Chapter 6 Consumer Purchasing Strategies and Wise Buying

Chapter 6 Consumer Purchasing Strategies and Wise Buying of Motor Vehicles Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

Consumer Purchasing Strategies and Wise Buying of Motor Vehicles Chapter Learning Objectives LO 6. 1 LO 6. 2 LO 6. 3 LO 6. 4 Identify strategies for effective consumer buying. Implement a process for making consumer purchases. Describe steps to take to resolve consumer problems. Evaluate legal alternatives available to consumers. 6 -2 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

Consumer Buying Activities LO 6. 1 �Daily buying decisions involve trade-offs. �Wide variety of economic, social, and personal factors affect daily buying habits. �Long term stability is achieved by not spending your entire current income. �Overspending leads to misuse of credit. 6 -3 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

Practical Purchasing Strategies �Timing purchases ◦ Price variations with the time of the year �Purchase location ◦ Location, price, selection, services �Brand comparison ◦ Private-label or store brands vs. national brands �Label information ◦ Open dating 6 -4 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

Practical Purchasing Strategies, continued �Price comparison ◦ Unit pricing = standard unit of measurement ◦ Coupons and rebates ◦ More store convenience higher prices ◦ Ready-to-use products higher prices ◦ Large is not always the best buy – check unit prices. ◦ “Sale” prices not always a savings. ◦ Online sources can save time. 6 -5 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

Wise Online Buying Activities Exhibit 6 -1 6 -6 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

Warranties �Written guarantee from manufacturer or distributor specifying the conditions under which the product can be returned, replaced, or repaired �Express warranty (usually written) ◦ Full Warranty or Limited Warranty �Implied warranty ◦ Warranty of title ◦ Warranty of merchantability 6 -7 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

Warranties, continued �Used Car Warranties ◦ FTC required “buyers’ guide sticker” ◦ Warranty of merchantability �New Car Warranties ◦ Basic parts against defects ◦ Power train coverage ◦ Corrosion warranty �Service Contracts ◦ Extended warranty 6 -8 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

Research-Based Buying �Phase 1: Preshopping Activities ◦ Problem identification ◦ Information gathering �Phase 2: Evaluating Alternatives ◦ Attribute assessment and comparison ◦ Price analysis ◦ Comparison shopping 6 -9 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

Research-Based Buying, continued �Phase 3: Selection and Purchase ◦ Negotiation ◦ Payment alternatives ◦ Acquisition and installation �Phase 4: Postpurchase Activities ◦ Maintenance and operation ◦ After-sale service alternatives ◦ Resolution of purchase concerns 6 -10 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

Major Consumer Purchases: Buying Motor Vehicles LO 6. 2 6 -11 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

Buying a Motor Vehicle Phase 1: Preshopping Activities �First, define your needs and relevant product information. �Problem Identification ◦ Focus purchasing activities �Information Gathering ◦ Personal contacts ◦ Business organizations ◦ Media information ◦ Independent testing organizations ◦ Government agencies ◦ Online sources 6 -12 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

Buying a Motor Vehicle Phase 2: Evaluating Alternatives �Selecting vehicle options �Comparing used vehicles ◦ Costs about $10, 000 less than a new car �Leasing a motor vehicle ◦ Capitalized cost ◦ Money factor ◦ Payment schedule ◦ Residual value 6 -13 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

Price Analysis and Comparison Shopping �Price Analysis ◦ Prices can vary for all types of products. ◦ Assess differences in quality relative to price ◦ Price and quality are not always closely related. �Comparison shopping can be beneficial when: ◦ Buying expensive or complex items ◦ Buying items that you purchase often ◦ Easily done with ads, catalogs, or online ◦ Different sellers offer different prices and services ◦ Product quality or prices vary greatly 6 -14 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

Buying a Motor Vehicle 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 ◦ Stereo systems, power locks �Aesthetic Features ◦ Metallic paint ◦ Special trim ◦ Leather interior ◦ Sunroof 6 -15 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

Buying a Motor Vehicle Comparing 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 Car. Max ◦ CPO = Certified Pre-Owned 6 -16 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

Buying a Motor Vehicle Leasing �Advantages ◦ Small cash outflow ◦ Lower monthly payments than buying ◦ 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 ◦ May have additional costs for extra mileage, turning the car in early, or for certain repairs 6 -17 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

Checking Out a Used Car, Exhibit 6 -3 6 -18 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

Buying a Motor Vehicle Financial 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 �Payment schedule ◦ Monthly payment amount ◦ Number of payments �Residual value = expected value of the vehicle at the end of the lease ◦ Return, keep, or sell the vehicle. ◦ If the residual value < market value, return it. 6 -19 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

