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Online PC buying a daunting task

PC buyers face pricing discrepancies that owe to inventory conditions, unnoticed price changes, and sometimes shady dealings.

Though online shopping is unquestionably a revolutionary way to buy computers, it can present a daunting challenge.

Prospective buyers surfing for new computers need to do their homework, since price discrepancies attributable to inventory management or inattention to PC makers' price changes are rampant. And sometimes it's caveat emptor in the new world of e-commerce.

To be sure, guidance is available from sites such as Price Watch, Computer Shopper from Ziff Davis, and CNET Shopper.com. (CNET: The Computer Network is also the publisher of News.com.) But gaping price differentials and other oddities across the Web loom as potential traps for unwary buyers.

For instance, retailers such as Circuit City and BestBuy simply aren't as diligent as some competitors and sometimes offer outdated information--even on systems no longer available. Only a call to the storefront serves as the final word on accurate pricing, negating the advantages of being online in the first place.

Meanwhile, resellers such as Computer Discount Warehouse (CDW), NECX Direct, Insight, and Creative Computers' PCMall are taking better advantage of the Web than some rivals, offering order status, pricing and product information, and product availability to attract orders.

But every reseller as well as many PC manufacturers can easily be caught flat-footed in instances where new technology makes existing inventory obsolete, leaving in its wake an irrational pricing system. (See pricing chart below.)

"There are so many variables that it can be difficult to find the best product for the price," said Cameron Duncan, an analyst with Associated Research Services. "I can imagine consumers are a little bit taken aback by how much is out there, how much they have to learn, and how to avoid traps when making these purchase decisions. It's hard even if you follow it day in and out."

As an example of straightforward pricing disparity, CDW offers a cutting-edge Compaq Armada 7400 notebook PC with a 266-MHz Pentium II and 13.3-inch display for $3,187 (though ironically it is chronically out of stock at all resellers).

But for the same price, CDW offers the older Armada 7380DMT, which comes with a smaller 12.1-inch display and the aging 266-MHz Pentium MMX chip (although it does come with a built-in 33.6-kbps modem).

NECX Direct offers the 7400 for $3,249 and the 7380DMT for the same price; MicroWarehouse sells both for $3,199.

One reason for the price difference between old and new systems lies in the fact that previous-generation technology costs more, and during the transition to newer technology, component prices have continued to drop significantly. In other words, resellers bought the older systems at prices above the cost of the newer units.

All else being equal, however, there are significant price differences between equivalent systems due to resellers' strategies.

"If a reseller believes a particular technology is hot, they may take an aggressive inventory stance," explained Brian Hicks, vice president of customer programs and operations at Insight.

One strategy is to buy up most stock of a particular model, essentially cornering the market, Hicks said. As a result, sometimes a reseller can price the model aggressively in the early stages of its life and then move the price up as supply contracts.

That strategy can backfire if demand doesn't materialize. It doesn't take much in the way of miscalculation to "wipe out your margin in other products," Hicks said.

PC Mall faces a different kind of problem. At this site, a Hewlett-Packard OmniBook 7101 notebook PC with 266-MHz Pentium II and 6.4GB hard disk drive is listed at $5,999, while the 7100 with the same processor and a larger 8.1GB hard disk drive goes for at $4,437 at CDW and $4,582 at Insight.

When asked about the $1,500 price differential between HP's expected price and PC Mall's price, a PC Mall sales associate contacted by CNET News.com said the systems may have been purchased from HP at a higher price than the current list price, forcing them to sell at stratospheric prices. PC Mall could not be reached for official comment.

Particularly for notebooks, prices are tied to a few critical variables. Other notebook models seem to reveal price discrepancies brought about in part by a PC maker's distribution strategy.

"It's a function of a number of things," said Charles Smulders, a Dataquest analyst. "It can depend on the size of the vendor, the length of time the reseller has had the product, the point within the lifecycle of the product, or the cost structure of the reseller themselves."

"Because of the proprietary nature of notebooks, they're more susceptible to the ebb and flow of inventory, which will cause greater variations," Smulders said.

Toshiba, which offers several different models of each of its notebook lines, is a prime example. The Toshiba Satellite 330 CDT (with 266-MHZ Pentium MMX processor, 32MB of memory, a 4.1GB hard drive, and a 12.1-inch display) is offered for $1,857 at BuyComp, $1,969 at CompUSA, and $2,385 at Egghead, an online-only reseller. The Satellite 330 CDT has an estimated retail price of $1,799.

"Toshiba offers an estimated street price but does not tell its resellers what they should sell their product for," said a Toshiba spokesman. "Their profit, and what they sell it for, is up to them."

Toshiba's notebook pricing also has been affected by the company's efforts at more efficiently managing inventory in the channel, Smulders said, referring to the network of resellers that offers computer sales and service to both individual and business customers.

"Toshiba has spent the last six months of the year bringing down the number of shipments and trying to sell off inventory, which tends to bring about a variety of pricing," he noted. "If your forecast [for demand] is inaccurate, then you have to flush all that inventory through the channel by reducing pricing, and that makes for erratic pricing."

