There have been many articles written on the increased demand for cheaper products by consumers. There have also been other articles written urging people to keep away from the lower end of the washing machine market due to the almost built-in obsolescence to the product. The result of this is that many people have to write-off a cheaper machine within the first two years. One impact of this is that they have to go out and spend more money to replace the machine, plus the major impact on landfill sites in the UK. Most of us would like to avoid both of these consequences.
To help you understand the cost breakdown of a cheap washing machine, the hidden costs are shown below, in an approximate manner, but enough to show how much money you are actually spending on the washing machine itself. It is fair to say that the examples shown below can be applied to all large electrical appliances.
For the purpose of this exercise, we will use a £200 washing machine as the cost example.
Number 1 – Tax
As in the UK the Value Added Tax is included in the product cost, we tend to overlook the fact that 20% of the purchase price of your goods goes directly to the Government. You are now, for all intents and purposes, paying £160 for your £200 washing machine, as the Government has taken £40.
Number 2 – Logistics and Delivery
Logistics covers both storage and distribution. Once your machine has been manufactured, whether in the UK, Europe or further afield, costs are incurred to ship the goods from the factory to a storage warehouse, and from there delivery to the retailer.
In most cases, washing machines are shipped in large containers. To break the costs down you need to work on up to 150 washing machines to each container. The container will cost up to £2000 for shipping – this can be broken down to about £10-15 shipment costs per machine. You are now paying between £140-145 for your £200 machine.
Number 3 – Retailer Margin
This does vary between each retailer, but in order to exist they have to earn from each appliance they sell. This margin can also be levied on the size of the retailer and how many £200 washing machines they expect to sell in a twelve month period. Some retailers put a higher mark up on their goods, but for the purpose of this exercise we will use an average cost of £25 per machine sold. This now means you are paying £115-120 for your £200 machine
Number 4 – Servicing and Warranty Costs
When you purchase a washing machine you always have at least one year’s manufacturer’s warranty for parts and labour. The cost to the manufacturer for providing this service can be enormous. As we are looking at a £200 machine, there is a strong likelihood that you will have problems during the first year, needing to call on the Warranty.
In order to honour this Warranty, the manufacturers must have a Call Centre to deal with all the calls, plus an engineering force in order to honour the Call Outs. Many manufacturers outsource this service but the costs are still very high.
Again, for the purpose of this exercise, we will call it a cost of £12.50 per machine sold. This now means that you are paying between £102.50-108.50 for your £200 machine.
Number 5 – Factory Costs
Most factories levy a margin cost and, in this instance, we will call it an average of £12.50 per machine, whatever the brand. This now means that you are paying between £90-96 for your washing machine.
Number 6 – Actual Production Costs
This greatly depends on where the machine is being manufactured, what type of components are used and, to some extent, the manufacturer. This, however, comes out at an average breakdown of between £60 and £80. Quite sobering when you think of your original £200 how much is actually spent on building the machine itself.
We are all generally aware that there are hidden costs in the sales price of any item, but it is very sobering to see in black and white how very little of your total outlay of £200 is actually spent on the machine itself.
Obviously this example is only based on the cheapest end of the market, but these costs are also included in the mid to high range products as well. However, what you need to remember is that the actual costs of manufacturing the washing machine will be much higher, as the components will be of a much higher quality. Also, most of these mid to high range machines are generally manufactured within Europe, which will reduce the shipment costs.
If you want to have a washing machine that will give you good service, minimal mechanical failures and last for many years then you must pay much more than the £200 washing machines at the lowest end of the market. From an economical point of view, this will work out much cheaper over the life of the machine. For instance, a good machine will last between 8-10 years, whereas a cheap machine will last for only about 2 years and will cause your problems with repairs. The finances speak for themselves.