What is the True Cost of Electronics?

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What is the True Cost of Electronics?

Electronics are some of the most expensive consumer products available. Everyone wants the latest and greatest TVs, game consoles, tablets, and smartphones. But what are you actually paying for when you shell out the cash for a new device?

Product Development – Intellectual Property

Research and development is a big part of the true cost of any electronic gadget. Your sleek new smartphone may look like a simple thing of beauty by the time it reaches your hand, but just think: this small device went through a multitude of design changes and product testing just to get the OK to bring to market.

Next, consider who did the designing and testing. Teams of engineers, designers and researchers poured over every aspect of that tiny device for months or years. Consider the expertise required for the ability to design and create these products. Protecting the intellectual property requires paying excellent salaries so that people will sign away their rights to their brainchild for the future good of the company. Lawyers and human resources personnel are also involved in this process. All in all, this is an invisible but unavoidable part of any device purchase.

Materials and Construction

Keeping a smartphone as our example, many people look at it and shocked at the high price. After all, it’s a tiny thing with a few circuits, some computer chips, glass and aluminum. Even the silver deep inside the smartphone is a tiny amount, a few dollars‘ worth, nowhere near the hundreds that make up the purchase price. In general, Apple and Samsung use around $200 worth of materials in the construction of their phones.

Then comes construction, the work itself of bringing the separate components together into one amazing device. Whether done by hand or by machine, these little devices are labor intensive. For example, glass is cheap by any standard. But making glass evenly thin and perfectly smooth requires extreme skill whether it’s done by a human, robot, or a combination of the two. (To be clear, by combination of the two, I don’t mean half man, half robot). All robotic machinery requires an actual people to develop and maintain it so that the work can proceed. None of this is cheap.

Apple famously controls its entire supply chain to avoid reliance on outside producers and reduce costs. Some companies have their electronic components manufactured abroad, but assembled in China due to the lower labor costs. Others do a little of both in an effort to keep costs down and quality high.

Middlemen and Retail Mark-up

Moving the product from point A to point B costs money as well, and that cost is passed on to you. This requires the work of many people across several industries such as packing, shipping and trucking.

Selling the products requires marketing and sales networks. Advertising and creating buzz around any particular product is extremely expensive on a large scale. Everyone involved, whether it’s moving or selling the product, is receiving a salary.

Of course, when it finally arrives in the store, there are retail mark-ups. The store owner has retail space to rent, bills to pay and a salary to earn as well – all of these margins come from additional padding on the price you pay.

Additional Factors Affecting Cost

For many new products fresh on the market, most developers expect profit margins to be quite slim. For some products, the product is sold at a loss or break-even price – take video game consoles, for example. Many console producers have very slim profit margins on their devices, with the expectation to make up the difference with video games, media, apps, and add-ons purchased through the console.

Retailers must also be careful when applying discounts and sales to electronic devices – because the margins are so slim, they usually can‘t afford to provide large discounts unless they‘re liquidating inventory that‘s been supplanted by a newer model. They may be hoping to break even by selling the product at close to cost. Generally, you can save a bit of money by researching some sites that offer coupon codes, like this one
– but don‘t expect to get the same sort of large price reductions that you would on similar retail products.

Smartphones and telecoms are another great example. On the retail end, AT&T loses money on smartphone sales in their stores. They make up for it with 2 year contracts and additional sales of things such as headphones, speakers, cases and covers.

So the next time you pick up your smartphone or sit down to play a game on your Xbox One, think of the many people involved in turning this product from raw material a finished device designed for your use. It might give you a new appreciation for that hefty price tag!