Buying OEM hardware and software, and does this mean the high street model of Dixon/PCWorld is doomed?

I have expressed my frustration with the poor service and the ludicrous prices that one pays on the British high street before. On that occasion I observed that the retail electronics business is even worse than most. Part of this is that electronics is something that a lot of customers do not know very much about, and as a consequence many people are intimidated by salesmen. More of it is that for a variety of reasons it is very difficult to open competing high street stores in the UK, and this leads to rather questionable sales tactics. That subset of the electronics industry known as the computer industry is even worse, at least it is on the high street. The good thing is that the computer revolution itself has also opened alternative channels that are much more competitive.

One favourite tactic is for electronics and computer stores to advertise a product at a genuinely cheap price. However, when you get it out of the box it comes without a cable to connect it to your computer / home entertainment system / telephone socket / refrigerator. The store will have an appropriate cable available, but they will charge you some extraordinary number of pounds for a cable that costs a few pence to make. They make little money if any on the product, but the cable is almost entirely profit. The customer in many cases realises that there is something absurd about the price being charged, but lacks the technical knowledge to buy the right cable somewhere else. And in any event he doesn't know where the "somewhere else" is that he might buy it, as the high street isn't precisely full of alternate retail channels. The answer is that you can buy appropriate things in many weekend and weekday markets, computer fairs, sometimes little shops run by immigrants in downmarket areas of town. And of course you can buy them on the internet, but often the cost of shipping will cancel out the price advantage unless you buy something else at the same time and share the shipping costs. Another option is to go to a large branch of Tesco that sells a lot of goods in addition to food, where a good selection of such items are often found at very reasonable prices. But once again one must understand first what one needs.

(Shipping without a cable is actually more forgivable in high end products where there might be seven different connection options and nobody but you knows which one you are going to use. However, high end products usually ship with the cable for the simplest option. It is low end ones with only one option that most often ship without a cable).

Sometimes things get ridiculous. I have seen standard USB cables that sell for £15, and I have seen standard telephone cables that sell for £8 or more. (Amusingly, in the latter case I also saw a telephone (that in this instance did include a cable) for sale in the same shop for £7).

And it isn't just cables. If you go into Dixons or PC World (a chain of stores that belongs to the Dixons group and devotes itself entirely to computer stuff) then it is pretty normal for prices for large headline products to be vaguely reasonable although still substantially more than you can pay if you know how to shop round (and for prices of sale goods to sometimes be actually good), but for the prices of accessories such as PCI cards, networking hardware, memory and the like to be absolutely outrageous. Such items come in fancy packaging, sometimes look like they are gold plated, and the prices are just ridiculous.

As an example, I have just had to buy a PCI Firewire card for the computer I built recently for my landlady. It was a fairly common problem. She bought a digital video camera (for a good price, but not the latest model), discovered that the only way to connect it to her computer was via Firewire, and discovered that her new computer did not have a Firewire port. When writing this post I initially digressed to explain what the Firewire bus is, why Digital Video cameras often use it instead of USB (although not so much as they used to), why many PCs don't have Firewire as standard, and why the one I built didn't have it. However, this was too much of a digression so I posted it on Michael Jennings Extra). This was no huge problem, of course. I simply ordered a PCI Firewire card (cable included) from one of my favourite online suppliers for £13.99 including postage, opened up the case of the computer and popped the card in one of the PCI slots. No trouble. Quite inexpensive.

However, imagine if my landlady had a computer without a Firewire port. She might well have popped into her local PC World, and explained the problem. What they would have done was steered her over to the section of the shop that sold PCI Firewire cards, picked one off the shelf. This Firewire PCI card came with gold coloured connectors, came in a very fancy looking package, and it cost £29.99. Of course, it did not include a cable. On the next shelf, the salesman would have picked up a similarly packaged Firewire cable with gold coloured connectors, which cost £19.99. So that is £50. And of course, most people are not confident enought to open their PC case and take a bracket off the back of the case, and install a PCI card. So PC World would then have offered to install the card for another £20 or £30 (for five minutes work). So, the upgrade in this case would have cost £70 or £80, about five times what it should have.

It's great if you can get away with that sort of thing.

