HUSC 3366 Chapter 6 Consumer Purchasing Strategies


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HUSC 3366 Chapter 6 Consumer Purchasing Strategies

  1. 1. Chapter 6 Consumer Purchasing Strategies McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
  2. 2. Financial Implications of Purchasing Decisions <ul><li>Commonly overlooked trade-offs when buying include… </li></ul><ul><ul><li>Paying a higher price over time by using credit to buy items you need now. </li></ul></ul><ul><ul><li>Buying unknown, possibly poor-quality brands, that are less expensive. </li></ul></ul><ul><ul><li>Selecting brands that may be difficult to service or repair. </li></ul></ul><ul><ul><li>Ordering by mail or online to save time and money, but return or repair may be difficult. </li></ul></ul><ul><ul><li>Taking time and effort to comparison shop. </li></ul></ul>8-2
  3. 3. <ul><li>Consumer prices </li></ul><ul><li>Interest rates </li></ul><ul><li>Supply/demand </li></ul><ul><li>Brand name </li></ul><ul><li>Warranty </li></ul><ul><li>Product Quality </li></ul><ul><li>Tax rates </li></ul><ul><li>Govt. regs. </li></ul>Economic Factors <ul><li>Lifestyle </li></ul><ul><li>Culture </li></ul><ul><li>Attitudes </li></ul><ul><li>Ads </li></ul><ul><li>Media/Internet </li></ul><ul><li>Hobbies </li></ul><ul><li>Peer group </li></ul>Social Factors <ul><li>Sex and age </li></ul><ul><li>Marital status </li></ul><ul><li>Occupation </li></ul>Personal Factors <ul><li>Income </li></ul><ul><li>Education </li></ul><ul><li>Family size </li></ul><ul><li>Housing type </li></ul><ul><li>Ethnic group </li></ul><ul><li>Religion </li></ul>Consumer Buying Influences 8-3
  4. 4. Personal Consumer Protection <ul><li>To protect yourself as a consumer… </li></ul><ul><ul><li>Deal with reputable companies. </li></ul></ul><ul><ul><li>Avoid signing contracts, documents you do not understand. </li></ul></ul><ul><ul><li>Be cautious about offerings that seem too good to be true - they probably are. </li></ul></ul><ul><ul><li>Compare the cost of buying on credit with the cost of paying cash. Compare interest rates the seller offers with other sources. </li></ul></ul><ul><ul><li>Avoid rushing to get a good deal. </li></ul></ul>8-4
  5. 5. Objectives <ul><li>Identify strategies for effective consumer buying. </li></ul><ul><li>Implement a process for making consumer purchases. </li></ul><ul><li>Describe steps to take to resolve consumer problems. </li></ul><ul><li>Evaluate legal alternatives available to consumers. </li></ul>
  6. 6. Lesson 1 Consumer Buying Activities
  7. 7. Practical Purchasing Strategies <ul><li>Timing purchases. </li></ul><ul><ul><li>Be aware if the price varies with the time of the year. </li></ul></ul><ul><li>Store selection. </li></ul><ul><ul><li>Choice of retailer depends on location, price, product. </li></ul></ul><ul><ul><li>Cooperatives -non-profit organization; members save money. </li></ul></ul><ul><li>Comparison shopping of store and national brands; avoid impulse buying (unplanned purchasing). </li></ul><ul><li>Look for information on label and open dating. </li></ul>8-5
  8. 8. Practical Purchasing Strategies <ul><li>Price comparison. </li></ul><ul><ul><li>Unit pricing provides a standard of measurement. </li></ul></ul><ul><ul><li>Coupons (online:;; and rebates (partial refund). </li></ul></ul><ul><ul><li>Convenience & ready-to-use products may mean higher prices. Large is not always the best buy, and “Sale” prices vary among stores. </li></ul></ul><ul><ul><li>Ready to use products have higher prices. </li></ul></ul><ul><ul><li>Large packages are usually the best but check unit pricing. </li></ul></ul><ul><ul><li>“ Sale” may not always mean you are saving money. </li></ul></ul><ul><ul><li>The use of online sources can save time. </li></ul></ul>(continued) 8-6
  9. 9. Warranties <ul><li>Warranty – A written guarantee that specifies the conditions under which a product can be returned, replaced, or repaired. </li></ul><ul><li>Express Warranty-usually written </li></ul><ul><ul><li>Full Warranty- a defective product can be fixes or replaced during a reasonable amount of time. </li></ul></ul><ul><ul><li>Limited Warranty- only certain aspects of the product are cover and requires buyer to incur part of the costs for shipping or repairs </li></ul></ul>
