[Elecraft] Why Upgrade (Was: Re: New K3 Syn)

[Barry Baines]

Dave:

I believe we're pretty much in agreement on this...

> On Mar 3, 2015, at 1:51 AM, David Gilbert <xdavid at cis-broadband.com> wrote:
> 
> You need to research the concept of the "time value of money."  As I said before, if the benefit is useful to you now, by all means buy the upgrade now.  If it isn't, it simply becomes a race between inflation and potential increases in cost whether or not it makes any sense to do so.


Inflation and potential cost increases are indeed components of "time value of money" as well as what is the expected value of the radio in the future?  I did not use that phrase, but the concept of "time value of money" includes expected inflation/cost increases as well as the projected "price" for an item.  I also made the initial presumption that the "widget" would be purchased in any event in the next couple of years and installed in the radio;  I wasn't suggesting that the decision to purchase in of itself is the proper one to make. 

Please keep in mind that "Time Value of Money" basically states that a dollar today is worth more than a dollar tomorrow.  The longer the horizon, the less valuable "future money" is worth in today's environment;  that is why future earnings are discounted when estimating the value of the same dollar amount after taking into account any potential future income stream from interest or other revenue generator using those same funds.

In today's world where current interest rates are almost non-existent and there is the potential for future price increases, and assuming that the purchase decision has been definitely made ("I'm going to buy this either today or next year") the "time value of money" concept suggests that if you have the funds, buy it now rather than later because of the likelihood that your dollar will buy you less in the future than today.

>  Everything else you said is simply a rationalization.

EXACTLY!  Everyone implicitly or explicitly makes purchasing decisions based upon a variety of factors and considerations and we all attempt to organize ("rationalize") potentially disparate information in a way that makes sense to us.  These may include:

1. Emotion.  "I gotta have one of those!" or "The joy that I get from this is worth the price."
2. Utility.  "The benefit in terms of how I use my radio will be enhanced by this widget by x%."
3. Cost/Benefit Analysis.  "The cost of the widget is less than the perceived value of using this widget".
4. Future Value.  "My equipment will be worth more to someone else if this widget is included."
5. Future Return.  "When I sell my radio, the incremental revenue gained by including the widget will be greater than the cost of the widget" or "When I sell my radio, the incremental revenue by including the widget PLUS the value of the benefit of using the widget while I owned it is greater than the cost of the widget."  
6. Liquidity.  "Can I afford to buy it now given other purchasing needs that may have a higher priority?"
7. Alternative Choices.  "I have only $xxx to spend on my amateur radio hobby.  Is this the best way to use my dollars, or are there other products that will fill more important "needs" than this one?"  

This last consideration notes the need to prioritize purchasing decisions. One definition of economics is roughly "how allocation of scarce resources is done in a world of unlimited wants."  Our pocketbooks are not deep enough to cover all "wants"; everyone has to prioritize which "wants" are met based upon their own criteria.

Against these "rationalizations" is whether "future reality" meets our expectations.  Since no one can predict the future, we all make financial estimations based upon past experience, observing current conditions, making assumptions about the future, and perhaps "hope." We're always taking "bets" that our ability to predict future outcomes will produce a better result than a different decision. 

So everyone will come to their own conclusions and there is no universal "right answer".  My response below was simply meant to highlight one possible approach to the question you originally asked ("Please explain the advantage of spending all that money now instead of potentially spending it several years from now when you might ... might ... want to sell the rig"), taking into account both the "cost of money" as well as how we might view depreciation and relative value of a widget to the purchaser today and the future buyer in a couple of years.  I also noted that selling a rig has its own considerations and that Elecraft's process of product improvement may well allow the current owner to benefit from those enhancements and not sell the rig in order to gain the latest benefits in a different product.  In other words, generally speaking it is usually better to pay for incremental improvements in a rig that is already paid for than to sell it used (at a discount) and purchase a replacement (new at full retail price) unless the new technology is such a game changer that the current value of current products are wiped out.