Hardware and software manufacturers have long gone along with these sorts of practices, and typically they package their products in two different ways to take advantage. There is the "retail" version, which comes in fancy packaging and has connecters that are often gold in colour rather than silver because this looks good, and which costs ridiculous prices. And then there is also the "OEM" (Original Equipment Manufacturer) version, which comes in less fancy packaging (Often just a brown or white box), and is intended to be sold to PC builders and other tech savvy individuals. OEM products always include the necessary cables, screws, etc, because the customers (people who know what they are doing) are people who now how to go somewhere else. For all practical purposes the products are usually the same (although the licence conditions are sometimes different with software), and there are sometimes restrictions requiring you to buy other things at the same time to be eligible for OEM stuff. If you buy stuff on the internet you often get OEM stuff, because people who buy stuff this way know what they are doing and because customers cannot see the packaging anyway. (When "retail" versions are sold on the internet, they are often sold for much the same prices as "OEM" stuff). And if you buy stuff at a computer fair, you once again often get OEM stuff, which is what happens when your customers know what they are doing.

But, in the retail channels, something interesting is afoot. I will keep talking about PC World. In the back of many of the chain's shops, you now find a "component centre" which basically sells OEM stuff. I think the issue was that people like me would walk into a PC World store, and regardless of how quickly they needed it would not pay £50 for a Firewire Card and cable, because the cost was so outrageous. Often though, we would be prepared to pay a little extra for a product right now rather than waiting to receive it over the internet. So, we now have the "component centre" at PC World, sells basically identical stuff to what is sold elsewhere in the shop but without fancy packaging. (The component centre also sells motherboards, cases, power supplies, and other things for PC builders). For instance, they had a Firewire Card with a cable for £19.99. Not as cheap as I would get it at a website or computer fair, but cheap enough that I would probably be prepared to buy it if I needed one in a hurry. (If I was providing service for people's PCs and they needed this installed right now, once again it would be cheap enough for me to do this). A simple Firewire cable was about £5.00, once again quite reasonable, but not the cheapest one could find anywhere.

Presumably, if a not technological savvy person stumbles into PC world, they will be taken to the expensive, fancily packaged stuff. However, rather than turn a technically savvy person away they will now lead him to the component centre.

(I suspect that the component centre is also for such things as smart 15 year olds who want to build their own PCs but whose parents are a little wary about buying at computer fairs and/or over the internet. One can buy a complete set of PC components there for at least no more than the retail cost of an equivalent computer. The prices are still too expensive for a regular PC builder, but they are low enough to not be ridiculous).

Which is smart, if they can keep the two customer bases apart. The danger for their profit model is that their customers who would have bought the expensive stuff will find their way to the component centre instead and will buy the cheaper stuff, and their profit model will collapse. (For this to not happen their customers must remain ignorant). It is a common practice for old businesses to refuse to undercut themselves when new cheaper alternatives come along. Dixons/PCWorld do seem to recognise the threat of cheaper channels, and have responded somewhat.

And if you look at their website, one senses that this is perhaps where the real action is. My suspicion is that PC World have until now been selling very little on their website due to the fact that their prices are too high and people who shop online are more tech savvy and price sensitive than regular customers. For if you go to the website, you now see that this is divided in two the same way the physical store is. As well as a regular website there is a component store website. The sorts of stuff sold in the Component centre in the physical stores are not listed on the main website but are listed on the component centre website. Compare this with this for instance. (That second one is a very good price, actually). For now they have avoided putting the cheap Component store stuff on the main website, partly because in that case customers will type in what they want, see the cheap one and the expensive one, and just buy the cheap one.

Mainly, though, I think they are attempting to avoid having to answer an awkward question, which is "Why are things so much more expensive in your stores than on your website?" Hopefully on those occasions when the sorts of customers who buy the expensive stuff in stores come to a website, they will only see the main website and not notice the cheap stuff at the component website, while the people who genuinely would buy from the component website.

But it isn't going to work. Once you are on the web, everything is transparent. I doubt the separate websites business will last three months. The sites will be combined, and this and the ever growing component centres in stores are going to put real pressure on their business model, even for their physical stores. Which is good.

And the interesting thing is that the web prices seem genuinely competitive in a lot of cases. If Dixons / PCWorld were to make a genuinely aggressive move into the web retailing business that would be interesting. Their brand is well known, and they have a large chain of physical stores that people can take stuff to that doesn't work and/or which they do not know how to install themelves. Using the web for sales and the physical stores for returns and service makes a lot of sense (and not just in this industry). Except that the physical stores are in many instances too big, I fear. They may have to sublet some of the space.