  10. 10. Warranties cont’d <ul><li>Implied Warranty- covers a product’s intended use or other basic understandings that are not in writing. </li></ul><ul><ul><li>Warranty of Title- indicates the seller has the write to sell the product. </li></ul></ul><ul><ul><li>Warranty of Merchantability-guarantees that the product is fit for ordinary uses for which it was intended. </li></ul></ul>
  11. 11. Warranties cont’d <ul><li>Used Car Warranties-FTC requires that uses cars have a sticker telling whether the vehicle comes with a warranty. </li></ul><ul><li>New Car Warranties- vary by time, mileage, and parts to cover. </li></ul><ul><ul><li>Coverage of basic parts against defects </li></ul></ul><ul><ul><li>Power train coverage for the engine, transmission, drive train </li></ul></ul><ul><ul><li>Corrosion applies only to holes due to rust, not to surface rust </li></ul></ul><ul><li>Service contracts -also called extended “warranties.” </li></ul>
  12. 12. Lesson 2 Major Consumer Purchases: Buying Motor Vehicles
  13. 13. Purchasing a Car: A Research-Based Approach - Phase 1: Preshopping Activities <ul><li>Problem identification. </li></ul><ul><li>Information gathering. </li></ul><ul><ul><li>Personal contacts. </li></ul></ul><ul><ul><li>Media information-television, websites </li></ul></ul><ul><ul><li>Independent testing organizations- Consumer Reports </li></ul></ul><ul><ul><li>Government agencies. </li></ul></ul><ul><ul><li>Online Sources – , , </li></ul></ul>8-7
  14. 14. Phase 2: Evaluation of Alternatives <ul><li>Comparison shopping. </li></ul><ul><li>Selecting vehicle options-convenience, appeal, etc. </li></ul><ul><li>Comparing used vehicles- , </li></ul><ul><li>Leasing an automobile </li></ul><ul><li>1) lower payments, small initial cash outlay </li></ul><ul><li>2) no ownership in vehicle </li></ul><ul><li>3) maximum # of miles/year; charged for extra miles. </li></ul><ul><li>4) know the capitalized cost of the lease, the money </li></ul><ul><li>factor, the monthly payment, number of payments, </li></ul><ul><li>and the residual value. </li></ul>8-8
  15. 15. Selecting Vehicle Options <ul><li>Mechanical devices. </li></ul><ul><ul><li>Engine size, transmission, power steering,cruise control, and antilock brakes. </li></ul></ul><ul><li>Comfort and convenience options. </li></ul><ul><ul><li>Power seats, air conditioning. </li></ul></ul><ul><ul><li>Stereo systems, power locks. </li></ul></ul><ul><li>Aesthetic features. </li></ul><ul><ul><li>Special paint. </li></ul></ul><ul><ul><li>Mag wheels. </li></ul></ul><ul><li>Service contract - look for costs and exclusions. </li></ul>8-15
  16. 16. Comparing Used Cars <ul><li>Sources of used vehicles. </li></ul><ul><ul><li>New-car dealers. </li></ul></ul><ul><ul><li>Used-car dealers. </li></ul></ul><ul><ul><li>Private parties. </li></ul></ul><ul><ul><li>Auctions, used car superstores such as CarMax, or online at sites such as or . </li></ul></ul><ul><li>Consumer protection for used car buyers. </li></ul><ul><ul><li>FTC buyer’s guide in window. </li></ul></ul><ul><ul><li>Buy from a source that gives some assurance of the vehicle’s reliability. </li></ul></ul>8-12
  17. 17. Comparing Used Vehicles <ul><li>Certified preowned (CPO)- vehicles are nearly new cars the come with the manufacturer’s guarantee of quality. </li></ul><ul><li>Rigorous inspection and repair process means higher princes that other used vehicles. </li></ul><ul><li>CPO program created to increase demand for low-mileage. </li></ul>
  18. 18. The Used Car Inspection Process <ul><li>Outside the car. </li></ul><ul><li>Inside the car. </li></ul><ul><li>The engine. </li></ul><ul><ul><li>Have a mechanic or technician of your choice estimate the costs of potential repairs. </li></ul></ul><ul><ul><li>Odometer fraud. </li></ul></ul><ul><li>The road test. </li></ul>8-11
  19. 19. Leasing a Motor Vehicle <ul><li>Advantages. </li></ul><ul><ul><li>Small cash outflow. </li></ul></ul><ul><ul><li>Lower monthly payments than buying. </li></ul></ul><ul><ul><li>Lease provides detailed records - helps if you use your car for business purposes. </li></ul></ul><ul><li>Disadvantages. </li></ul><ul><ul><li>No ownership interest. </li></ul></ul><ul><ul><li>Must meet requirements. </li></ul></ul><ul><ul><li>May have additional costs for extra mileage, turning the car in early, or for certain repairs. </li></ul></ul>8-18
