[WHY] Why are iPhones and Teslas more expensive in Korea?

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Published: 01 Jul. 2023, 07:00 Updated: 04 Jul. 2023, 23:59

[WHY] Why are iPhones and Teslas more expensive in Korea?

The Apple Store in Myeong-dong, central Seoul, its third store in Korea. [YONHAP]

You can get an iPhone 14 Pro for $999.

But if you are in Korea, you must pay 1.55 million won ($1,175) for the exact same iPhone with no significant difference in specifications.

That’s not everything. Drivers in Korea must pay at least 78.7 million won for a Tesla long-range Model Y. That same car goes for $50,490 in the United States, around 12 million won cheaper than in Korea, and even for 263,900 yuan ($36,400) in China, some 30 million won cheaper than the Korean price.

Korea is one of the countries where products from global companies are released with a particularly hefty price tag, or what the industry calls “price discrimination.”

Consumer complaints are ubiquitous on social media, with blog posts introducing tips for cross-border shopping gathering clicks around September when Apple officially announces the prices of its latest iPhone series.

On online communities, some Koreans even boycott those products calling out the “unreasonable high prices” even compared to neighboring countries like China and Japan.

Apple Store in Myeong-dong, central Seoul, is crowded on Oct. 7, the launch date of the iPhone 14 series. [YONHAP]

Are iPhones really more expensive in Korea without any add-ons in specs?

Unbelievably, yes.

Apple sets the prices of its smartphones every year, and they vary by country.

In the case of the latest iPhone 14 series, Apple froze the prices for the U.S. market, which starts from $799 for a stand model with the smallest storage size.

But at the same time, the Korean price rose by 15 percent to start at 1.25 million won.

Apple did not increase the price in China, which starts at 5,999 yuan, which translates to 1.1 million won. The price has been increased by 1.7 percent in Japan at 119,800 yen ($827), still around 160,000 won cheaper than the Korean price.

Apple cited “weak currency against the dollar,” but even considering that and the 10 percent of sales tax, Koreans are left with iPhones that are some 10 percent pricier.

Applying the exchange rate of 1,380.4 won against the dollar on Sept. 7, a day before Apple released the latest smartphone series, iPhone 14 standard model must be priced at 1.1 million won in Korea.

Korea is also where Apple Pay requires the highest commission rate than any other country in the world. Apple Pay started its service in Korea in May, currently exclusively through Hyundai Card.

Apple is reported to charge a 0.15 percent fee per transaction, according to local media reports, five times higher than in China, which charges 0.03 percent.

At present, the rate is 0.05 percent in Israel, 0.12 percent in Russia and 0.15 percent in the United States.

Customers shop Dyson Airwrap stylers at a Dyson store in Hannam, central Seoul, in November 2019. [YONHAP]

Is Apple the only company demanding more for goods in Korea?

Koreans even have to bear the higher cost when it comes to bare necessities of life such as clothing, home appliances and vehicles.

Dyson, a British electronics maker, launched a V15 Detect vacuum cleaner at 1.29 million won in Korea in May 2021. That was around 380,000 won pricier than one for the U.S. market, which was set sold at $699.99.

In China, it is priced at 5490 yuan, which is around 980,000 won in Korean currency, while Britain offers it at 599.99 pounds, or 950,000 won.

Though a Dyson Korea spokesperson explained that the prices are “set differently by countries depending on their circumstances like traditional distribution structure,” their price increases seem too frequent and at high rates.

Dyson upped the price of its Airwrap multi-styler by 50,000 won to 749,000 won in March. The styler is one of the most popular hair tools for Korean young women currently.

It was the third price hike in a year in the local market.

Dyson originally sold the styler at 599,000 won in Korea, but increased the price by 50,000 won in January last year, and another 50,000 won in July.

Tesla Superchargers are full with their EVs in downtown Seoul on Jan. 3. [YONHAP]

Tesla is one of the companies that is often criticized for its capricious price changes in Korea.

The sticker price of a Tesla Model 3 starts from 60.3 million won in Korea, which is around 8 million won more expensive in the United States. Compared to China, it is 18 million won pricier.

In the case of Model Y, people in Korea must pay at least 78.7 million won, around 12 million won more than U.S. consumers and 30 million won more than Chinese customers.

Though Tesla cut prices several times worldwide earlier this year, its Korean prices are up to around 40 percent higher compared to the neighboring countries.

“I feel so futile, and I feel like Tesla treats Korean customers like hogang [pushover],” said Kim Kuen-hyeong, a 44-year-old engineer who bought a Model Y two years ago.

“This is ridiculous, the price difference between Korea and China is near to a person’s annual salary.”

Customers form a long, early morning line in front of a Chanel store at Shinsegae Department Store’s main branch in central Seoul even before the stores opens. [NEWS1]

Korea is a country where people can get a medium-sized Chanel Flap bag at the highest price tag in Asia.

