Comments on: The economics of cables

Why are cables that you buy in stores so much more expensive than online?

[troyoverton]

Absolutely... The matter is simple economics, just one small point you may have overlooked.

Have you ventured to your local movie theater lately? Probably for Batman (just a guess) but you may have noticed that the prices for your concessions were about as ridiculous as you could imagine. Our tickets cost us around $20, and the concessions likewise. We got 2 medium sodas and a medium popcorn to go with it... for $20?

Having managed a theater in the past for some time, I understood the process. Theaters don't make any money on the tickets they sell, it goes to the movie company, the distributor and booking agents. There is a small fraction of the ticket sale the theater does keep, but it's really next to nothing.

The same with modern electronics. Devices themselves MUST be competitively priced because they make up the bulk of the purchase price. What a store like BBY is counting on, is that you purchase your accessories and the service plan to go with the toy. That's where the real profits lie.

We can get our modern electronics anywhere online for great prices, and accessories are easy to get cheap online because a warehouse can stock thousands of items (think newegg.com) and thousands of each of those items. They have generally speaking some of the best prices, and a history of sales figures so they know to a high degree how many of any given item they can expect to move in a day.

Bottom line, when you think you're ready to get that new gadget, order your accessories online so they arrive at about the same time.

Another thing that you can do is haggle the price of the accessories. The stores HATE it when you do that, but they WILL mark those items down. It beats losing the sale altogether and the fact is: IT IS YOUR MONEY.

Nothing is worth more than you are willing to pay for it. Make the stores remember that.

[chvynva916]

I'd add something else. People who buy cables at stores by and large aren't as tech-savvy as those of us who buy them online. They simply don't possess the information to evaluate the quality of a cable. Accordingly, they rely upon the most natural metric for cable quality: price. I would bet that after purchasing a $2,000 television, the average cable-ignorant consumer would more likely purchase a $50 fancily packaged HDMI cable rather than a $10 cheaply packaged one. After dropping two grand, why skimp on the cabling when for an extra $40 you can really get the best quality out of your expensive television (a belief the salesperson is likely to reinforce)? While you're at it, pick up this $150 power strip to clean your signal up :-). Now convince the same consumer that generally HDMI is HDMI is HDMI, and I think you'll see their shopping preferences change.

[darkridedp]

I agree completely with troyoverton above and would add this.

I used to be director of technology services for one of the top two consumer electronics electronics giants. I had a corporate lab where we would hook up prototype equipment in test rooms to see how it performed in "real world" environments and had test groups come in and try out, listen, watch, whatever, to see if we were on the right track with modes, UI, picture satisfaction and audio satisfaction. I was building a new test room and one of the cable companies (maybe THE leading premium cable company) wanted me to wire the room using their stuff. Strangely, they weren't offering to do it free, but at a reduced cost to me.

I was skeptical, so I proposed a test for them to prove to me it was better than the system I was using.

They came out and we wired up the room with theirs, and then I wired it with mine after they left. (At the time they were mainly a speaker cable company.)

One by one, I took their people into the room for an A/B test of the two wiring schemes. They overwhelmingly picked wrong; they picked what I was using, saying it sounded cleaner.

Unfortunately for them, what I was using was regular THHN 12ga. stranded electrical wire, which I had chucked into a cordless drill and twisted together.

My cost for the room: about 10 cents a foot. Theirs: about $2.40 per foot.

It just goes to show all the pretty packaging, gold plating braided stainless steel sheath and holographic logos won't make it sound better. My particular peeve with the company in question was (and still is) that their RCA connectors grip the jack so tight they either pull the jack off the circuit board, or the boot slides off the plug, taking the cable with it during dissasembly. My other beef is that most of the premium cables are too fat and don't bend easily. For some reason people equate fatter with better, and in most cases you're just getting a lot more insulation, not better wire.

For me, it's how the program looks and sounds, not how pretty the cable is.

OK, proceed to burn the heretic now.

[alegr]

Check customer reviews on Amazon for $500 Denon AKDL1 Dedicated Link Cable, which is simply a CAT 5 Ethernet cable. This will keep you entertained for a while.

[ghaff]

You won't get any burning from me. That's why I made a point of making the point about perceived higher quality. I've gotten poor cables from time to time, but the supposed high-end stuff is far more about looking like it should be good rather than actually making much of a difference.

