Extended Product Features Chapter 32 Extended Product Features

Warranties 32.1 After finishing this section you will know: The different types of warranties The importance of warranties to product planning Additional extended product features The major provisions of product safety legislation Consumer responsibilities and rights related to product performance

Warranties Warranty- promise, or guarantee, given to a customer that a product will meet certain standards Usually a framed series of promises Most limit the time or coverage which limits the seller’s liability Example: 3 years or 36,000 miles

Guarantee Guarantee- another name for a warranty Guarantee is used in: promotional phrases such as “money-back guarantee”

Express Warranties Express warranty- explicitly stated, in writing or spoken words, to induce a customer to buy Can appear in a number of places: on the packaging, in the product literature, in an advertisement, or as part of a point-of-purchase display

Express Warranties Must be easily accessible to customers before purchase Must be clearly worded so customers can understand terms

Express Warranties There are two types of written warranties: Full warranty- guarantees that if a product is found to be defective within the warranty period, it will be repaired or replaced at no cost to the customer

Express Warranties Limited warranty- may exclude certain parts of the product from coverage or require the customer to bear some of the expense for repairs resulting from defects Example: manufacturer will pay for replacement parts, but charge for labor or shipping

Implied Warranties Implied warranty- exists automatically by state law whenever a purchase takes place

Implied Warranties There are two types of implied warranties: Warranty of merchantability- a promise from the seller that the product sold is fit for its intended purpose Example: coffee maker will make coffee or a washing machine will wash clothes

Implied Warranties Warranty of fitness for a particular purpose- when the seller advises a customer that a product is suitable for a particular use and the customer acts on that advice

Warranty Disclaimers Disclaimer- a statement that contains exceptions to and exclusions from a warranty

Role of Warranties in Product Planning Warranties are significant to a business because they: Force a company to focus on customer needs Set clear standards of performance Generate customer feedback Encourage quality control Boost promotional efforts

Role of Warranties in Product Planning Extended warranties or service contracts- provide repairs or preventative maintenance for a specified length of time beyond a product’s normal warranty period Customers pay extra these contracts at the time or purchase

Role of Warranties in Product Planning Beneficial to both businesses and customers Businesses profit by- receiving the extra money on the original sale of the product Customers benefit from- the assurance of long-term satisfaction with their purchase Disadvantages to service contracts- only 12-20% of people who buy extra service protection ever use it

Other Extended Product Features Product planners must constantly evaluate a product’s extended features from a customer’s viewpoint. They should be able to answer yes to the following questions: Was the product delivered on time? If installation was necessary, was it done properly?

Other Extended Product Features Was the bill for the good or service accurate and timely? If needed, was the service provided promptly, courteously, and correctly? If needed, were technical assistance and training provided? Were directions clearly written?

Consumer Laws and Agencies: Federal Statutes Magnuson-Moss Consumer Product Warranty Act of 1975- governs warranties for all products costing $15 or more Consumer Product Safety Act of 1972- monitors the safety of more than 11,000 nonfood items

Consumer Laws and Agencies: Federal Statutes When products are found to be defective or dangerous the Consumer Product Safety Commission can: Require warning labels to be attached to the product Recall the product and order repairs Prohibit the product’s sale

Consumer Laws and Agencies: Federal Statutes Food, Drug, and Cosmetic Act of 1938- assures that products will be safe, meaning pure, wholesome, and effective, as well as informatively labeled and truthfully advertised

Consumer Laws and Agencies: State Statutes Lemon laws- protects consumers from poorly built cars Out of service for at least 30 days within the first year of ownership of a new car Four attempts have been made to fix the same problem Owners are entitled to a refund or a comparable replacement car

Consumer Laws and Agencies: State Statutes Arbitration programs- an impartial third party decides the crucial issues of the lemon law Can save time and money by avoiding a lawsuit Often the arbitrators’ decisions are not binding Car owner can sue the carmaker if not satisfied

Consumer Rights and Responsibilities Consumers should take the following steps when they have not been adequately protected by a warranty: Contact the business that sold the product or the product manufacturer If the problem is still unresolved, contact the local, state, or federal offices that can assist with customer complaints If the problem is still not resolved, take legal action

Consumer Rights and Responsibilities Consumers can sue manufacturers or retailers on at least three (3) grounds: Breach of federal law (written warranty) Breach of state law (implied warranty) Negligence- failure to take proper or reasonable care Class-action suits- filed by more than one party such as consumers, cities, or states against manufacturers for making unsafe products

