IT's Most Outrageous Markups? 194
masteritrit asks: "I have seen some really outrageous markups from IT companies. Cisco sells memory for a router I have for $1500 bucks and I bought it directly from Kingston for $56 bucks. I also had someone at storagetec accidentally reveal that their standard markup is 700%. What are some examples of this that others have seen and how do you feel about it?"
Video-game companies (Score:1, Informative)
CompUSA Prices (Score:5, Informative)
However, there was one adapter (PS2->AT or serial->ps2, i forget which) that we charged ~$50 for when it was listed as $.50 cost in the computer... 1000% profit is not bad.
Re:Video-game companies (Score:1, Informative)
Sell the razors cheap, make the money on the razor blades.
Re:Video-game companies (Score:4, Informative)
Re:Not an answer, but... (Score:3, Informative)
The internal USR 56k modems go for $80 here and are not winmodems. Is there an additional $90 worth of circuitry/plastic/shielding that goes into the external?
Re:CompUSA Prices (Score:5, Informative)
As I was making price tags for the cable aisle one day, I starting comparing retail and cost. On average, the markup of cables was around 1800% of cost. I'm not exaggerating.
It's a ripoff, yeah, just like those huge CD binders for which they charge $50, but pay $15, or most anything in the Accessory aisle.
It's not totally unjusified, though-- the reason cables are so marked up (and the reason they try to push them on you) is to make up for very low profit margins elsewhere in the store.
The average profit on, say, your average Compaq box is something like $50. If one of those walks out of the store without being paid for, you've gotta sell fifteen more to make up for it. Factor in employee costs and whatnot, and they don't really make any money selling computers. (This made it especially aggravating when Joe Schmoe thought he could haggle prices on the things, as if it were a car.)
Anyways, I'm not apologizing. They're still ripping you off, if all you need is a cable.
On the last day before I quit, I went through that same cable aisle and bought one of just about everything on the shelf-- employees could buy everything at cost. I figured that paying $50 for twenty cables in advance would be better than paying the same for two cables down the line, when I would be desperate and without the discount.
Not *entirely* true. (Score:4, Informative)
When a wafer of silicon comes out of the FAB, they test each chip to see what it can handle. Chips that can only do perhaps 1200Mhz without failure will get marketed as 1 Ghz, 1.3 Ghz as 1.1 Ghz, and so on. This ensures the chips are reliable at their standard clockspeed, and ensures the 3Ghz+ wafers go to the higher end parts.
Obviously, they only have limited control over this process, and when demand for a lower-speed chip increases, they may have to put a 1.3, 1.4, or 1.5Ghz rated wafer down as a 1GHz part, since people want to buy the 1GHz parts (this is also, BTW, the reason why sometimes the 1.4Ghz part is chaper than the 1.3Ghz).
As the speeds increase, you have continually smaller quantities of silicon that will run at the higher speeds, meaning if demand exceeds your supply of these parts, then you have to keep the prices higher to keep that demand in chack, and also because you may end up tossing out large parts of the wafers (This, also, is an issue when people purchase 1.4/1.5Ghz chips, and they have a glut of lower-rated silicon. They keep quite a bit of it, but eventually if the surplus grows to great, there's nothing to do but dispose/recycle the stuff).
So there *are* costs incurred with going up in speed.
Double is standard (Score:5, Informative)
Don't forget the cost of doing buisness. If you count only the cost of food, McDonald's as a 200% markup. Food and labor is about 100% (these two were about half the costs in the resteraunt I worked at). However after all the other little things add up, profit of 5% not obtainable no matter how hard we tried, and some months we lost money. Overhead gets you every time...
I used to work at StorageTek, and I don't know if I believe the 700% markup. Only because how do you figgure that. If just the cost of making the parts, that is beliveable. They don't have a lot of volumn (compared to say DELL), but all their systems have a lot of engineering in them, so they have to recover a lot of costs from each sale. I know many smaller products never directly became profitable, and were only worth it because they helped drive a bigger sale.
I don't think Cisco wants to be in the RAM buisness. They are used to selling either big machines for a lot of money, or small machines to re-sellers. Call them up for a $50 ram module, and they may have more than $50 in overhead just to answer the phone, get it off the shelf, and ship it. The salemen selling it may require more than $50 himself just to make it worthwhile to write up the stupid order. (time is money, and that time could be spent trying for a big sale) Call them direct and you might get a vice president more inclined to sell in lots of 1000 than single lots, and you have to pay for his time. Their processes don't support selling memory, but they know they have to. They charge to make up for their process, plus some extra to either profit or make you go elsewhere. (one other point is they have to keep memory for old systems around ever after it is hard to get, you may be paying for an assumption that they have made their last order of that part and have to conserve inventory)
Buisness is complex. That doesn't excuse you from not looking for the best value. Don't buy the expensive parts if a cheap one is just as good. Unless your time itself is worth more than the effort it would take to find a cheaper supplier. If you are a high level executive, getting memory from Cisco may be a better use of your time than searching for memory suppliers. I could find them on google and 5 minutes latter have the order done, but if you don't do that I could see it taking 20 mines, which means the executive would need to make $250 an hour - cheap for a CEO. (though why a CEO isn't telling an underling to do the job I don't understand - something they should know how to do in one minute)
Re:CompUSA Prices (Score:2, Informative)
I work at a hospital... (Score:3, Informative)
And this doesn't even take into account the enormous profit the drug companies make on that product that costs them less than pennies to produce. You wonder why health insurance costs so much.. here's part of it. This is a case of markups in a situation where the consumer has little choice (if they are bedridden in a hospital). And this in an industry that is supposed to be helping people (and a non-profit at that). Abuses aren't necessarily limited to the likes of SCO. At least most of the time in the IT industry you have a choice as a consumer.