[Shankland]

One of the curious facets of human behavior is that people's perception of quality is heavily influenced by their opinion of the brand. Coke wins the Pepsi challenge when the testers can see the brand names. I suspect that such purely psychological influences often far exceed whatever measurable objective differences exist among a lot of products.

I'm not running out to buy any Monster Cables. But I do wonder how many times I've bought products I think are better when objectively they weren't.

[troyoverton]

Yes, I would agree that there is a substantial markup for both convenience and ignorance.

[ZBeeb]

OK, important factoid that just drives me nuts with HDMI cables... it's a digital signal... by definition if the cable works it delivers the information and there's no performance difference between a $5 online cable and a $90 cable.. you can add all the gold plating to it you like, it's still going to deliver the same bits and bytes at the other end which will then be turned into whatever type of image or sound is encoded in the bits and bytes. There's no way for the signal to degrade or be enhanced by some magic, it's a digital signal... the cable either works or it doesn't, and there's no middle ground.

Same for optical audio cables, although the quality of some of the little optical connectors on the cheaper cables leaves one feeling concerned that it'll break if you unplug it too many times (which is a longevity issue, not a performance issue), the actual performance while it is working is by definition no different from the cheapest to the most expensive cable.

Can the flashy cable marketers claim there are advantages on the speaker wire... maybe, that's more open to interpretation, so while I don't personally believe a $150 roll of speaker cable will do a better job than $10 worth of cable, I won't argue that's it is not somehow possible... But seriously.. digital cables deliver digital signal which by definition won't be impacted by issues of alleged cable quality.

[phillynets]

You raise a number of issues here. I'll try and tackle a couple.

Digital cables: yes, All-On or All-Off, but oxidation will affect your digital signal (hence the Gold). Shielding makes a difference - AC interference will screw-up your digital signal. While a little aluminum foil will fix this (by wrapping the cable near the power cable), you just spent $2K of the TV but a nicer cable.

Speaker Cable is determined first by gauge and then copper content. If you are pushing a lot of signal (100W per channel) and trying to rig this around the wall to feed your rear speakers the gauge and copper content will make a difference. But will the shieding? Only when it is near AC power or other interference emitters. If you want to run sound in a large room (or for a really long run) - spend the money. If the speakers are next to the receiver - the signal loss would be negligible.

Buy 16 gauge for most applications and 12 gauge for the auditorium installation. Gold tips are junk for speaker wire. I didn't even think HD cables came in crap so $100 vs. $30 vs. $10 (on-line) is packaging, length, and convenience. The $100 cable is just silly, but the $30 one might make sense for convenience reasons.

Now you know why some things cost more. I can't speak to Monster Brand - their stuff is WAY off the reservation, but it is pretty so that must mean something to someone.

[c|net Reader]

Gold connectors have the advantage in longevity of connection. That was much more important with analog, granted, but you don't want oxidation to creep into your connection and prevent its transmission. Don't forget that with digital, there's often redundancy included for error correction. When the connection gets erratic, error correction is involved more often. Eventually, the error rate may be too great. (On the error correction point, I'm speaking generally. I don't know whether HDMI provides for it.) My point, then, is that you can ensure a long-lived useful connection by using gold contacts/connectors to prevent oxidation.

[epross]

I totally agree with your thoughts about this. Fortunately (in my experience) if you are buying a big ticket item, you can usually get the salesperson to throw in a 6 foot HDMI cable for free (and then you think WOW! I just got something for $50 for FREE and get the warm fuzzies - at least that's what THEY want you to think!)
Unfortunately it doesn't work if you need multiple cables or already have said big-ticket item at home already as in your case.

There are lots of cheap decent quality cables online. Bypass the gouging retail stores as much as possible. If you are looking for high quality cables and custom lengths, check out places like Blue Jeans cable in Seattle WA (a Google search will find their URL) I got a 35ft HDMI cable for the same price as most retailers would sell a 9 ft cable) and it works great. Don't get taken by the monster!

I think there is a lot to be said about positioning lower cost items higher so that the cost difference between the "premium" and "regular" cables isn't so high. There is definitely a psychological factor here. I might pay 3x but not 5x.

[Pete Bardo]

troyoverton is right--it's simple economics, even simpler that he describes in his first post. It's supply and demand in its simplest form. First, demand is high--you want it now. Second supply is low-not everyone carries the cable you need or want. For retailers that do carry them, the cables have to compete with all the items in the store for shelf space. Shelf space is analyzed in terms of sales per square foot. Big box retailers won't be willing to give up much shelf space at a lower price.

