Study urges FTC to require new industry standard to disclose hidden variable expenses
Washington, DC (October 5, 2010) – Once consumers buy a vacuum cleaner, they are often unwittingly locked into paying much more for expensive accessories required for its operation, including bags, belts and various filters, according to a study conducted by TeleNomic Research LLC and released today by the American Consumer Institute.
“Most vacuum manufacturers are systematically leveraging hidden-cost business models to “clean up” at the great expense of consumers,” said Stephen Pociask, president of the American Consumer Institute. “Unfortunately, it is difficult for consumers to identify these hidden costs, leading some consumers to buy cheaper and lower-quality brands and models, only to pay much more over several years.”
Pociask said the Federal Trade Commission should require manufacturers to disclose the variable costs of accessories and repairs at the time of purchase to give consumers better information to compare brands and models. He said this can be accomplished by developing an industry standard – a Vacuum Cost of Ownership (VCO), which would provide consumers with more comprehensive information on the total cost of owning and operating a vacuum. In turn, he said, this will encourage competition in the market for vacuums with lower variable costs.
This study provides evidence that alternatives to the razor and blades business model could produce significant savings for consumers. For example, among lower-priced vacuums and those vacuums rated lower in performance and quality by a survey of repair shops, the Shark Navigator, while the most expensive model in its class, had no variable costs and provided the lowest cost-of-ownership over a five-year period (see figure 1).
Similarly, among the moderate and higher-priced vacuums and those rated highest among repair shops in terms of quality and performance, Dyson and its divergence from the razor and blades business model had no variable costs and provided the lowest cost-of-ownership over a five-year period. In short, vacuums with no variable costs tend to provide the greatest savings to consumers (see figure 2).
The study calculates a five-year VCO for popular U.S. brands, and it also finds:
- The variable cost for accessories and repairs incurred to operate vacuums is often greater than the upfront purchase price. In one illustration, the five-year VCO was estimated to be seven times the price of the vacuum.
- Lower-priced vacuums (less than $200) tend to have higher hidden costs and significantly lower quality. One consumer may buy a low-end $50 vacuum, only to spend $300 in additional costs over the first five years of ownership.
- Frequent replacement cycles for lower-priced vacuums can add up to more than higher-priced vacuums with no hidden costs.
- Higher-priced vacuums (more than $200) tend to have lower repair costs, but many still have high variable costs, resulting in hundreds of dollars of hidden expense.
- The price for belts (from $1.44 to $15.68), bags (from $1.25 to $5.00) and filters (from $1.09 to $55.00) vary widely.
The study concludes that consumers may be much better off paying a little more upfront to buy vacuums with low or no variable costs.
“The added expense for vacuum accessories and repairs is a classic example of the razor and blade model. Better informed consumers and increased competition is a recipe for maximizing consumer benefits and savings,” said Pociask. “For consumers, the current system of hidden costs provides neither. “
A complete copy of the study click here … final-vco-study-final.