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Chapter 6
- 1. 6 Consumer Purchasing Strategies PracticalPurchasing 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 • Writtenguarantee 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 CarWarranties – 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 PurchaseDecision-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 aProcess for Making Consumer Purchases A Research-based Approach to Buying a Motor Vehicle 6-6
- 7. Buying a MotorVehicle 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 ofused 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 cashoutflow (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 MotorVehicle 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 MotorVehicle 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 MotorVehicle 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 toAvoid • 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 MotorVehicle 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 MotorVehicle 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 MotorVehicle 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 MotorVehicle 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 Stepsto 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 LegalAlternatives 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 • ChapterQuiz • 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?