Online sales are different. You don't need it now. If you have time to wait for it to be shipped, up to a few days, you have time to look for the best price, maybe a couple of hours. So demand is low. On the other hand supply is huge. I don't even have to stock the cable to be able to sell it to you. I can have it drop-shipped by someone else. It's easy to do and can be done at a low price and still turn a respectable profit.

That's how a free market works. It's not always about what it's worth to you. It has to be worth it for the seller, too.

[punterjoe]

Perhaps it's a GOOD thing that big box stores stock extravagantly priced cable. If susceptible consumers squander their money on something as harmless as overpriced cables, they'll have less of it to spend on genuinely dangerous things - like many of those "gas mileage enhancers" (ie: warranty busters) being sold these days ;)

[phillynets]

Both you and the author mention BBY as an accessories company. BBY and Circuit City are first and foremost end-product companies. They sell videos and games (content). They do accessory business, but it never accounts for more than 20% of their sales. The Big-Box retailers still skew towards end-product sales. An exception is service plans, but these are only a 50% profit margin item with limited volume.

Who is the king of accessories? That has to be Radio Shack? In years past, when their stock price was healthier, they sold almost exclusively accessories. These days the end products are creeping into their mix. But, in the end - accessories, accessories, accessories.

And why do people buy these over-priced accessories?
Conveneince - RSH is a quick-in, quick-out business.
"Which one do I need?" - Can't really get that in BBY, although RSH is getting a little thin on "expert" advice.
Gold is pretty. Copper is a better conductor (which few realize), but - as the argument goes - it oxidizes... only if it isn't connected or you live in a tropical rain forest.

So, when we are talking about the economics of cables let's keep our eyes on the guys who's profit revenue are 3 times that of BBY (10 years ago it was 6 times BBY's revenue). Radio Shack - quietly sticking it to you all these years.

[ghaff]

Funny you mention Radio Shack. As I was installing the new receiver, I decided that I really wanted to put banana plugs on the end of my main side and center speaker; given how crowded the wiring was in the back I wanted to simplify the wiring connections a bit. Where did I have to go? Radio Shack. Cost for *each* plug: about $4. Yes, I've spent lots of money with radio Shack over the years. Even if you have time to order this sort of thing online, thee shipping often eats your lunch.

[E B]

You're all missing something important. You hint at it with "packaging and display," but you're missing a key element.

A physical store has a fixed amount of shelf space. The shelf space they use to sell those cables COULD be used to sell another DVD player, or another television, or some DVD movies, or something else. If they're going to use the shelf space to sell cables, then the cables better carry enough profit to make it worth their while -- otherwise, they'll get rid of the cables and fill the shelf space with something that makes them more money.

Online, an extra web page costs you very little. Some space in a warehouse is cheap. Retail shelf space is a commodity.

[ghaff]

I agree, which is why I mentioned it. But, that said, big box stores carry lots of things--not all of which are high-end electronics--that take up shelf space yet are still priced at least somewhat in line with mail/internet order. So I think costs may account for some premium but not the 2x, 3x range.

[jefflac]

I used to work as a Sales Associate at a big box store. We were bonused not on the amount we sold, but on the category. Selling a computer (or TV) was worthless to the store, in some cases, they lost money. Selling the Accessories with it was worth a bonus. Accessories = Print cables, ink, AV cables, power strips, UPS, etc.

As I understood it, the economics worked like this: the markup on a computer (or TV) was roughly 0-5%, based on how good of a deal the manufacturer gave them. Typically, if you saw an HP in the store, you could go online and get a very similar computer for the same price. The store therefore used the big items to get people to come in and look around, and then got them on cables, batteries, software, memory cards, ink, etc. They knew they wouldn't be able to sell many computers if people could go online and get them cheaper, so they had to match the online price. (*Sales tax didn't help) Accessories had a huge, 50-150% markup on them, varying by brand, week, and type.

In fact, the employee discount was terrible - the rule was it was 10% marked up from what the store bought it from the warehouse at. That is, if the cable sold for $25, as an employee they would ring it up as $10 (cost to the store) + 10% = $11 cost to the employee. This turned out to work for accessories, but actually made the big ticket items more expensive than the sticker price! It was different for every product, so you had to have someone ring it up for you to get your cost - a real pain.

