Slashdot Mirror
IT's Most Outrageous Markups?
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?"
When i was a salesman at compusa (a few years back) we sold USB cables for $30+ when they were only $5 or so at cost. I've seen grocery stores selling them for much less than $30. The same thing went for parallel printer cables.
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.
But XML markup is the worst!
Karma: Marginal (mostly due to the border around the website)
I would absolutely *LOVE* if someone could tell me how much both USR and retailers are making on external 56k modems:
Future Shop (Canada's version of Best Buy) is selling an external one for $170 CAD (~$120 USD?). It seems hard to believe that the price of one hasn't come down in what, over half a decade?
Here's an opposing view (Scroll down to the second-last letter - lucky b'stard).
Consultancy: If you're not part of the solution, there's money to be made in prolonging the problem
Glucometers for Diabetes are the same way, in a lot of cases the companies Give the meters away because they know that they have you trapped buying the test strips for $50.00 for a bottle of 25.
--Im an oven mitt, not an engineer! (SLArbys Radio Commercial)
That $1,500 Cisco memory is, I think, good for everyone - it contributes to Cisco's bottom line by ripping off the ignorant and lazy, thus keeping them from having to raise prices for the rest.
But for a contrasting situation: about 5 years ago I worked for a dominant office-equipment supplier in the Rocky Mountain region (name left out not to protect the guilty, but to avoid self-embarassment...) in their PC/printer repair depot. We outsourced our monitor repairs, and would routinely double whatever the price was - whether it was mainly parts or labor - for no good reason other than that we could. We sold Laserjet fusers for a decent markup - until we changed from geniune HP to remanufactured parts, and kept the prices the same... so a $180 fuser we sold for $215 became a $40 fuser sold for $215... I could go on. They did that 'cos they were sleazy, and I hated working there.
I've been on the lookout for a 4-pin to 4-pin Firewire cable at a decent price for awhile now; usually I see them for a ridiculous $40-$50 most places. Recently when my need became more urgent, I swung by Fry's and found them for $9. That's just a case of buyer-beware - if you're concerned about saving money, make sure you're not being fleeced before plunking down your cash. Do some legwork if the price difference is worth your time.
Another example: inkjet printer makers sell the printers at a loss and make it up by selling carts at inflated prices. That's OK by me, when alternative sources for carts and ink are available. When they started putting ICs into the carts to prevent "counterfeiting", that's where I draw the line, and it turns out that inkjet printers from 2-3 years back (available for dirt cheap on eBay and Craigslist) still work just fine with $3 cartridges (also from eBay)....
The really outrageous markups are in the financial business anyway. $35 because they let your credit card payment check sit for 3 days before processing it? Bah!
Perfectly Normal Industries
Numerous stories have been posted on this - I'm surprised "Printer Ink" isn't half of the posts here...
Hacker Public Radio is our Friend
AMD/Intel *do* incur higher costs for the faster chips of the family.
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.
...for one of our AIX RS/6000 servers. I forget the exact quote amount, but it was, I think, around $1,200 for 512MB. We bought the same RAM from Kingston for less than $400 (after the IBM rep almost blew his top arguing that if we didn't buy from him, we'd void the warranty).
So we crack the case to put in the new RAM, and what do we find? The *exact same* Kingston RAM module is already providing us with our first 512 MB of memory. Priceless.
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)
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.
No lie - we needed an HP heatsink to replace one that was (ahem) "dropped". Turns out that the heatsink costs $3 more than the processor (P3 1Ghz) itself (which CAME WITH A HEATSINK).
I just don't get it.
Listen dudes, just because it's got a high percentage of profit, doesn't mean it's a rip-off. It's an example of supply and demand. If $5 USB cables are being sold for $30, then it's because enough people are spending $30 a piece to buy them. When people stop paying $30 a piece, the price will drop.
It really is important to understand this concept of business. Just because they can sell it cheaper doesn't mean they should. Remember, they're not just selling you small quantities of material, they're selling you a tool that helps you do a job.
"Derp de derp."