Wait three months

So I was making coffee at work this morning and colleague Mark started telling me about his experience at a Telecom Mobile store. He’d scoped out a high-end Nokia for their new network and found reviews with prices online. But Telecom want to charge 50% more than the same phone sells for in the US.

I think this is another kind of segmentation in action: specifically, identifying the overly-keen as people who will pay more for something new NOW.

In my experience, gadgets are almost always markedly cheaper three months out. Perhaps this is because of competition from something even newer, but I think it’s how sellers capture a premium from the keen before going on to get a smaller, more normal profit from the rest of us.

I got suckered like this a couple of years ago when the Asus eee laptops came out. I bought one as a present for $800, and three months later, they were around $600.

Hence my mantra for gadgets: wait three months. (If you decide you don’t need it at all in three months, bonus).

Cheap and cheerful, or expensive and durable?

A warm and frugally welcome to our new visitors from Pundit. Thanks to a comment from George Darroch on a post there, we seem to have acquired quite a lot of you.

I was interested to read Eleanor’s post, The Frugal Elitist, because among other things it outlines a strategy that I find quite tempting at times: to buy an expensive item on the basis that it will outlast several cheaper ones, or yield more jollies than several cheaper purchases.

My husband calls me a ‘frugal elitist’ because I insist on buying quality but I don’t buy much. When we moved into our current home we found we needed an extra bookshelf and something to put dishes in. We ended up with a leather and wood bookshelf and a beautiful oak Dutch hutch we will use for the rest of our lives. We could have bought something much cheaper that would have done the job in the interim but I prefer to have less and better stuff. (more)

I think this strategy can be sound but it needs some strong caveats.

First, some things are out of the question for me because I tend to lose or break them easily: quality sunglasses (broke them), leather gloves (lost them).

Second, if you have any aesthetic sense at all, you can be tempted into buying things that are merely beautiful without being more durable, functional, or efficient than the cheap equivalent. For instance, a lot of clothes fall into this category.

Third, I don’t have deep knowledge about many things. For example, I do buy expensive musical instruments. I know their ins and outs, I know what I’m looking for, I know what’s rubbish and what isn’t. I am on much shakier ground with consumer electronics, or cars. If you don’t know what good construction looks like or what fabrics last, how can you tell whether an expensive coat will last one season or five?

Fourth, you have to actually do the maths. For example, my bookshelves include some very cheap ones from the Warehouse. They’re ugly, but they’ve lasted years and several moves, and probably have another move or two left in them. If I need more shelves, my first thought is going to be salvaging some planks and bricks, student-style. The expensive shelves that last a lifetime just don’t add up as a deal for me unless they actual cost less than a lifetime’s supply of cheap ones from the Warehouse. No doubt Eleanor is more averse to squalor than I am, and I don’t disapprove of the mindful purchase of something that gives you great jollies (like my musical instruments), but we shouldn’t kid ourselves that something represents a saving when it isn’t.

Fifth, unless what you are buying will appreciate over time, then it has to be not just the same cost as a lifetime supply of cheap things, but a bit cheaper. Here’s why. Suppose I could buy 5 cheap frobbles that last 5 years each, or one very durable frobble that lasts 25 years for $1000, and suppose I have $1000 lying around. If I take the cheap strategy, I only lay out $200 upfront, and I can invest the remaining $800 until my five years is up, invest the remaining $600 plus interest from the first five years for the next five, and so on. And also, I have the flexibility to decide I’m not that into frobbles any more, and spend my $800 on something else. If I take the expensive strategy, I lose all the interest, and my money is all sunk into one frobble which I may have to sell at a loss if I need the cash.

So I think my overall strategy would be this:

1. Things I am paid to take away. Free is for people who lack ambition.
2. Free things.
3. Where I don’t care about beauty, a succession of cheap things OR one expensive one, whichever has the least lifetime cost, bearing in mind whether an expensive one holds its resale value.
4. An expensive thing that gives jollies, looks nice, and lasts longer than a bunch of cheap ones.

What do they take us for?

Fools.

That is what they take us for.

… A sachet of cat food is 59c. A box of 6 sachets is $4.03! Not just a little over $3 which you might expect but 49c more than six individual sachets! But wait, it gets worse. A box of 12 sachets is not a little under twice the price of the box of six but actually $8.10! Which is not only worse than buying two boxes of six but even worse still than buying a load of singles. This makes no sense to me. Can anyone please explain to me the logic here?

This has been another installment of Simple Answers To Simple Questions.

(also, foolishness is an inexhaustible commodity).