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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
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)


practical purchasing strategies
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


practical purchasing strategies3
Practical Purchasing Strategies


  • 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)


  • 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”


research based buying major purchase decision making process
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


objective 2 implement a process for making consumer purchases
Objective 2Implement a Process for Making Consumer Purchases

A Research-based Approach to Buying a Motor Vehicle


buying a motor vehicle phase 1 pre shopping activities
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


buying a motor vehicle phase 2 evaluating alternatives
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


buying a motor vehicle comparing used vehicles
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?


buying a motor vehicle leasing a motor vehicle
Buying a Motor VehicleLeasing a Motor Vehicle


  • 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


  • 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 financial aspects of leasing
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


buying a motor vehicle phase 3 determining purchase price
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


car buying terms
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?”

buying a motor vehicle price bargaining for new cars
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


buying a motor vehicle price bargaining for new cars15
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


buying a motor vehicle price bargaining for new cars16
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


buying a motor vehicle comparing financial alternatives
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


researching rebates
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?
buying a motor vehicle phase 4 post purchase activities
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!


buying a motor vehicle phase 4 post purchase activities20
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


buying a motor vehicle phase 4 post purchase activities21
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


objective 3 describe steps to take to resolve consumer complaints
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


objective 4 evaluate legal alternatives available to consumers
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


wrap up
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?