Do you "Get What You Pay For" in Cable?

Prices, Costs and Cables

"You get what you pay for" is of course an old and familiar saying; whether it's true or not depends upon circumstances. We are all familiar with the fact that it often costs more to make higher-quality products than lower-quality ones. We have all, probably, made the mistake at one time or another of using a product's price as a way of gauging its quality relative to other products. When it comes to audio and video cable, do you in fact "get what you pay for"?

This article was prompted by a number of questions from customers, which, broadly speaking, come in two types. First, there are the customers who have asked us, "why is your cable so inexpensive compared to the brands I see in the stores? And do I need to worry about that?" or who have said to us, "you can't honestly expect me to believe that your $12 digital audio cable performs as well as a $300 cable from XYZ company!" Second, there are the people who ask just the opposite: "why does this component video cable cost so much more than other cables I can buy online? And how do you justify charging so much for it?" While there is always some temptation to refer these inquirers to one another and let them fight out the question whether we're ridiculously cheap or colossally overpriced, we have always resisted that; but the subject does bear discussion. Why do cables -- ours or anybody else's -- cost what they do? What is the relationship, if any, between cost and quality?

Retail, Wholesale, Manufacture--What is the Real "Price"?

The first subject we have to address is the relationship, or perceived relationship, between cost and value. We all know that as a general rule, it costs money to build quality; better materials, better processes, better quality controls all tend to increase the cost of manufacturing a product. In many markets, the costs of production are very accurately reflected in the price of product at retail, and as a result, it is common to use the price of a product as a sort of mental proxy for its value. This habit makes for very interesting consumer behavior; sometimes people are very excited to buy something expensive at half-off, when something equally good is available for still less, but is not "on sale." The "original" price is regarded as a good stand-in for value in deciding what represents a good buy.

Audio and video cable retail, and even wholesale, pricing in the consumer market, in many cases, does not accurately represent the underlying costs of manufacture. Why is that? There are a number of factors. First, some vendors simply have higher costs than others. Internet retailers do not have to rent retail space in high-traffic areas, and typically do not have to put their product in high-cost retail display packaging, for example. Some vendors are buying direct from manufacturers, while others are buying products in distribution from wholesalers who buy it from importers who buy it from the manufacturers. Some product lines are favored by big-box retail stores because the manufacturer or distributor enforces pricing agreements which prevent the retailer from being substantially underpriced by competitors, and because the product offers excellent retail margins which make up for the poor markups on consumer electronics generally (have you ever wondered why salesmen try so hard to sell cables and extended warranties?). Some products have widespread name-brand recognition, and can therefore command a higher price, while others are relatively anonymous. And overlaying all of these considerations is the fact that the customer is unlikely, if he doesn't work in the wire and cable industry, to have a really good, accurate idea of what the production cost of the product is likely to be, or what the characteristics are that would distinguish a good from a bad product; this opens all manner of opportunities to build perceived value without necessarily enhancing the actual value of the product.

And then there is the "high end." For reasons which have more to do with market psychology than with engineering, there are and likely always will be brands of audio and video cable which claim extraordinary, special performance beyond anything achievable by mere pedestrian varieties of cable. It's not hard, if you are willing to spend $1000 on an HDMI cable, or $25,000 on a pair of speaker cables, to find a vendor willing to provide products at those price points. And who would not want to be that vendor, when the customer is eager to fork over the money? The margins on products like that are fantastic.

The surprising thing is that, while the ratio between the highest and the lowest price in the market may be as much as a thousand to one, the ratio between the manufacturing costs of the same products may be much, much lower. For example, the very cheapest RG-6 type coaxial cable available from a Chinese vendor gets down into the range of about four or five cents a foot at wholesale; below that, it's very hard to make the cable at all, because copper and plastic do cost something, and someone's got to have access to the expensive, maintenance-intensive machines that draw the wire and extrude the plastic. The most expensive RG-6 cable on the professional market, used for high-bandwidth professional digital video applications, is something like Belden 1694A (someone may charge a penny or two more; but competition in the professional market is fierce, and there's no room for "high end" pricing here), which can be had from a distributor for under 35 cents a foot. That high price reflects a whole range of improvements over the cheapest Chinese-made product: the machinery required is more costly because complex in-process monitoring is essential; it has to be rebuilt, retooled, and recalibrated far more often to maintain tight tolerances; the amount of copper in the cable is much larger; the workers who run the machinery are more closely trained and supervised, and are paid wages at American, not Chinese, levels; and the testing the cable must pass to be released for sale is much more stringent and is run on every spool, not just on the occasional production sample. So a cable produced for the most exacting demands of the professional market costs perhaps as much as ten times what a cable produced at the lowest possible cost does; and once the factory has spent that much, there's pretty much nothing left to spend money on that will make the resulting cable any better at doing what it does. It is, of course, still possible to elevate costs by all sorts of odd modifications. One could use silver wire; one could use a more expensive Teflon dielectric when polyethylene would be both cheaper and better; one could spend money on fancy-looking sleeving and labeling; but these changes would not improve the underlying product quality, which has already reached its zenith at under 35 cents a foot at the wholesale distribution level.