Re:Video-game companies (Score:3, Informative)
Re:CompUSA Prices (Score:3, Informative)
Computer: $1500 ($150 profit)
Monitor: $200 ($50 profit)
Printer: $100 ($40 profit)
Printer cable: $30 ($29 profit)
"Photo" paper: $40 ($35 profit)
Plain paper: $10 ($8 profit)
Ink cartridges: $50 ($35 profit)
Surge protector: $35 ($25 profit)
Blank CD's: $40 ($25 profit)
Replacement plan: $300 (~$250 profit)
That's the minimum you want to sell them. Now you're supposed to keep pushing - there's the scanner, digital camera, cable modem, cable/dsl router, joystick, etc. Software too, but there's usually very little money in that - software just brings in potential hardware customers.
Re:Not an answer, but... (Score:4, Informative)
The internal USR 56k modems go for $80 here and are not winmodems. Is there an additional $90 worth of circuitry/plastic/shielding that goes into the external?
Yes. Long ago, when there were no winmodems and no DSL or cable, USR made Sportster and Courier modems.
Despite coming from the same manuacturer, at the same time and for many years, Couriers had an excellent reputation for solid reliable communication, whereas Sportsters, ok for your occasional surfer, where on the whole quite awful. The difference was in the reliability and speed over whatever flaky analogue connection you had at hand, as well as fancier features which folk who just connect to ISPs never use.
Nowadays not many people use their modems over international and poor quality telephone lines, or with weird other modems that don't conform to standards, or indeed simply use the older, slower standards, which may not be well tested with a modern modem. Try to imagine that.
Long, >0.5 second delays means more powerful echo cancelling algorithms. Long analogue lines means better equalisation too. Both need better quality (more expensive) electronics, otherwise the elecronics wrecks the signal quality so the DSP algorithms can't get anything useful out of the subtler parts of the signal. Both need a more powerful DSP chipset.
Crappy lines also means better algorithms for selecting the best modulation schemes for those lines, and adapting as conditions change. Only the better modems will adapt the speed upwards during a call when conditions improve, for exmaple. (Line conditions do change, for example as the weather changes or the lines heat up during a call).
It is possible to implement a modem without certain features that make it more robust. V.34 in particular (the 33.6k standard) has several optional capabilities which improve performance over bad lines.
It may interest you that current 56k analogue-side modems need less DSP processing power than their earlier V.34 33.6k cousins. I am not sure, but that is what I have read and it makes a lot of sense to me. That means that although you buy a cheap modern modem that is capable of 33.6k and has the benefit of modern day chip speeds, it may still not have the processing power of the very expensive older models - simply because it doesn't need that for what it is most likely to be used for - "56k" connection to an ISP over a local analogue loop and an otherwise digital network.
Some people still need the best connections over international or really bad links, with maximum reliability and connecting to older, even obscure modems. I'm certain, if the application were mission critical (e.g. bank or trade transactions in real time) and that given the choice between a Courier and Sportster at least, they'd choose the former for those kinds of calls.
Of course you are also paying for the Courier reputation as well. But that is not a bad thing, if it is important to you to have a brand whose reputation is (supposedly) based on repeatable quality.
I agree that DSL electronics are fairly high precision and the DSP in them much more powerful than older modems. However, DSL is always run over a single local loop, needs to operate with only one, not too complex standard. It is optimised for one signalling method, and despite the speed it is not the most dense of signalling methods: consider how hardly anyone has the fastest DSL available in principle over their lines - and how much it costs to get that. Consider: DSL does not run over very long distances, and certainly not over international distances.
Just a few thoughts of mine, take as you like :)
-- Jamie
Re:Misc ones (Score:3, Informative)
the big problem is that hardly any shops beleive that this is true (or refuse to honour it without being taken to court) but it is part of UK law. here is a FAQ entry from the UK gov trading standards page [tradingstandards.gov.uk] as example:
so guarantees and warranties are all very well, but the good old "sale of goods act" does alot more for the consumer, if only he knew it existed (and can argue the shop manager into beleiving that it carries weight and that he will lose if taken to court).
dave