Hardware subsidies for POS systems? - 0 views
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Dongyun Oh on 20 Feb 13Subsidizing a product to get a long-term use commitment from a consumer base is nothing new; it existed before high tech hardware was made affordable by software or service agreements. Think about the razors you buy, assuming of course that you're not a fully bearded male. The initial cost of the razor isn't all that expensive, but replacing the razors for a month costs upwards of twice the razor itself. And if you've shopped for a printer lately, you know the same strategy applies here. The printer itself isn't the greatest expense over the life of the asset; the ink, which is required and usually specific to the device itself, is where you will spend the most money. The most well known form of subsidization, or at least most glaring, comes from the coupling of cell phones and cell service providers. An iPhone, for example, costs a lot more than most people actually pay for it. The new iPhone 5, the basic version with 16GB will run you $649. Not to mention the cost of new adapters, chargers, cases, etc. However, if you commit to (or renew) a two-year service contract with AT&T, Verizon, or Sprint, the phone itself costs $199. How does this work? The same way the printers and printer ink work. The service providers (i.e. AT&T) subsidize the majority of the cost of the phone in order to lock customers into a contract that ends up costing much more in usage and data charges over the life of the contract. The idea is to make the cost of entry relatively cheap. Then, the cost the company loses at the initial purchase is recouped through purchases, or service charges, over the long term. Unscrupulous? Not really, although some would say so after receiving their phone bill. But that has more to do with not being aware of the stipulations of the contract you sign to get the cheaper phone at the outset. Although I personally find it annoying, I try to look at as something akin to amortizing the asset, and remember that, at least for me, a monthly fee