Home Page



Sticker Prices, Stickier AOL
By Thiravudh Khoman

It's Sunday here in the U.S. and as usual, my Sunday newspaper is fat with sales. This includes advertisements from 3 of the 4 office/electronics superstores in my area that carry computer stuff (i.e. Circuit City, Office Depot and OfficeMax - nothing from Staples today). The city I'm in doesn't have a CompUSA, but that's okay since these stores carry a fair range of hardware/software, and what I can't get from them, I can always get from the smaller retail computer stores or from internet vendors.

As usual, the superstore adverts carry sales that at a casual glance (or by the untrained eye) can be quite misleading. Rather than offering straightfoward discounts, a "smoke and mirrors" system of rebates and/or conditional discounts are offered instead. Here's an example. Would you be interested in buying a Hewlett-Packard Celeron 633-based computer with 64mb of memory, a 15gb hard disk, a 48x CD-ROM, an AGP video card, a V.90 modem, a 15" multimedia monitor, and an HP DeskJet printer for only US$249? That's an awfully good price if you ask me.

But wait, read the fine print first. The full price of the set is actually $949. The price is reduced because you get a $200 mail-in rebate from HP, plus a US$100 mail-in rebate from the store itself (who shall remain nameless). But that doesn't make it $249. Well, you ALSO get a $400 rebate from Compuserve for agreeing to subscribe to their internet service. Do your math again and $949 - $200 - $100 - $400 does indeed = $249.

The "catch" is that to get the Compuserve rebate, you must agree to subscribe to their internet service for a period of 3 years at a cost of $21.95 per month (36 x $21.95 = $720). Let's do the math again: $949 - $200 - $100 - $400 + $720 = $1039 or $90 more than the regular price of the computer system alone. What this boils down to is your buying the computer system at the regular price and getting 3 years of Compuserve for $90. Whether you still consider this to be a great deal is now put into a completely different light.

Time for a pop quiz: How much money do you have to hand over to the salesperson in order to take this wonderful system home? Answer: $949 (plus sales taxes, if any). You then mail off a few rebate forms and hopefully in 1-2 months, you'll start getting rebate checks mailed back to you. Can you squirm out of the Compuserve agreement? I presume not. Chances are you'll be required to authorize Compuserve to debit your credit card monthly for the 3-year period, with a heavily penalized exit clause thrown in for good measure (if one actually exists).

This type of pricing is prevalent among the big office/electronics superstores (not sure about CompUSA) but NOT among the smaller retail stores. But it's not always Compuserve that provides the big $400 kicker. Sometimes, it's AOL and sometimes it's MSN (i.e. Microsoft Network). In actual fact, though, Compuserve is OWNED BY AOL, thus the majority of these deals, one way or another, emanate from AOL.

Why engage in this "give and take" style of pricing? While I can't say certain, I can imagine at least two possible reasons:

  • The first and most obvious reason is to dress up the sticker price so that it looks irresistibly cheap to potential (gullible?) buyers. No doubt to this end, the fully rebated price is usually displayed in larger type or at least placed more prominently than the upfront price. In all cases the equation showing the rebates, full, and net prices are and must be displayed (I believe there was a lawsuit that mandated this), but this is invariably shown in much smaller print. This strategy is similar to the U.S. practice of quoting prices so that they end in 95 or 99 (e.g. $9.95 or $9.99 rather than $10, $199 rather than $200). In my opinion, this is a stupid practice and is incredibly wasteful of resources because it requires more ink, more space to print, and takes more time to enunciate.
  • A second possible reason - and I'm truly guessing here - is that selling products at their full price allows retailers to report higher sales volumes, at least in $ terms. The rebates must of course be factored into the bottom line somewhere/sometime, but no doubt, this is done using a separate accounting process which doesn't affect the figures that the marketers/PR folk can quote. Hey, who knows - it might even be tax deductible as operating costs.

Although the Compuserve/AOL/MSN discounts are only bundled with the sale of computers, similar but less convuluted rebates exist for other computer paraphernalia as well. Sometimes you get an immediate/in-store discount, sometimes you have to mail away for rebates from the store's HQ or from the product manufacturer (or both), and sometimes you get a rebate on one item on the condition that you buy another. A case in point: during the Windows ME rollout, an ME purchase qualified you for substantial rebates on other software and/or small peripherals. (Most of the "tag-along" software were invariably in their "twilight" years though).

Welcome to the US of A.