Clearly this new "widget" has generated lots of buzz.  And those that believe the cost of the new widget is "worth it" will buy it now because they believe it will bring significant benefit.  If one doesn't see the value of this widget relative to other purchasing choices, they will defer on it. 

FWIW & 73,

Barry
WD4ASW 


> 
> 73,
> Dave   AB7E
> 
> 
> On 3/2/2015 11:50 AM, Barry Baines wrote:
>> Dave:
>> 
>> You raise an interesting question, and the answer depends upon the underlying premise that drives your decisions.
>> 
>> If you presume that indeed you plan to sell the rig in a couple of years and that best way to sell a rig in the future is to have it "current" when you place it on the market, then presumably that means purchasing upgrades prior to placing it on the market.  The question then becomes "buy the upgrade now or buy later?"  The answer depends upon how you view the benefits of the upgrades:
>> 
>> 1.  Buy it now before potential prices increases later for those upgrades.  There is no guarantee that today's prices will remain unchanged (labor, materials and other costs of production do change) so this is an assumption that the likelihood is that prices will go probably go up.
>> 
>> 2.  Recognize that the future value of the radio may be enhanced by adding the upgrade, but the "net value" of that rig will likely not increase as much as the cost of the upgrade.  "Depreciation" coupled with the recognition that there is likely no warranty carry forward if the upgrade is installed by the prior seller means that the value to the buyer is less than what you paid for it.  In other words, you'll get more for the rig, but the numbers may not offset the cost of the upgrade itself.
>> 
>> 3.  If you're going to install the upgrade at some point in the future anyway and you can afford to pay for it now, why not do the upgrade sooner rather than later?  That way you'll also gain the benefit of the improvement for the remaining time that you own that rig, offsetting to some degree the "cost" of that upgrade through the enjoyment of those enhancements.  This rationale is similar to your comment about making the purchase because you want the benefit of the upgrade.  I'm adding to that sentiment by suggesting that if the purchase will definitely be made at some point, it is better to do so sooner rather than later so that you can benefit from it as well.
>> 
>> 4. After using the enhancements it may be conceivable that the capabilities of the "new rig" may preclude the desire to sell it, thus avoiding the pain and suffering of placing it on the market in the first place and then going through the process of deciding what to get next.
>> 
>> 5.  Even if we decide not to do the upgrades and later sell the rig, the relative value of the "base case" is likely enhanced versus other products because the buyer has the option to add the enhancements.  The rig is not locked into only those capabilities that existed at the time of production.
>> 
>> The same approach should be considered in other major transactions.  For example, if you know that you'l be selling your home in 3-5 years and recognize that some enhancements are needed to improve the marketability, why not do the upgrades sooner rather than just before placing the home on the market?  That way you'll have the opportunity to enjoy the enhancements plus costs never go down, they always go up.  Lock-in those costs earlier and not pay more later.   Heck, you may decide after doing the enhancements to not sell after all, which is probably cheaper than going through the pain and suffering of selling one home, buying another, and then getting the new home setup the way you want it.
>> 
>> Of course such decisions in amateur radio or other aspects of life are not always based on "logic" or economics. And each person has a different interpretation of cost vs. benefit, thus driving different decisions. I think we can all agree, however, that having Elecraft provide improvements to their products through both firmware and hardware updates is generally a good thing and that the marginal cost of these improvements has been less than purchasing a brand new comparable rig from Elecraft or someone else's product.
>> 
>> 
>> FWIW and Enjoy the Ride,
>> 
>> Barry Baines, WD4ASW
>> Westborough, MA
>> 
>> 
>> 
>> 
>>> On Mar 2, 2015, at 1:16 PM, David Gilbert <xdavid at cis-broadband.com> wrote:
>>> 
>>> 
>>> Please explain the advantage of spending all that money now instead of potentially spending it several years from now when you might ... might ... want to sell the rig.  Buying the new synths now because you want the better performance makes perfect sense ... buying them now purely to avoid buying them later makes no sense to me at all.
>>> 
>>> Dave  AB7E