This document provides information on various consumer purchasing strategies and the process of researching and making major consumer purchases. It discusses timing purchases based on seasonal price variations, comparing store brands to national brands, unit pricing, coupons, warranties, used and new car warranties, researching alternatives, negotiating price on new cars, and post-purchase maintenance costs. The document also outlines the major steps in the consumer purchase decision process, including pre-shopping research, evaluating alternatives, determining price and selection, and post-purchase activities. It applies this framework to the example of buying a motor vehicle.

1. 6 Consumer Purchasing
Strategies
Practical Purchasing Strategies
• Timing purchases
– Price variations by time of year (seasons)
• Store selection
– Location, price, selection, services
• Brand Comparison
– Private-label or store brands (sold by one
chain) vs. national brands
• Label Information
– Open dating (shelf life of products)
6-1

2. Practical Purchasing
Strategies
Price comparison
– Unit pricing = standard of measurement
– Coupons and rebates
– More store convenience higher prices
– Ready-to-use products higher prices
– Large is not always best buy (check unit price, usage)
– “Sale” prices not always a savings (anchoring)
– Online sources can save time
6-2

3. Practical Purchasing
Strategies
Warranties
• Written guarantee from manufacturer or
distributor specifying conditions under which a
product can be returned, replaced, or repaired.
• Express Warranty (usually written); 2 Forms
– Full Warranty (covers entire product; fix or repair for a time)
– Limited Warranty (covers only certain parts of a product)
• Implied warranty (covers a product’s intended use)
– Warranty of title (says seller has the right to sell a product)
– Warranty of merchantability (product is fit for its use)
6-3

4. Warranties
• Used Car Warranties
– FTC requires a “buyers’ guide sticker”
• Tells if car has warranty and, if so, what it covers
– Warranty of merchantability (item fit for intended use)
• New Car Warranties
– Basic parts against defects
– Power train coverage (engine, transmission)
– Corrosion warranty (covers holes due to rust)
• Service Contracts
– “Extended warranty”
6-4

5. Research-Based Buying
Major Purchase Decision-making
Process
• Phase 1: Pre-shopping Activities
– Problem identification: prioritize needs and wants
– Information gathering: information is power! WHERE to go?
– Follow the RULE OF THREE (all major products and services)
• Phase 2: Evaluating Alternatives
– Price analysis (range of prices and differences in cost)
– Comparison shopping (especially complex and expensive items)
• Phase 3: Determining Purchase Price and Selection
– Negotiation (cars: start with dealer invoice, NOT sticker price)
– Payment alternatives (cash, loan, lease)
– Acquisition and installation
• Phase 4: Post-purchase Activities
– Maintenance and operation
– After-sale service alternatives
– Resolution of purchase concerns 6-5

6. Objective 2
Implement a Process for Making
Consumer Purchases
A Research-based Approach to Buying a Motor Vehicle
6-6

7. Buying a Motor Vehicle
Phase 1 – Pre-shopping Activities
• Problem Identification
– Focus on real needs (e.g., reliable transportation)
• Information Gathering
– Personal contacts
– Business organizations
– Media information
– Independent testing organizations
– Government agencies
– Online sources
6-7

8. • Purchase Alternatives (e.g., new vs. used, makes/models, delaying)
• Selecting Vehicle Options
– Performance Options (mechanical devices, engine size,
transmission, power steering, cruise control, and
antilock brakes)
– Comfort and Convenience Options (power seats, air
conditioning, power locks)
– Aesthetic Features (metallic paint, special trim, leather
interior, sunroof)
• Comparing used vehicles
• Leasing a motor vehicle
Buying a Motor Vehicle
Phase 2 - Evaluating Alternatives
6-8

9. Common sources of used cars include:
– New-car dealers
– Used-car dealers
– Private sales
– Auctions and dealers sell previously owned
cars
– Used-car superstores such as CarMax
– http://www.dealernet.com
Buying a Motor Vehicle
Comparing Used Vehicles
6-9
Your experiences with buying or selling used cars?

10. Advantages
– Small cash outflow (security deposit vs. downpaymt on loans)
– Lower monthly payments than buying (renting a car)
– Lease provides detailed records - helps if you use your
car for business purposes
– Able to obtain a more expensive car more often
Disadvantages
– No ownership interest
– Must meet requirements to qualify (similar to credit)
– May have additional costs for extra mileage, “wear and
tear”, turning car in early, moving, or certain repairs
Buying a Motor Vehicle
Leasing a Motor Vehicle
6-10

11. • Capitalized Cost = price of the vehicle
– Average buyer pays 92% of list
– Average leaser pays 96% of list
• Money Factor = interest rate paid on cap. cost
• Payment Schedule
– Monthly payment amount
– number of payments
• Residual Value = expected value of the vehicle at the
end of the lease
– Closed-End Lease (“Walk-away” Lease)- no charge if end-of-
lease value is lower than projected residual value
– Open-End Lease- lease holder pays difference between
projected residual value and actual market value at end of lease
Buying a Motor Vehicle
Financial Aspects of Leasing
6-11

