Like many other businesses, PC makers often use a “loss leader” strategy. They’ll sell the basic model of a computer at a very low price, in hopes that they’ll gain your loyalty and future business. If you buy online, they give even deeper discounts. While this is an excellent long-term strategy, it costs them a great deal in short-term sales. How, then, do you suppose they make up the difference? The answer is that they make it up in upgrades.
For these comparisons, we will be using the following idea. As an upgrade, the new components are justifiably more expensive. However, we are going to examine whether the price difference offered by the various vendors online for an upgrade is substantially more than the online retail price difference, and call the remainder the “installation fee.” So the formula is:
[Price difference offered by vendor] – ([Price of new component] – [Price of old component]) = [Installation fee].
If this installation fee is more than you would be charged even at a major retailer for the same thing, you’re getting ripped off.
First, though, an aside or two. While the principles demonstrated in this post hold true across all classes of PC, when dealing with notebooks (and netbooks), processor, optical drive, and graphics card upgrades will not be considered, as these are typically either not possible, or extremely time-consuming. When these upgrades are possible, it is likely easier to have them built-in from the beginning, as the labor involved will usually take up the difference in cost-savings, if not exceed them. Also, keep in mind that when doing upgrades after purchase, you can retain the old components to sell off, or trade them in for reduced install fees.
Entry-level machines tend to have the most “reasonable” prices for upgrades, because the major vendors are aware that people in this market tend to have stricter budgets, or are simply less willing to spend more money. In this class, upgrades tend to cost what the individual component would cost in the after-market. This doesn’t sound too bad until you realize that this means you’re getting no credit for the old part. For example, Dell offers an entry level desktop with a fairly weak stock processor, but some nice upgrade choices on it. However, you could buy one of the new processor choices for basically the exact same amount Dell charges for the upgrade, and not only have a better CPU, but also the old one to sell off. Contrast this with spending the extra money to get the upgrade, and only getting the upgraded CPU. The only caveat to this is that you generally have to be willing to do the work yourself, or have someone you know willing to do it free; at the prices these machines command, it is generally not cost-effective otherwise, even after selling off the old components.
Mid-level PCs are more profitable for computer vendors. Once you start looking at these, you’re looking at prices around 25-50% above the after-market prices for upgrades. In most cases, you can buy after-market parts, pay to have someone professionally install the upgrades, and still have spent less money than you would have if you’d bought the upgrades directly from the vendor. At this point, buying after-market parts is much more logical, since you’ll save money regardless of whether you sell the old parts off, trade them in for reduced installation prices, or do nothing with them at all.
Buying a premium computer? Do yourself a favor and buy the upgrades later, make one yourself, or order it custom from a small vendor like us. Otherwise, these upgrades generally run 100+% above the prices offered at online retailers, and even soar well above brick-and-mortar store prices. No major vendor of premium computers is an exception to this rule, and those vendors that consider all their PCs to be premium machines (think Sony and Apple) are even worse. You'll be saving money in the range of $100+ per machine, and in some cases getting into the thousands of dollars. For example, Apple’s “entry-level” desktop, the Mac mini, comes with 2GB of DDR3 RAM (2 SODIMMs) standard. As of today, 6/2/2011, the cost to upgrade to the maximum amount, 8GB, is $300 on Apple’s website. The most expensive after-market RAM, 8GB DDR3, certified compatible with the Mac mini, and carrying a lifetime warranty, is $100 online from Crucial. Apple is charging a 200% premium for their name. And if you had wanted to buy the RAM from Apple after buying the Mac mini with the stock RAM, you’d be charged $500, a 400% premium. If you bought the Crucial RAM and had it professionally installed someplace with high prices (basically any retail store that does tech work), you’d spend $140, and still have the old RAM to sell off. Savings: $160+. At this level, it’s a no-brainer to buy upgrades after the fact.
It’s not entirely bad. There are some exceptions to this rule. For example, since I picked on Apple earlier, I’ll give them something nice in return; the SSD upgrade to the largest MacBook Pro is actually cheaper than all but one of the SSDs I could find online or at retail. The only cheaper one was a no-name brand I wouldn’t have trusted for anything. In this case, Apple’s upgrade is actually the best one possible, since they tend to use mainstream component brands in their PCs. By and large, though, you can really tell that the premium PC manufacturers make money hand-over-fist on their hardware, particularly since you mostly have to compare their prices to the next most expensive equivalent out there just to make them seem at all good.
Now we’re at the end of this somewhat large post. I’ll leave you with two more tidbits. First, we’re not comparing these upgrades to no-name, low-quality parts. We’re using mainstream brands as a comparison. For example, the Crucial RAM mentioned above; Crucial is actually the retail arm of Micron, one of the Big Four of RAM manufacturers (the other three being Hynix, Samsung, and Nanya). When you buy RAM, even the RAM in a preassembled PC, and even if there’s a different name on the package, there’s a 90% probability that either the chips or entire RAM modules inside are made by one of these 4 companies. The company on the label usually either assembles the chips onto the module, or simply runs an additional QC process on preassembled modules and slaps their name on them. And all the major PC makers buy their RAM from these guys; it doesn’t matter whether it’s HP, Dell, Sony, Gateway, Acer, ASUS, Toshiba, Lenovo, Apple, or someone else I’ve neglected to mention. They all buy RAM from one of these 4, even if indirectly. So, it’s not as if we’re saying that the stuff from “Joe Schlubb’s Komputer Korner” is a better deal.
Finally, we’re running these comparison on retail prices, or online prices; the profit is already built in. Also, there are places that offer these products at near-online prices, such as Fry’s Electronics or CompUSA (part of TigerDirect). These stores typically charge up to $5 extra on top of the online price, plus tax, which is not bad considering the convenience factor. So, it’s not like we’re plumbing the depths of the low-cost internet here. These manufacturers are not paying anything close to retail for these parts; they’re paying wholesale prices, which are a good deal lower than anything you’ll be able to find. An example off the top of my head is Windows. A copy of Windows 7 Home Premium will typically cost the vendors around $40-60, because (as I said) they buy in massive quantities. The lowest price a consumer will find is around $100, for an OEM copy, with no customer support, that’s tied to the machine it is originally installed on. Apparently, obscene profit trumps the goodwill of your own customers, from whom those profits flow in the first place. Just think about this; these guys are shipping out PCs with upgrades costing more than the retail price of whatever component got upgraded, but just how much of the savings they get on the parts are they actually passing on? In my opinion, it’s nowhere near enough.