  20. 20. Types of Leases <ul><li>Closed-end. </li></ul><ul><ul><li>You return the car at the end of the lease and pay for any extra mileage or damage, but you are committed for the full lease term. </li></ul></ul><ul><li>Open-end. </li></ul><ul><ul><li>Easier to terminate the lease, but you have higher lease payments and they may require you to pay for the difference between the expected value of the leased vehicle and the amount for which they sell it. </li></ul></ul><ul><li>Single-payment - prepaid, discounted lease. </li></ul>8-19
  21. 21. Financial Aspects of Leasing <ul><li>Capitalized cost - the price of the vehicle. Average buyer pays 92% of list, average person who leases pays 96% of list. </li></ul><ul><li>Money factor - interest rate. </li></ul><ul><li>Monthly payment amount and number of payments. </li></ul><ul><li>Residual value - expected value of the vehicle at the end of the lease. You may decide to return, keep, or sell the vehicle. If the residual value is less than market value, return it. </li></ul>8-20
  22. 22. Financial Aspects of Leasing <ul><li>Avoiding lease traps. </li></ul><ul><ul><li>Not knowing the total cost of the agreement, including the cost of the vehicle. Don’t just look at the monthly payment. </li></ul></ul><ul><ul><li>Making a larger up-front payment than is required, or paying unnecessary add-on costs. </li></ul></ul><ul><ul><li>Negotiating the monthly payment rather than the cost of the vehicle. </li></ul></ul><ul><ul><li>Not having the value of any trade-in vehicle reflected in the lease. </li></ul></ul><ul><ul><li>Signing a contract you don’t understand. </li></ul></ul>8-21 (continued)
  23. 23. Phase 3: Determining Purchase Price <ul><li>Negotiation </li></ul><ul><ul><li>Know necessary information about the product. </li></ul></ul><ul><ul><li>Deal with a person of authority to give you a lower price or additional features. </li></ul></ul><ul><ul><li>Used-cars: Check newspaper ads, Kelly Blue Book ( ), </li></ul></ul><ul><ul><li>New cars: Set-price dealers, car-buying services </li></ul></ul><ul><li>Compare financing alternatives. </li></ul><ul><ul><li>Variety of lenders-some lenders may pre-approve you. </li></ul></ul><ul><ul><li>Avoid being upside-down in your car. </li></ul></ul><ul><ul><li>Look for rebates or low-interest financing. </li></ul></ul><ul><ul><li>Consider the APR, total finance charge. Check out </li></ul></ul>8-9
  24. 24. Used-Car Price Negotiation <ul><li>Price information sources </li></ul><ul><ul><li>Edmund’s Used Car Prices or </li></ul></ul><ul><ul><li>NADA Official Used Car Guide . </li></ul></ul><ul><ul><li>Kelly Blue Book </li></ul></ul><ul><li>The more new cars sold the more used cars there are for sale, keeping the prices down. </li></ul>8-13
  25. 25. Price Bargaining for New Cars <ul><li>Sticker price - suggested retail price. It includes the base price of the vehicle plus accessories. </li></ul><ul><li>Invoice price - dealers cost. </li></ul><ul><li>Know the dealer’s cost by consulting... </li></ul><ul><ul><li>Consumer Reports www. </li></ul></ul><ul><ul><li>Edmund’s New Car Prices www. </li></ul></ul><ul><li>Buy in winter, early spring or end-of-month. </li></ul>8-14
  26. 26. Determining a Purchase Price <ul><li>Price bargaining - compare dealers. </li></ul><ul><li>Set-price dealers. </li></ul><ul><li>Car buying services. </li></ul><ul><ul><li>Also called an auto broker. $50-$200 over dealer’s cost. </li></ul></ul><ul><li>Online car buying </li></ul><ul><ul><li> or . </li></ul></ul><ul><li>The sales agreement - specific details. </li></ul><ul><li>Consumer protection for new-car buyers. </li></ul><ul><ul><li>Warranties and lemon laws. </li></ul></ul>8-16
  27. 27. Financing an Automobile Purchase <ul><li>Financing sources. </li></ul><ul><ul><li>Banks, credit unions, other financial institutions, finance companies, or dealer financing. </li></ul></ul><ul><ul><li>Get preapproved for a certain amount. </li></ul></ul><ul><li>Consider the length of the loan. </li></ul><ul><ul><li>Upside down equity means that your car is worth less that what you still owe on your car loan. </li></ul></ul><ul><li>Check the APR and any rebates. </li></ul>8-17
  28. 28. Alternative to Financing a Car <ul><li> </li></ul>
  29. 29. Phase 4: Postpurchase Activities <ul><li>Lemon Laws. </li></ul><ul><li>Maintenance and ownership costs </li></ul><ul><li>Use the item correctly to have improved performance and fewer repairs. </li></ul><ul><li>Investigate, evaluate and negotiate a variety of servicing options. </li></ul><ul><li>Operation costs; fixed and variable expenses. </li></ul><ul><li>Automobile servicing sources; dealers, service stations, garages, Wal-Mart, etc. </li></ul>8-10