Another poster mentioned that the cables can get thrown in for free. This occasionally happened with a really big sale, but generally required a lot of hoop-jumping and was frowned upon. You couldn't walk in, pick up a $2000 TV and expect to get the cable thrown in - even if it was $20, because the store needed to extract that profit. However, if you bought a computer, monitor, printer, ink, and the service plan - there was a chance you would get the printer cable for free if you made a big enough stink about it.

Finally, my store manager used to make some pretty ridiculous deals until corporate caught up with him. You see, the store didn't get rewarded for their product sales, but did so on their accessory and service plan sales (and internet sales, but that's just screwy). So said manager had the ability to mark down computer "systems" if he deemed they weren't selling or if they were open boxed. He would take a computer, monitor and printer and sometimes open box them - then he would throw in 4-6 ink cartridges, a UPS, a gold printer cable, speakers and a service plan. Then, he put a price on the whole thing. The price turned out to be fairly consumer friendly. It would give the consumer $300 in service plan and $300 in accessories (that most people may need) and only cost $200-400 more than the stand alone system. He would then ring up the system as 75% off (or whatever made the number work) and charge full price for the accessories. The store lost money, the consumer got the value, and the stores numbers looked good at the end of the month because of the inflated accessory and service number.

[RMcTiger]

Now, sometimes the "fancy" expensive cables are actually a detriment! I needed a new cable to connect my digital cable box to the wall jack and chose the more expensive "shielded, HD, GOLD quality level" cable at my local retail store. It did cost more, but they were sold out on the lower priced variety.

After a couple of weeks I called my cable company about fuzzy picture quality on my new digital connection. The first thing the service tech did when he showed up at my door was replace the cables connecting my box to the cable jack. This instantly fixed my problem!

I asked the tech about it and he told me it was a common issue. According to him, the shielding inside the insulation layer on the "GOLD" cables actually creates a "echo" of the digital signal in the cable and results in the poor quality picture and "shadows" I was experiencing.

Thank goodness for a 20-something service tech who knew a little about cables!

[PrettyStuzz]

Agree, agree, agree, agree, even though I go to Radio Shack for cables. BTW, a chief audio engineer at McIntosh (the high-end audio company) has a thorough report online about the silliness of pricey gizmo cables and wiring (it's linked at Wikipedia).

A few $ is hardly worth fretting about unless you buy in bulk or are accountable to an employer's budget; but the discussion is about the lone consumer. I buy at Radio Shack because it's much closer to me than Circuit City and Best Buy, because it's easy to intimidate into relative silence the know-nothing sales associates there, and especially because I can return or exchange the semi-trivial item if it's not what I needed or it's malfunctioning.

Since CNET.com has bedded down with CBS, I wonder if we're being trolled about our preferences.

[jonathanpeterson]

any other reasons?

Sales people and cable marketers lie.

This, however, is a GOOD thing. Because of those ginormous markups no cables for the rubes, those of us who understand that the loss of 49.8 percent of a digital signal is STILL a ONE get OUR consumer electronics subsidized by the rubes.

It's the hotel local phone charge all over again.

[troyoverton]

I understand your point about the big-box stores being a end-product company, but I disagree, because in the end, they are bottom-line companies.

That's what they cared about yesterday, that's what they care about today, and that's what they will care about tomorrow.

A 6ft. HDMI in a molded plastic container consumes substantially less space than your 42" HDTV, however the "20% of their sales" is accounting for what percent of the profit?

The numbers would make you sick. I took advantage of my discounts when I had them, because I have NO INTENTIONS of buying any of those high-markup products at retail prices.

Also, you mentioned the profit margins on service plans. That entire industry is a racket, and my personal experience with them (which I won't go into detail on a public forum) would prove to you that those "big-box" companies have a legalized racket against consumers. Big-box stores are making money on both ends of the sale and service, and the numbers are sickening.

And yes, it's true... your damaged laptop has a high potential of being "repaired" by someone who was flipping burgers the week before.

[voodooeconomist]

one way to overcome the inelastic demand for cables, i.e., your instant gratification, is to buy the cable at BBY, open the box and use it, make sure it is the right one and works. then order one from amazon/newegg/wherever, and return the opened package to BBY.

this practice, if widely adopted, sends a stronger signal than haggling for the price, which the BBY employee might not have authority to negotiate anyway. BBY would be forced to either selling cables at competitive prices (to avoid the cost of arbitrage returns), or stop stocking them. either way, problem solved.

Cool article (although I will point out that $30 for a $10 cable is a 200% markup, not 300%).

The moral of the story is to STAY AWAY FROM BEST BUY, ETC for accessories.