Chanel Korea recently raised the price of the bag by 6 percent to 14.5 million won. Compared to 2019 before the pandemic, the price is up by 103 percent.

Chanel Korea raised prices three times in 2020, four times each in 2021 and 2022. It has upped the prices two times already this year.

In the case of clothing, people can buy clothes from overseas brands at around 18.3 percent cheaper if they buy them in the brands’ own countries, even when all the external factors like taxes and delivery fees are considered. Korea Consumer Agency analyzed the prices of eight products from four popular brands including Lacoste and Maison Kitsune.

Charlie Park, vice president of Dyson, introduces the company's V12s Detect Slim Submarine cordless vacuum cleaner at a hotel in southern Seoul on June 21. [YONHAP]

Why do Korean consumers have to suffer such price discrimination?

Experts see both sides of the coin: It is the company’s gapjil toward Korea, or a natural act of them pursuing profits.

Gapjil is a Korean word that roughly means abuse of power.

“Korea is still a small market for those global companies, so it is not subject to their main interest,” said Lee Eun-hee, a consumer science professor at Inha University.

“If Korea had a comparable-sized market with China, they couldn’t have overlooked Korean consumers,” Lee added.

China is the third biggest market for Apple after the United States and Europe.

China currently generates roughly $75 billion per year for Apple. Apple contributed over 10 percent of China’s smartphone sales volume in 2022, with the iPhone 13 the best-selling smartphone with 6.6 percent of the share, according to data from market tracker Counterpoint Research.

Meanwhile, Apple logged around $5.9 billion in sales in Korea from Oct. 1, 2021 to Sept. 30, 2022, according to its audit report filing.

Tesla store in Sinsa-dong, southern Seoul [TESLA KOREA]

“But price discrimination is a natural act for companies that always pursue productive profit depending on the conditions of markets,” said Kang Jun-koo, a researcher at LG Business Research. “Companies set prices differently by markets, like higher prices for a less competitive market and lower prices for a highly competitive market, to maximize their profits."

The situation is similar in the auto market.

China was by far the largest EV market in 2022, with 63.3 percent of EVs sold there, or 5.07 million units, according to data from the Korea Automotive Technology Institute (Katech).

During the same period, only 162,987 EVs were sold in Korea, or only 2 percent of the world market.

Tesla sold 439,770 EVs in China last year, and 14,571 EVs in Korea.

People line up to enter Apple Store in Myeong-dong, central Seoul, on Oct. 7, the launch date of the iPhone 14 series. [YONHAP]

So, Korea has a small market size. Is that the only reason?

The more it cost, the better it must be.

This is a widespread perception held by young Koreans, the major consumer of products from overseas brands like Apple and Tesla, which encourage the foreign brands to maintain the price discrimination strategy.

“Korea is where a prestige pricing strategy works very well,” said Professor Lee. “Young people don’t hesitate to try new products, and they are willing to pay more for better services.”

“iPhones and Dyson stylers are flying off the shelves already, so why do they have to consider cutting the price in Korea?”

Prestige pricing is a pricing strategy that uses higher prices to suggest quality and exclusivity.

A customer looks at an iPhone 14 at the Apple Store in Myeong-dong, central Seoul, on Oct. 7, the launch date of the new series. [YONHAP]

Roughly 52 percent of Koreans in their teens and 20s own iPhones compared to 44 percent who responded that they use Samsung Galaxy phones as of the end of last year, according to a recent Gallup Korea survey.

When asked about plans for their future smartphone, preference is vividly shown in younger ages. Around 53 percent of people in their 20s said they are in favor of Apple over Samsung, while 39 percent of people in their 30s said they prefer Apple. That decreases to 20 percent in people in their 40s and 2 percent in people aged 50 and over.

“Because iPhone is pricier than Galaxy, it seems iPhones have better functions and specifications than Galaxy phones,” said 29-year-old Lee Kun-hee, an iPhone 14 Plus-owner living in Mapo District, western Seoul.

“I anyway have to pay more than 1 million won for a smartphone, then I’d rather pay a little more for a better product.”

Tesla vehicles are being charged at a building in Seoul on Jan. 17. [YONHAP]

Can anything be done to prevent the geographical price difference?

Unfortunately, there is nothing customers can do to adjust the prices as they are always set at the sole discretion of each company.

But activation of cross-border shopping may help, experts say.

“The cross-border shopping expands the markets for consumers in Korea, allowing them to have a variety of options, which will eventually make the companies join the price competition and cut their prices,” said researcher Kang.

Spending on cross-border purchases is on the constant rise in Korea. Koreans spent an all-time high of $4.7 billion in cross-border purchases last year, according to data from the Korea Customs Service.

But Kang also warned that Korea should be cautious on the side effects the expansion of cross-border shopping will bring.

“The government’s stricter guidelines are essential to prevent Korean consumers such as the stable process of refunds, assuring authenticity and getting proper after-sale service.”

BY SARAH CHEA [chea.sarah@joongang.co.kr]