Another explanation for higher prices could lie in a given reseller's overall strategy for selling. Some companies try to lower their cost structure by selling only over the Web. Such firms typically don't store their own inventory, instead relying on third parties such as Pinacor.

Done your homework?
Manufacturer and Model Number Vendor Price
Notebooks    
IBM ThinkPad 600 PC Save

Cyberian Outpost

IBM
$3,705

$4,319


$4,734
Compaq Armada 1598 DMT Micro Warehouse

Compaq

Egghead
$2,399


$2,499

$2,850
Toshiba Portege 7000CT BuyComp

CompUSA Online

Insight
$2,788

$2,959


$3,019
Toshiba Libretto 70CT 1stMicro

CDW

State Street Direct
$887

$997

$1,029
Desktops    
Compaq DeskPro EN 6333X/6400/CDS PC Save

CompUSA Online

Virtual World
$1,235

$1,419


$1,692
IBM PC 300 PL Hardware Street

PC Mall

IBM
$1,875


$1,999

$2,341
Toshiba Equium 6260 PC Zone

IC-Direct

State Street Direct
$899

$1,399

$1,713
Note: Virtual World prices include shipping and handling charges. Source: Various.

While almost all online-only resellers operate legitimate and ethically run businesses, consumers need to be aware that some vendors are crossing the line between leveraging an efficient online business model and exploiting the immediacy and anonymity of e-commerce.

Some smaller online vendors that do not enjoy economies of scale may advertise a low price that's too good to be true, then later add exorbitant shipping and handling charges, miscellaneous surcharges, credit card hassles, and in some cases, counterfeit products.

"Customers are getting ripped off, because resellers are playing all these games," warned Bejan Aminifard of TechStore. "By the time they get to the final purchase page, the customer finds out they have been nickel-and-dimed to death."

With the advent of the electronic storefront, it is sometimes difficult to discern the legitimacy of an e-commerce Web site, noted Nathan Brookwood, another Dataquest analyst.

"Those kinds of practices by small resellers are not that uncommon," he said, adding that vendors with shady business practices are quickly exposed on Internet newsgroups and Web sites such as Reseller Ratings.

Under one scenario, resellers charge the customer's credit card to pay for the order from the distributor, or wait to process the order until they can buy in bulk. Often, the order will reach the customer after lengthy delays.

"Some vendors don't keep [physical] inventory," said Dean Kent, former owner of the now-defunct Real World Tech, who wrote an editorial about such scams, noting that this type of "virtual warehouse" is different from legitimate vendors who offer real-time inventory data on their sites.

"They charge the card as soon as the order is placed, and use your money to buy the product," Kent added. "People tend to be a lot bolder when they're not facing you directly."

But more often the explanation for the difference in prices is more straightforward: information on the Web is sometimes not updated often enough, especially if a company doesn't actually sell over the Web.

For example, as of September 18, Compaq cut the price on Presario 5020 systems with the older, "cacheless" 300-MHz Celeron and 64MB of memory to $1,049. The Presario 5050, featuring the faster 333-MHz Celeron with integrated cache and 96MB of memory, was given a list price of $1,299. Cache is secondary memory that speeds the operation of the processor.

At Circuit City's Web site as of October 1, both systems are offered at the same price, even though the 5050 is clearly the better deal. A call to a Circuit City store revealed the price of the 5020 is $1,099, and the price of the 5050 is $1,299. Circuit City did not return calls requesting comment.

CompUSA, the nation's largest computer retail store and an online merchant, lists the 5020 on its site at the correct price of $1,099.

Unlike Toshiba, Compaq provides retailers with a suggested price, and from that point on, the retailers mark up that product based on their desire to run a profitable business, said a company spokesperson. Compaq posts suggested retail prices on its Web site so consumers are able to cross reference, and the information is updated as soon as pricing information is changed, he noted.

With so many systems for a store to track, some slip through the cracks. "I tend to think it is a more innocent mistake than some dubious attempt to get more margin dollars out of consumers," said ARS's Duncan.

One such system is the Packard Bell S616 with 233-MHz Pentium MMX, which is advertised on the BestBuy Web site. Although the processor technology is clearly out of date, the system is selling at the relatively high price of $999 at a limited number of stores.

One store in California contacted by CNET News.com said it hadn't had the system in months, but ARS's Duncan had seen the system recently in a store in Texas. BestBuy did not return calls seeking official comment.

As another example, at CompUSA, a Packard Bell 835 with the older, 300-MHz Celeron and 32MB of memory is priced at $999, while the Packard Bell 945 with the improved, 333-MHz version of Intel's low-cost chip and 64MB of memory but a slightly smaller hard disk drive was priced equivalently.

In short, there are many variables affecting the pricing of systems, including whether or not a company is selling or just advertising systems on the Net, how quickly their computer systems can add updated pricing information, and inventory levels of older systems.

Finally, while the Internet and Web-based retailers have brought bargains to consumers' fingertips, larger "brick-and-mortar" retailers that enjoy economies of scale also may offer-rock bottom prices, Dataquest's Smulders said. "Web-based retailers offer a very efficient cost model, but some of the larger resellers can sell larger volumes, which can also result in lower prices," he noted.

"It comes down to this: buyers should shop around," he said.