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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

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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)

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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

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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)

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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”

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Research-Based BuyingMajor 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

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Objective 2Implement a Process for Making Consumer Purchases

A Research-based Approach to Buying a Motor Vehicle

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Buying a Motor VehiclePhase 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

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Buying a Motor VehiclePhase 2 - Evaluating Alternatives

  • 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

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Buying a Motor VehicleComparing Used Vehicles

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

Your experiences with buying or selling used cars?

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Buying a Motor VehicleLeasing a Motor Vehicle

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

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Buying a Motor VehicleFinancial Aspects of Leasing

  • 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

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Buying a Motor VehiclePhase 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

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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?”


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Buying a Motor VehiclePrice 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

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Buying a Motor VehiclePrice 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

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Buying a Motor VehiclePrice Bargaining for New Cars

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

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Buying a Motor VehicleComparing 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

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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?


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Buying a Motor VehiclePhase 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

You can expect to spend over $200,000 on car expenses over your lifetime!

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Buying a Motor VehiclePhase 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

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Buying a Motor VehiclePhase 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


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Objective 3Describe 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

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Objective 4Evaluate 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

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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?


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