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 ◦ Kelly Blue Book *The more new cars sold, the more used cars there are for sale, keeping the prices down. 6 -20 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

Price Bargaining for New Cars �Sticker price = suggested retail price ◦ Includes base price + accessories �Invoice price = dealer’s cost ◦ Consumer Reports ◦ Edmund’s New Car Prices �Set-price dealers ◦ No haggling �Until price of the new car is settled ◦ Don’t mention any trade-in. ◦ Don’t mention dealer financing. 6 -21 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

Price Bargaining for New Cars, continued �Price bargaining – compare dealers ◦ Car buying services = auto broker �$50–$200 over dealer’s cost �Sales agreement = specific details �Sales Techniques to Avoid: ◦ Lowballing – low price quote increases with last minute add-ons ◦ Highballing – high trade-in offer + high new car price ◦ “How much can you afford per month? ” ◦ Never leave a deposit unless ready to buy. ◦ “Your price is only $100 above our cost. ” ◦ Sales agreements with preprinted amounts 6 -22 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

Comparing Financial Alternatives �Financing sources ◦ Banks, credit unions, other financial institutions, finance companies, or dealer financing ◦ Get preapproved for a certain amount. �Low payment or low rate ≠ best ◦ Upside down equity = car is worth less than amount still owed on the loan (negative equity) ◦ If you default or sell the car, you will have to pay the difference. �Compare low-interest financing and any rebates 6 -23 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

Buying a Motor Vehicle Phase 4: Postpurchase Activities Maintenance and ownership costs are associated with most major purchases. � Properation yields improved performance and fewer repairs. � Investigate, evaluate and negotiate a variety of servicing options. � Complain if not satisfied with a purchase. � Lemon Laws are instituted in all 50 states and the District of Columbia. � �Automobile Operation 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 -24 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

Buying a Motor Vehicle Phase 4: Postpurchase Activities, continued �Motor Vehicle Maintenance ◦ Keep good expense records. ◦ At least follow the maintenance schedule in the manual. �More frequent intervals may minimize major repairs. �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 -25 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

Extend Vehicle Life with Proper Maintenance Exhibit 6 -4 6 -26 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

Common Automobile Repair Frauds Exhibit 6 -5 6 -27 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

Resolving Consumer Complaints LO 6. 3 Step 1: Initial communication ◦ Calm, rational, persistent approach Step 2: Communication with the company ◦ “Contact Us” on firm’s website ◦ Use e-mail or letter Step 3: Consumer agency assistance ◦ ◦ ◦ BBB provides pre-purchase information File a complaint online with BBB Mediation – third party negotiates (nonbinding) Arbitration – decision is binding State consumer protection office or agency Step 4: Take legal action 6 -28 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

Legal Options for Consumers LO 6. 4 �Small Claims Court �Class-Action Suits �Using a Lawyer �Other legal alternatives ◦ Legal aid society ◦ Prepaid legal services 6 -29 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

Personal Consumer Protection 1. 2. 3. 4. 5. Do business only with reputable companies. Avoid signing contracts you do not understand. If it seems too good to be true, it probably is! Compare the cost of using credit vs. cash. Avoid rushing to a good deal (impulse buying). 6 -30 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

Chapter Summary LO 6. 1: Identify strategies for effective consumer buying. �Common strategies for effective purchasing include: 1. 2. 3. 4. 5. Timing purchases Comparing stores and brands Using label information Computing unit prices Evaluating warranties 6 -31 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

Chapter Summary LO 6. 2: Implement a process for making consumer purchases. �A research-based approach to consumer buying involves: 1. Pre-shopping activities, such as problem identification and information gathering 2. Evaluating alternatives 3. Determining the purchase price 4. Post-purchase activities, such as properation and maintenance 6 -32 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

Chapter Summary LO 6. 3: Describe steps to take to resolve consumer problems. �Most consumer problems can be resolved by following these steps: 1. 2. 3. 4. Initial communication Communication with the company Consumer agency assistance Legal action 6 -33 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.

Chapter Summary LO 6. 4: Evaluate legal alternatives available to consumers. �If a consumer problem cannot be resolved through communication with the company involved or with help from a consumer protection agency, the following legal means are available: ◦ Small claims court ◦ Class-action suits ◦ The services of a lawyer ◦ Legal aid societies ◦ Prepaid legal services are legal 6 -34 Copyright © 2019 Mc. Graw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of Mc. Graw-Hill Education.