* * * * * * * * * *

Despite my misgivings about the abovementioned adverts, I continue to skim them religiously each week because occasionally you come across a great deal. Several months ago, I bought a Western Digital 45gb EIDE hard disk for a friend in Thailand. I bought it on the internet, paying about $190, which I thought was a pretty decent price at the time. Buying it sight unseen, though, I received a perfectly useable but "bare" drive. Apparently, the vendor had bought the drive in a big "lot", and in turn sold it to me "boxless" with no manuals, warranty cards or software. While this is how most hard disks are sold at Panthip Plaza, I was frankly unprepared for this from a U.S. vendor - and would probably have chosen NOT to buy from said vendor if I knew this beforehand.

Anyway, a few weeks ago, this same drive was advertised by one of the local office superstores for a mere $99 (after 2 rebates - one immediate/in-store, one mail-in). This one was a proper boxed item to boot. Bloody wow!

* * * * * * * * * *

Speaking of AOL, allow me to dote on one of my pet peeves a bit. While Microsoft gets most of the criticism for its pervasiveness, in my opinion, AOL deserves a place up there with the worst of them.

In U.S., one can hardly walk into an office supply store or a bookstore without being accosted by a rack of AOL freebie CD's shouting "500, 600 or 700 hours free!" (the actual number of hours being meaningless, by the way, since what you get is simply 1 month free). Prior to AOL's current v6.0 incarnation, there were AOL Gold, Platinum, and Titanium CD's to be found everywhere. Buy a magazine and chances are an AOL CD would drop out. Buy a modem and chances are you'd find an AOL CD nestled inside. While some people may consider crossing paths with an AOL CD equivalent to being spammed, these displays/occurrences are for the most part, "passive" and you can ignore them with little effort.

In truth, most experienced computerists wouldn't be caught dead using AOL - or if they did, they wouldn't admit to it. While I have the same biases, I will admit to having used AOL on occasion, but out of necessity and/or curiosity. The first time, I was in the U.S. when my Thailand international roaming service died. At the risk of losing contact with the mother country for two weeks, I borrowed a friend's U.S. AOL account to keep up. This involved direct dial up. My second foray occurred when I was back in Thailand. I was curious to see what services were/weren't available when AOL was accessed via the web as opposed to a secure dial-up. Okay, been there, done that, enough for me.

As it turned out, another "out of necessity" scenario presented itself a few months ago. The U.S. city I'm currently in has terrible phone lines in many parts of the city and I could never get a modem connection faster than 26.4Kbps, try as I may. I tried calling from several locations in the city, tried changing modems, changing computers, and tried numerous ISP's (free, university and otherwise). Which brought me to AOL. With its great coverage, could it be possible that AOL's line were better and that I could get a decent connect speed? If I could, it might even be worth swallowing my pride and subscribing to AOL, even at (grumble, grumble) $21.95 per month.

At a dead end, I duly dusted off one of the AOL CD's I'd been saving, installed the software (note: when AOL installs on your system, it installs itself EVERYWHERE: in the startup menu, on the desktop, in the quick launch bar, and in the system tray), provided more personal information than I cared to (including my credit card number, but of course), and soon was surfing the net for 1 month free, courtesy of AOL. But, to utter my disappointment, at only 26.4Kbps. No matter how many times I tried it, the result was the same. 26.4.

Sometimes if you make a mistake and you back out of it quickly enough, you can pretend it never happened. Fat chance here. Backing out of AOL is A LOT harder than it was barreling into it. You see, AOL has no online cancellation facilities (intentionally, no doubt). You have to call up one of their operators, who will be given a last chance to implore you to continue. Nope. Wouldn't I like to continue using my free trial until the 1 month period ended? Nope. Did I ... Nope. Okay, thank-you for trying AOL and bye-bye.

Or so I thought. For the next few weeks, I would receive phone calls from AOL "operatives" asking whether I wished to re-enlist. Sometimes the phone calls would come in 2-3 times PER DAY. Although all of these calls were made with exemplary politeness, naturally the more calls I received, the more irritating it got. Besides the phone calls, certain "bait and switch" offers from AOL started arriving in the mail as well. Sigh, it never ends.

Fortunately, it did end. I haven't received anything from AOL in a while now, which doesn't necessarily mean that they've given up. (Ahem, two weeks after I wrote this, guess who I got a call from, peddling their new v6.0 software? And a few more times after that still. I finally wrote them a letter telling them to quit bothering me!) Like a fly that got stuck on flypaper, they've gotten hold of my "footprints" now (i.e. my name, phone number and address). Which goes to prove: before you walk into the unknown, always figure out your exit strategy first.

Copyright © 2000, Thiravudh Khoman