12. Buying a Motor Vehicle
Phase 3 - Determining Purchase
Price
Negotiation may lower price or add features
– Have all the necessary information
– Deal with a person who has the authority to give
you a lower price or additional features
Used-Car Price Negotiation
– Edmund’s Used Car Prices - http://
www.edmunds.com
– Kelly Blue Book - http://www.kbb.com
The more new cars sold, the more used cars
there are for sale, keeping the prices down
6-12

13. Car-Buying Terms
• Highballing – dealer offers a trade-in allowance
that is higher than the vehicle is worth
– Counterbalanced by charging more for new car and/or
financing (“no free lunch”)
• Lowballing- dealer quotes a low price that
increases when add-on costs are included
• “Upside Down” – to owe more on a vehicle
during the first few years than it is actually worth
(also known as “negative equity”)
How can a buyer avoid being “upside down?”

14. Buying a Motor Vehicle
Price Bargaining for New Cars
• Sticker Price = suggested retail price
– Includes base price + accessories
• Invoice Price = dealers cost
– Consumer Reports: http://www.consumerreports.org
– Edmund’s New Car Prices: http://www.edmunds.com
• Negotiate a cost somewhere in range in
between
• Until price of the new car is settled:
– Don’t mention any trade-in
– Don’t mention dealer financing
6-14

15. Buying a Motor Vehicle
Price Bargaining for New Cars
• Price bargaining - compare dealers
– Set-price dealers (“no-haggling” prices)
– Car buying services = auto broker
• Car prices $50 - $200 over dealer’s cost
• Fee-based; arranges purchase with dealer
• Sales agreement = specific details
• Consumer protection for new-car buyers
– Warranties
– State lemon laws
6-15

16. Sales Techniques to Avoid
• Lowballing and Highballing
• “How much can you afford per month?”
• Offers to “hold” a car with a deposit: Never
leave a deposit unless ready to buy
• “Your price is only $100 above our cost”
– Usually added hidden costs or dealer incentives
• Sales agreements with preprinted amounts
– Cross out inappropriate numbers
Buying a Motor Vehicle
Price Bargaining for New Cars
6-16

17. Buying a Motor Vehicle
Comparing Financial
Alternatives
• Financing Sources
– Banks, credit unions, other financial institutions,
finance companies, or dealer financing
– Get preapproved for a certain amount: will let you
know how much you can borrow, at what interest
rate, and for how long
• Check the APR and any Rebates
– Use online calculators to determine whether to take
low interest rate OR rebate (usually can’t get both)
– http://www.bankrate.com/calculators/auto/low-
interest-rebate-calculator.aspx
6-17

18. Researching Rebates
• Rebate – Nothing more than a refund of
part of the purchase price.
– Factory-Direct Rebates – Come directly from
the manufacturer to the buyer rather than to
the dealer as part of a dealer incentive
package.
• Buyer should use rebate money for
downpayment on car- NOT spending
money!
– Benefits of doing this?

19. Buying a Motor Vehicle
Phase 4: Post-Purchase
Activities
• Maintenance and ownership costs are associated with
some purchases
• Correct use yields improved performance and fewer
repairs
• Investigate, evaluate, and negotiate a variety of
servicing options
• Complain if not satisfied with a purchase
6-19
You can expect to spend over $200,000 on car expenses
over your lifetime!

20. Buying a Motor Vehicle
Phase 4: Post-Purchase Activities
Automobile Operating Costs
Fixed Costs
– Depreciation
– Interest on loan
– Insurance
– License, registration ,and taxes
Variable Costs
– Gas and oil
– Tires
– Maintenance and repairs
– Parking and tolls
6-20

21. Buying a Motor Vehicle
Phase 4 - Post-purchase
Activities
Vehicle Servicing Options
– Car dealers
– Service stations
– Independent auto repair shops
– Mass merchandise retailers like Sears
and Wal-Mart
– Specialty shops such as oil/lube, muffler,
transmission, and tire shops
Be alert for signs of fraud
6-21

22. Objective 3
Describe Steps to Take to Resolve
Consumer Complaints
Step 1: Return to place of purchase
• Calm, rational, persistent approach
Step 2: Contact company headquarters
• “Contact Us” on firm’s website
• Use e-mail or letter
Step 3: Obtain consumer agency assistance
– BBB provides pre-purchase information
– File a complaint on line at http://www.bbb.org
– Mediation - third party negotiates (non-binding on parties)
– Arbitration – Third party’s decision is legally binding
– State consumer protection office or agency
Step 4: Take legal action 6-22

23. Objective 4
Evaluate Legal Alternatives
Available to Consumers
Legal Options for Consumers
–Small claims court
–Class action suits
–Using a lawyer
–Other legal alternatives
• Legal aid society (public agency)
• Prepaid legal services 6-23

24. Wrap Up
• Chapter Quiz
• Concept Check 6-1- How Does Service
Contract Differ from Warranty?
• Concept Check 6-2- When Might
Leasing be Appropriate?
• Concept Check 6-3-How Does
Arbitration Differ From Mediation?