Sunday 27 November 2016

Is the cheapest really the cheapest?

We all love a bargain, a discount or a special deal. Anyone who doesn’t love a bargain clearly has too much money.

But what exactly is a bargain? Is the cheapest product always as cheap as you’d think?

Here’s an example. Whenever you’re buying a computer in a store, please don’t ever buy the cheapest. The cheapest is going to be that way because sacrifices have been made. It will lack power, storage, memory and a decent keyboard. By the way, that’s the most important thing with any laptop. They keyboard.

The same goes for wine, cars and cellphones. If you’re short of cash it’s better to wait a few weeks, save a little extra and buy the model one above the cheapest. You’ll be surprised how much extra you’ll get from spending just a little extra. You’ll also be surprised how much you’ll save in the long run.

Last week someone posted a celebration in the Consumer Watchdog Facebook group. They said:
“If you are looking to buy your phone from a company that does not give you a hassle over honouring the warranty, I recommend The Cellphone Warehouse. Fantastic service.”
That was nice but a later comment impressed me more. Another member of the group commented:
“But their prices though but i guess thats the cost of good service.”
That’s a remarkably important idea. Their prices might be higher than some of their competitors but it’s money well spent because of what that extra money buys. It buys better service, the assurance that a warranty is certainly going to be honored and the comfort that you’ll be treated with some respect. Those are things you don’t always get with other stores that sell things more cheaply.

Around the same time another member of the Facebook group commented about another cellphone store, one that doesn’t have quite the same reputation. Talking about the phone they’d bought cheaply and in which a factory fault soon emerged, they said they were told by the store that no refunds were possible and that “they kicked me out (physically)”. They heard later that the authorities have “a bunch of files” about the same store, who have apparently mistreated, short-changed and disrespected a number of other people. That’s often what you get when you buy the cheapest.

But is it even the cheapest? Like a number of stores this particular one doesn’t always offer the full manufacturer’s warranty that should come with any purchase, presumably because they’re selling “grey imports”. These are products that have been bought from another part of the world and brought to Botswana, a country where the manufacturer’s warranty doesn’t apply. That’s why you’ll often see products made by respectable companies such as Samsung but which are sold with only a three-month warranty when Samsung would normally offer a warranty for at least a year. That means that if you buy such a phone and it goes wrong after just four months, you’re not going to get any help from anyone, not even Samsung. You’ll need to buy a brand new phone.

That cheap phone isn’t so cheap any longer, is it?

Here’s a free tip for you. Instead of buying the cheapest possible cellphone from a potentially shady store, why not consider buying a second-hand cellphone instead? There are several Facebook groups dedicated specifically to exactly that business. Why not save yourself a lot of money and get a phone that’s maybe a year old but for a fraction of the price you’d pay from a store. And if you were tempted to get your new phone from a shady, grey import store anyway, what do you have to lose?

The same goes for cars. A number of organizations in Botswana have learned the hard way that buying cheap vehicles isn’t actually the cheapest way to supply their fleets. I know of two that decided to replenish their fleets by buying the cheapest possible vehicles. They saved some money that year but overlooked the fact that these vehicles came with just a one-year warranty, unlike the more expensive alternatives that came with warranties and maintenance plans that lasted five and sometimes seven years. Not only did those plans offer free maintenance, they also gave a clue about how long the vehicles might last. A warranty is also a statement of confidence in the solidity and reliability of a vehicle. A manufacturer that sells vehicles with a five-year warranty is presumably fairly certain that the vehicles will actually last that long. Those companies spent a lot of money but now have parking lots full of dead vehicles they can’t afford to repair.

If you do the maths with either cellphones or vehicles the lesson is quite clear. The cheapest to buy is rarely the cheapest to own. The difference is when you spend the money. The more expensive items are paid for up front, the cheaper ones you have to pay for over and over again.

Accountants describe this as “total cost of ownership” which Investopedia defines as follows:
“Total cost of ownership (TCO) is the purchase price of an asset plus the costs of operation. When choosing among alternatives in a purchasing decision, buyers should look not just at an item's short-term price, which is its purchase price, but also at its long-term price, which is its total cost of ownership. The item with the lower total cost of ownership is the better value in the long run.”
That’s what you should look at whenever you buy anything significant. What will it cost you over its entire lifespan, not just when you hand over the money.

So don’t be cheap. Being cheap is often really expensive.

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