  30. 30. Costs of Operating a Car <ul><li>Fixed Costs. </li></ul><ul><ul><li>Depreciation is the largest fixed cost. </li></ul></ul><ul><ul><li>Interest on loan. </li></ul></ul><ul><ul><li>Insurance. </li></ul></ul><ul><ul><li>License, registration and taxes. </li></ul></ul><ul><li>Variable Costs. </li></ul><ul><ul><li>Gas and oil. </li></ul></ul><ul><ul><li>Tires. </li></ul></ul><ul><ul><li>Maintenance and repairs. </li></ul></ul><ul><ul><li>Parking and tolls. </li></ul></ul>8-22
  31. 31. Costs of Operating a Car <ul><li>Keep good expense records. </li></ul><ul><li>Follow the maintenance schedule in the manual. </li></ul><ul><li>Vehicle servicing options. </li></ul><ul><ul><li>Car dealers. </li></ul></ul><ul><ul><li>Automobile repair shops. </li></ul></ul><ul><ul><li>Service stations. </li></ul></ul><ul><ul><li>Department and discount stores. </li></ul></ul><ul><ul><li>Specialty shops such as oil/lube, muffler, transmission, and tire shops </li></ul></ul><ul><ul><li>Be alert for signs of fraud. </li></ul></ul>8-23 (continued)
  32. 32. Lesson 3 Resolving Consumer Complaints
  33. 33. Resolving Consumer Complaints <ul><li>Return to place of purchase. </li></ul><ul><li>Contact the company’s main office-1-800-555-1212 to get company hotline; Another option is a firm’s website – </li></ul><ul><li>Obtain assistance from a consumer agency. </li></ul><ul><ul><li>BBB provides pre-purchase information. </li></ul></ul><ul><ul><li>Mediation - third party negotiates (nonbinding) </li></ul></ul><ul><ul><li>Arbitration - decision is binding. </li></ul></ul><ul><ul><li>State consumer protection office or agency. </li></ul></ul><ul><ul><li>Federal agencies - see Appendix B in text. </li></ul></ul>8-24
  34. 34. Steps in Resolving Consumer Complaints <ul><li>Take legal action - options for consumers... </li></ul><ul><ul><li>Small claims court. </li></ul></ul><ul><ul><li>Class action suits. </li></ul></ul><ul><ul><li>Using a lawyer. </li></ul></ul><ul><ul><li>Other legal alternatives. </li></ul></ul><ul><ul><ul><li>Legal aid society. </li></ul></ul></ul><ul><ul><ul><li>Prepaid legal services. </li></ul></ul></ul><ul><ul><ul><li>Legal questions can be researched at . </li></ul></ul></ul>(continued) 8-25
  35. 35. Lesson 4 Legal Options for Consumers
  36. 36. Small Claims Court <ul><li>A person may file a claim involving amounts below a set dollar limit </li></ul><ul><li>Maximum dollar amount varies from state to state usually ranging between $500-$10,000 </li></ul><ul><li>Usually takes place without a lawyer </li></ul><ul><li>To be successful: </li></ul><ul><ul><li>Become familiar with court procedures and filing fees </li></ul></ul><ul><ul><li>Observe other cases </li></ul></ul><ul><ul><li>Present case in polite, calm, and concise manner </li></ul></ul>
  37. 37. Class Action Suits <ul><li>A legal action taken by a few individuals on behalf of all people who suffered the same alleged injustice. </li></ul><ul><li>Represented by one or more lawyers </li></ul><ul><li>A person can decide to not to participate in class action and have individual lawyer </li></ul><ul><li>Examples: auto owners were sold unneeded parts; group of investors sued brokerage company for unauthorized buy and sell transactions </li></ul>
  38. 38. Using a Lawyer <ul><li>Commonly found through referrals from friends, advertisements, and local American Bar Association </li></ul><ul><li>Needed for more complicated legal matters such as writing a will, settling a real estate purchase or suing for injury damages </li></ul><ul><li>Questions to ask when selecting a lawyer </li></ul><ul><ul><li>Experienced in type of case </li></ul></ul><ul><ul><li>Charge flat fee, hourly rate or contingency basis </li></ul></ul><ul><ul><li>Fee for initial consultation </li></ul></ul><ul><ul><li>How and when required to make payment for services </li></ul></ul>
  39. 39. Other Legal Alternatives <ul><li>A legal aid society is one of a network of publicly supported community law offices that provide legal assistance to people who cannot afford the own attorney </li></ul><ul><li>Prepaid legal services provide for unlimited or reduced fee legal assistance for a set fee. </li></ul>