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An informal, stream-of-consciousness reflection on business ideas, events and issues in modern business, modern life and with some specifics to the web-software industry by Paul Tomori, Internet Entrepreneur

Getting Sold Four Times In One Purchase At The Local Big Box
By Paul Tomori
Monday, September 29, 2008 at 14:32:26 (EDT)

It's not enough these days to surrender copious portions of one's paycheck to the big box stores where most of us flock for our gadgets, kitchen appliances and leather sofas - we get upsold repeatedly during the process.

First, there is the initial purchase. Let's say it's a new upright freezer. You have researched the best model for you, you have trekked to several different stores, and now you are ready to lay down your hard-earned cash for the item. You think you have nailed down the best price for the best upright freezer.

This is where the upselling begins. You are offered an extended warranty (a second purchase) for 'peace of mind' on the freezer. When you buy extended warranties, it is like buying an insurance policy in addition to your product purchase. The extended warranty is almost pure gravy for the retailer. That's why they push it strongly and even offer employee incentives to get people to buy the warranties.

Then, if you elect to take advantage of one of those no-money-down-no-payments-for-a-year purchase plans, you end up making a 3rd. purchase of some sort of administrative service so that the retailer will process your financing application. This fee generally ranges from $30 - $100. Call me crazy but $100 to fill out some paperwork?? Especially in light of the fact that the paperwork allows the retailer to close a sale? That's nuts!

The fourth purchase comes later, but still bears a hefty cost. It comes if you decide to let the financing plan kick in after a year by not paying down your deferred purchase cost. In essence, you just bought yourself some money... and it usually ain't cheap. Generally, the interest is retroactive to the date of purchase too and this adds tremendously to your costs.

So, welcome to our modern age. We make leveraged purchases using funds we don't have available now for items that will be obsolete by the time we pay them off using more borrowed money in the future. Multiply this by 350 million people and it sounds like grounds for an economic catastrophe - that is unless the government 'borrows' some money of its own to give us a rescue... or as they say in the headlines, a 'bailout pancake'

How about a return to sound economics on a grassroots level? Let's stop being in such a hurry for everything. For instance, my business plans are stretched over many years and I refuse to look for some ticket to overnight success. My preference is to grow my companies from internal funding (i.e. growth through profits, not loans) and all purchases are made with care for the long-term costs. We have no debt to speak of and while other companies take debt ladders to quicker success, they are also make themselves vulnerable to slippery snakes (i.e. unmanageable debt) that will drop them out of the game sooner than they knew what hit them.

As a rule, I always decline extended warranties and I figure that I have saved thousands of dollars with this stance. Generally, if a product lasts for a year (which is covered by most built-in warranties), it is going to keep lasting for a few more years. After that, it will probably be obsolete anyway. With all the money I have saved, if something actually does go wrong with a product I have purchased, I will be able to finance my own repairs. In this sense, I become my own insurance company against product problems.

As for those financing plans, they're great if you can get them without paying that insane administration fee (just ask - they often will lower your product purchase price in order to cover the admin fee at no extra cost to you), and absolutely for certain, never miss that anniversary of your purchase to pay down the FULL amount of your debt. This will allow you to avoid all the hefty interest charges, you'd otherwise pay.

In my business, with over 30 computers on our balance sheet plus a well-furnished office, a logical approach to our purchases gives us lots of headroom to grow... on our terms... and on our own funding. That's my 2.5 cents. I hope you have enjoyed this little rant.

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