the UK, can make up a significant part of the overall price you pay.
For those that aren’t sure on how the process works, let us try and explain; a company is more than welcome to introduce a new handset into the market and attempt to sell directly to consumers but what happens when someone actually buys one? Without a distribution warehouse to ship the handset, the customer won’t receive their phone and without a customer service infrastructure, there’s no one for customers to contact when something goes wrong.
That’s one side to distribution but there’s also the other side of distribution; partners. With the new Nexus devices, you’re able to either buy them directly from Google or pick one up on a post-paid plan from one of the carriers here. When dealing with carriers, the overall price of a handset – either on a post-paid or outright – includes the carrier’s and Google’s percentage of revenue, the costs of distribution and any other marketing and sales-related activities.
Marketing is also another key factor that will impact on the overall cost you pay for your handset; as the cost of marketing activities such as TV exposure, billboards, newspaper ads and more vary according to each country and the market position in that country, the overall cost of marketing can be a key factor behind the difference in the overall cost of a particular handset.
Should you import from the USA to the UK (or Europe)?
With all of these factors in mind, should you import a handset from the USA to either the UK or Europe? Or once all the various costs of importing are included, would you be better off buying from your local market?
Let’s remind ourselves of the Nexus pricing in the USA and UK but this time, we’ve added the state taxes you’re likely to pay in five selected states (New York, Florida, Nevada, California, Oregon):
State Sales Tax: 4%
State Sales Tax: 6%
State Sales Tax: 6.85%
State Sales Tax: 7.5%
State Sales Tax: 0%
Value Added Tax: 20%
Now let’s consider the various costs of importing a handset into the UK; the cost of delivery (which we’ve estimated as $30 including insurance for relatively speedy delivery), the taxes (20% on the item price including delivery) and the charge applied by a courier when an item is intercepted by customs (which varies by courier but averages to around $15).
With all these costs of importing in mind, now let’s take a look at the same table, with the five popular locations, but add the estimated cost of importing into the UK, if you were to choose a shipping service from that location.
|United States (pre-tax):||$379||$429||$499||$549||$649|
(State Sales Tax: 4%)
(State Sales Tax: 6%)
(State Sales Tax: 6.85%)
(State Sales Tax: 7.5%)
(State Sales Tax: 0%)
Value Added Tax: 20%
There you have it – just some of the reasons that the cost of a phone varies according to different countries and whether it’s worth importing or buying locally. Importing the new Nexus handsets from the USA into the UK or Europe also means you won’t have access to all the network bands that the international model has, but this is the same with importing most phones.
What do you think? Would you buy the Nexus 5X or Nexus 6P (or another flagship) from the USA and import to the UK or Europe? Personally, I would probably buy it locally, as the savings are minimal at best and require you to find a shipping service that will deliver to the UK (at least in my case, I’m yet to find one!) But what do you think? Do you have insight into other factors that you feel impact on the overall price that we’ve missed out? Let us know your views in the comments below guys!