Re: Any tips for a consumer about to purchase a system & contract?

["Robert L Bass" <robertbass1@xxxxxxxxxxx>]

> I don't know about that Robert.  Add in
> labor and overhead and parts and the extra ten dollars a month for a typical
> 3 year contract does not cover the installation...

I'm not speaking about profitability.  My comments only regard whether these "free" system sales are a good deal for the consumer.
Many times they are not.

> The advantage to your arguement of course
> is that if the customer finances the system
> themselves they can often get the more
> comprehensive system that is almost never
> offered as part of a zero down deal...

Precisely.

> There is also the value of their time...

I'm not certain what you mean by that.

> If they put it on a credit card the interest
> is exorbitant, and if they arrange seperate
> financing then they have to spend a great
> deal of their time arranging it...

That depends on the consumer's situation.  Most folks can get a consumer loan in 24 hours with a simple, 1-page application at their
regular bank.  My bank even offers near-instant loan processing and approval online via their website.  The whole application
process takes less time than it does to throw an "authorized dealer" out the door.  :^)

> Time during which the customer who falls in
> this category could easily have made more
> money at their job than they saved by
> arranging their own financing...

Hmm.  Let's suppose that the consumer
takes the typical "free" system for $99
(usual mandatory charge to install the $2
RJ31X jack).  He wants more protection
so he has the dealer add two extra motions
and three doors.  They charge him $185
each for the PIRs and $70 apiece for the
doors.  These are typical of prices
customers have cited in questions here.

He also wants fire protection.  Four smokes
are installed at $155 apiece.  Now his
up-front cost is roughly $1,400 and he gets
to pay $45 a month for 36 to 60 months,
automatically renewable in 1, 2 or 3-year
increments (the price never drops unless
he threatens to go elsewhere).

If he stays only the minimum $36 months
(some companies now insist on as long
as 60 months), he pays a total of $3,020.
If ADT exercises the right to raise the
rates annually as spelled out in their
contract and as they have done in the
past, he actually ends up paying
significantly more.

Now instead suppose he decides to buy
the system outright.  Our example has a
panel, keypad, inside siren, 3 PIRs and 5
doors.  Many independent dealers would
install such a system for around $1800.
Obviously this varies by region, but it's a
fair median.  The alarm company charges
$20 a month for monitoring.  Over 36
months that's $720.  With the system
purchase his total outlay is $2,120.

Here's the zinger in all of this.  Remember
the free system?  It actually cost the guy
$1,400 cash up front PLUS the over-priced
monitoring fees.  If he paid for it up front he
would have spend only $400 more at the
time.  What he's actually "financing" is
$400 at a monthly cost of $25 for a period
of 36 to as much as 60 months depending
on whose "authorized dealer" program he
chose.

That amounts to paying between $900 and
$1,500 to finance $400.  Oh, and what
about that time he would have to spend
arranging financing?  Remember the initial
$1,400 he wound up paying for the "free"
system?  He probably went to the bank to
borrow most of that, too, unless he just
handed them his credit card -- in which
case he's also paying 18% a year on the
initial purchase.

Don't misunderstand me on this, Crash.
I'm not debating the profitability or the
merits of the "free" system deal from the
alarm company's viewpoint.  I'm only
saying that from a consumer's position
these are almost always a bad deal.

Let's look at another possible scenario.
Say I decide to have the local authorized
dealer install a "free" system in my home
in Sarasota (there, I said it; now Cracker
doesn't need to run a DNS on my headers
to figure it out :^)).  I go for the minimum
protection that they offer with these
deals -- 2 doors and 1 motion detector.

I pay the $99 fee for the $2 RJ31X jack
and then pay $40 (no fire) a month for
60 months.  That's roughly $2500. I
could have bought that same system
for $600 installed and paid $20 a month,
or $1800 total.  I end up paying what
amounts to $700 interest on a $600
"loan".

For comparison, I could have borrowed
the $600 from my bank at 6.5% interest.
Over 5 years that would cost me roughly
$104 in interest payments.  The "free"
system costs me almost seven times as
much interest as a simple consumer
loan.

Suppose instead I "financed" the $600
purchase with a high interest Visa card
at 18% a month.  Interest on the $600
over 5 years would still be only $314 --
less than half the "interest" I would
pay if I signed up for the "free" system.

> There are of course all kinds of
> exceptions.  Those who have a standing
> line of credit our a pre-existing home
> equity line of credit, and those who can
> simpley pay cash.

Yep, but I prefer to reserve equity for
more significant purchases.  For example,
I'm having my roof replaced at a cost of
roughly $40,000.  I just refinished the
pool, spa and 2200 sf lanai... $28,000.

If I had hired an "authorized dealer" to
do the work it would cost more for
the "monitoring" than my mortgage. :^)

> Anyway, whether we like it or not it
> is a valid marketing model...

Well, it is a marketing model.  How
valid a model is a matter for the end
user to decide.

> I personally do not like it, and I
> readily recognize the FACT that it
> is often abused, but its a valid plan
> and there are good arguements for
> it to exist.

I respectfully disagree.  You are not
the kind of guy to take advantage
of your clients nor am I.  We both have
very different marketing models -- you
cater to custom installed market and
I sell to DIYers.  Both are valid marketing
models -- far better for the buyer than
these so-called "free" system deals.

--

Regards,
Robert L Bass

=============================>
Bass Home Electronics
941-866-1100
4883 Fallcrest Circle
Sarasota · Florida · 34233
http://www.bassburglaralarms.com
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