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John McLean

3:05 PM on 25 November, 2008

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I'm sure Apple, like most retailers, will NOT be passing the VAT reduction on to consumers. Instead it will almost inevitably go to increase retailers' profit margins, sadly. Prices are set at the levels consumers will bear - e.g. the 8GB iPod touch is £169 because Apple thinks they can get greatest benefit that way. For a company the size of Apple, pricing will be modelled according to a complex analysis of a huge number of factors including unit production price, the (usually, but not universally, inverse) relationship between price and volume of sales (aka price elasticity of demand), the correllation between price and percieved value (see Veblen goods), the need to avoid cannibalisation of sales from Apple's other products. It is far more complex than "right, this costs us £x to make, so we'll sell it for £x + y%".

The 2.5% VAT reduction, if passed on, would reduce the price to approx £165.40 (hardly a massive discount anyway) but I REALLY don't expect that to happen.

You may on the other hand see discounts in more commoditised areas, such as cheap no-name DVD players, where margins are tight, sales volume is everything and the overwhelmingly dominant factor in purchasing decisions is price.

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Ben

3:36 PM on 25 November, 2008

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Hmm, I'll certainly take a look, though I can't imagine there being any really amazing deals. I'm glad we're seeing the Black Friday discounts, though. I take it they're usually restricted to the US?

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Matt G Baish

3:45 PM on 25 November, 2008

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"That said, I for one won't complain if Apple want to flog some electronics for cheap".

They'll have to be applying some pretty hefty discounts if anything they sell will qualify for what I would describe as cheap :) e.g. Sansa prices for similarly specced iPods maybe? I doubt it - but I will be happy to be proved wrong.

@John McLean: Wot u sed.

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timknott

4:11 PM on 25 November, 2008

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John McLean - Fully agree, in fact from an economic standpoint, I think only foodstores (are they already paying 5%, cant remember) and large retailers (HMV etc) will be passing on the 2.5%

In terms of The Apple promotion, they did one last year, admittedly about a week after the US one though.

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SB

5:30 PM on 25 November, 2008

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@John Mclean.

www.overclockers.co.uk

have already incorporated the 2.5% drop

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ilovethemonkeyhead

7:37 PM on 25 November, 2008

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damn, and they still refuse to release a 64GB ipod touch...

64GB would be just about enough for me. 32GB doesn't cut it.

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MadMacs

9:37 PM on 25 November, 2008

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Expect to see a 5% discount across the Mac product range. And even moreso from iPods and software etc.

As an Apple Authorised Reseller I'm against Black Friday sales, the undercut the pitiful margin Apple give us with ease, but an an Apple customer I'm aaaall for it :)

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SimonSharks

10:06 PM on 25 November, 2008

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@John Mclean - I disagree, I think it will be expected of all retailers to drop their prices. Plus this is a great opportunity for Apple. If you take the lowest price MacBook £719 and take off 2.5% you get £701, close enough for Apple to go back to the £699 price point. But time will tell.

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Pbryanw

4:45 AM on 26 November, 2008

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Superfi have just passed on the 2.5% VAT drop, which is annoying, as I just bought a DVD Player from them and I would have saved the princely sum of £2.46.

Looking forward to the Black Friday price drops, if there are any, as my Mum wants a new iPod and I've told her to at least hold out 'til Friday.

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salleee

10:07 AM on 26 November, 2008

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@SimonSharks

Sorry to be a maths bore, but the 2.5% VAT reduction amounts to only 2.1% off the VAT inclusive price:

B = N x 1.175 (B = inclusive price Before rate cut, N = Net price)

so N = B / 1.175

Assuming the net price is constant (reasonable assumption, I feel):

A = N x 1.15 ( A = inclusive price After cut, N = the same Net price)

so A = B x 1.15/1.175 = B x 0.979

which is only a 2.1% drop from Before price to After price - so your £719 MacBook (if net price remains constant) would only be reduced to £703.90. Boo, hiss!