To the extent that a person can validly use the cost of the product as a proxy for its value, it is this production cost--not the retail pricing--that is relevant. Costs of marketing -- advertising, packaging, enhancements to product appearance to improve shelf appeal, distribution -- none of these add real value for the end user except to the extent they make the product easier to find and buy. But in the audio and video cable marketplace, the cost of production of cable is in many cases completely unhitched from retail pricing, which makes retail pricing a very, very poor indicator of value.

What is Quality?

Value for money of course depends on product quality. But what is product quality? That in itself is a slippery subject which depends on a variety of considerations. It depends primarily on the particular application, because cable failure operates differently, and is sometimes more and sometimes less likely, in different applications.

One extreme case would be, for example, a short run of S/PDIF digital audio cable. The required bandwidth is a few Megahertz, which makes for a long wavelength. The required impedance is 75 ohms, but in a short run relative to wavelength, the consequences even of a rather bad impedance mismatch may be meaningless -- as was demonstrated by one fellow who, a few years back, posted on the web about his experience with using a "Digital Coathanger" to hook up his digital audio, which worked perfectly. Now, if a rusty coathanger can carry all of the bitstream from point A to point B, and the signal can be reconstituted without bit errors (mind you, this was a short run, and results at longer distances might be very different), why are there $500 3-foot digital audio cables on the market? Well, as we've said, many of these things have more to do with psychology than with engineering.

But there are other applications where cable quality is much more significant. We have had numerous experiences with customers reporting ghosting or ringing on cheap Chinese component video cables, which clears up with substitution of a high-quality American component video cable. We have had any number of reports of long HDMI runs which would not work properly with one cable, and which did work with another. There are many cases where poor shielding on cheap RF cable allows multipath interference, which a more heavily-shielded RF cable clears up. And so while cable quality may be almost irrelevant in one application, it may be highly relevant in another.

None of us want to own cables for the sake of cables--few of us, anyhow. Most or all of us want to own cables to perform a function, and if they perform that function adequately well, we will not think about our cables much--or at all. If we get to that point, without overspending, then we need not think about cables until reconfiguration or new equipment in a system requires us to do so. In some cases, the cheap Chinese stuff will do everything we ask of it; but the fact that it does so in one situation does not mean it will do so in all situations.

Why Do Our Cables Cost What They Do?

In our case, the underlying reasons for our prices are fairly straightforward, and can be researched by almost anyone with a computer. We publish the names of the cables and parts we use, and for many of our products, these components are readily available for sale on the open market. While we do receive preferential pricing on components because we buy large quantities, that preferential pricing doesn't amount to nearly as much of a discount as people seem to generally expect; the cost we pay for parts is not far from the cost you would pay for them if you bought spools of unterminated cables and boxes of connectors from online distributors. And our ability to control pricing on finished product is very limited; if we decided tomorrow that we ought to get twice as much money for Belden 1694A cable assemblies as we now do, our customers would very quickly discover that there are numerous places to buy the same things from other cable assembly houses, and numerous places to buy the parts for self-assembly of these cables.

Similarly, for goods assembled by others which we resell, we face an intensely price-competitive market. HDMI cable using Copartner cable stock, for example, is probably the most common type of HDMI cable product on the market, available from hundreds of vendors. While some of those vendors mark the product up aggressively, and many of them private-label it and represent it as their own special formulation, others sell it under generic jacket lettering for bargain-basement prices, and our pricing reflects that competitive situation; we take less margin on these cables than anyone, anywhere.

A few products are truly unique to us, and while the underlying costs might be guessed at, they're not publicly known. Belden-based HDMI cables are a good example. But here our cost model is very much the same. We take the costs of bulk cable, the costs of termination, and the costs of bulk-shipping this cable to and from an assembly house, and we add it all together and apply a cost-based markup. While the product is unique and we "could" charge whatever we want for it, we also have to make it reasonably competitive with other HDMI products, and that prevents our being able to take a more substantial markup despite the considerable logistical headaches and inventory obligations which a product with such long lead times imposes.

So, a summary answer to the two questions about our prices which customers often ask:
Why Are Your Prices So Low? -- because our prices reflect, quite accurately, the underlying cost of manufacture rather than any marketing advantage like placement in high-end retail stores or name-brand recognition.
Why Are Your Prices So High? -- because quality does indeed cost money to make, and Chinese cable assemblies cost so little to import that they retail for less than the wholesale cost of the parts of American-made broadcast-quality products.

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