Maybe it's a deliberate wheeze by the government to make us feel we're getting a little more off than we actually are...

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John McLean

10:30 AM on 26 November, 2008

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@SB - yes, but overclockers is operating in a much more commoditised market than Apple. If you want an iPod, you have no choice but to pay what Apple is charging. If you want (say) a graphics card, you are likely to shop around and look at scan, overclockers, ebuyer etc. and buy the cheapest. As there is soooo much more competition, margins will be much tighter and these guys will have to drop prices a little.

@timknott - food 'basics' are zero rated so there will be no change there. 'Luxury' items, including such exotic things as chocolate biscuits, are standard (17.5%) rated, so may drop slightly in price. But 2% off the price of a packet of biscuits is unlikely to be life-changing.

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Luan Bach

10:44 AM on 26 November, 2008

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@John, yes, but over 50+ packets, which will be what a normal shopper will be buying in the next few months, it's worth the saving. It's almost like a 2.5% pay rise (probably more like 1.5% in real term).

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John McLean

3:16 PM on 26 November, 2008

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@Luan - I agree that, if retailers pass on the VAT cut, it will be a good thing for shoppers and will hopefully stimulate some improvement in the economy, but it is nowhere near equivalent to 1.5% (let alone a 2.5%) pay increase. First of all, you have mortgage / rent payments (a very large proportion of most people's net pay), which are not subject to VAT and therefore won't benefit. Then you have food, children's clothes, books, electricity and gas, water, etc., which are all either 0% or 5% rated and therefore won't benefit from the rate cut, so that's another good chunk of your money. Next there's alcohol, tobacco and petrol/deisel, which will benefit from the VAT cut but will still go *UP* in price because of increased duty, so in total the actual proportion of a person's salary that will end up being spent on things that COULD be cheaper is actually going to be relatively small. Then you have to factor in that by no means all suppliers of those goods and services that could be cheaper will actually pass on the cut to consumers - many will pocket the difference themselves.

I'd guesstimate that your 1.5% is actually closer to 0.1%. Even *IF* it is say 0.3%, then for an average household income of £30k you're looking at less than £100 per year of benefit. Not much given the extent to which recent price increases for many things, such as food, domestic and motor fuel, holidays (given the pound has dropped like a stone in the last few months) have massively outstripped average salary increases.

And this is going to cost the country an absolute fortune. We'll be paying back the additional borrowing needed to fund this VAT cut through additional taxes for many, many years to come. The new 45% tax rate for higher earners and the increase in NICs is going to push wealth generating business offshore and discourage new business from locating in the UK.

If the VAT cut is intended to increase consumer spending, I think it is hugely misjudged. If, on the other hand, it is intended to give struggling businesses a bit of a break by allowing them to maintain their prices at the same level while increasing margins, then it may just pay off and keep some of them afloat.

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haim

3:38 PM on 26 November, 2008

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Hahaaa pathetic anglo-saxons. I laugh at your puny VAT efforts. Come to the land of the Vikings and enjoy a wonderful 25% VAT (no reductions predicted) on ALL items! Yes, enjoy 25% state contributions on all your clothing, nappies and fruit and vege.

45% top tax rate, HAH!! 60% on the last kroner over here if you have a decent job and if that isn't good enough for you then you can enjoy the 180% tax on the purchase of a new car. Oh the warm fuzzy feeling of sharing ones wealth.

(p.s. if anyone could send me some of those reduced price chocolate biscuits I would be much abliged )

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smc8788

1:51 PM on 27 November, 2008

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Lol @ haim

I guess that's why Scandinavian countries are ranked among the best places to live and the most developed in the world with excellent state healthcare and education. It would take more than 25% VAT over here to fix the funding black hole that is the NHS.

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Darfuria

12:15 AM on 28 November, 2008

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Well the store has gone live... great...

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