Consumer Rights and Responsibilities Businesses can minimize liability lawsuits during product planning: Examine product design and see what could go wrong Test products thoroughly Special attention to package design and providing warnings on the package Encourage customers to be responsible

Assignment Page 592 Reviewing Key Terms #1-5

Credit 32.2 After finishing this section you will know: The importance of credit The five sources of consumer credit The four types of credit accounts extended to consumers How businesses use trade credit The most important credit legislation

Credit and Its Importance Credit- allows businesses or individuals to obtain products or money in exchange for a promise to pay later Used by businesses to buy goods and services

Consumer Credit Process to follow to obtain credit through banks, department stores, or oil companies: Fill out credit application Sources of income Credit history Issued a card and are bound to a credit agreement

Consumer Credit Credit limit- pre-approved dollar amount which customers can use to purchase items on credit which is based on ability to pay and credit history Limits range from $250 to thousands Purchases go through a computerized pre-approval process prior to the purchase Assures the customer hasn’t exceeded their credit limit

Different types of Consumer Credit Bank credit cards- VISA, MasterCard, and Discover sponsor but do not issue cards through banks Annual fees- are sometimes charged- a flat yearly charge similar to a membership fee Variable rate- rates change with the prime interest rate controlled by the government Fixed rate- rates are not tied to prime and change less often

Different types of Consumer Credit Gold or platinum cards- issued to people earning higher incomes Titanium- card with the highest prestige Standard or classic cards- issued to people with lesser incomes and may carry a higher APR

Different types of Consumer Credit Store and gasoline credit cards- some businesses are large enough to offer their own credit cards Examples: Sears, Target, Sunoco Individual company handles the processing and billing of all customer purchases Usually no annual fee, but a higher rate of interest is charged

Different types of Consumer Credit Travel and entertainment cards- American Express, Discover, and Diners Club require payments to be made in full each month in addition to annual fees or service charges Also charge retailers a service fee when they submit customers’ charge slips These cards are not accepted everywhere

Different types of Consumer Credit Rebate cards- offer rewards or incentives to use their credit Rewards are often granted in the form of: cash, airline miles, or long distance service Those who use credit cards for convenience and pay the balance every month- may find the best deal in rebate cards

Different types of Consumer Credit Affinity cards- credit cards issued by issuing banks to show your loyalties to a sports team, university, charity, or organization

Different types of Consumer Credit Debit card- look like credit cards and allow the funds to be directly withdrawn from a checking account to the place of purchase Appears as a withdrawal or “Debit” on your bank statement

Different types of Consumer Credit Special customer cards- part of product planning that are offered to frequent shoppers Allows customers to receive- reduced prices on items purchased or reward certificates for cash discounts on future purchases Provides customers with an incentive to shop at the store

Different types of Consumer Credit Secured and unsecured loans Secured- something of value, such as property is pledged as collateral Unsecured- a written promise to repay a loan

Types of Accounts Regular charge accounts or 30-day accounts- allows customers to charge purchases during a month and pay the balance in full within 30 days after they are billed There is no finance charge as long as the balance is paid on time

Types of Accounts Installment accounts- allow for payment over a period of time Normally used for large purchases such as college education, automobiles, or furniture

Types of Accounts Revolving accounts- the retailer determines the credit limit and when payments are due Payments are usually a percentage on the balance owed or a minimum dollar amount

Types of Accounts Budget accounts- allow time for the payment of a purchased item over a certain time period without a finance charge Example: 60 days same as cash, 90 days interest free

Business Credit Money is lent for goods or services Does not involve the use of credit cards Credit memorandums, letters of credit, and credit drafts are used in trade credit situations

Legislation Affecting Credit Truth in Lending Act of 1968- requires that lenders disclose information about annual percentage rates, the name of the company, and the amount financed Fair Credit Reporting Act of 1971- lenders must report the name and address of the credit bureau that was used by the lender when consumer credit is denied

Legislation Affecting Credit Equal Credit Opportunity Acts of 1975 and 1977- set guidelines for the review of applications for credit and prohibited the discrimination based upon age, gender, race, religion, or marital status Fair Debt Collection Act of 1980- prevents businesses from harassing or abusing bad-debt customers in order to collect from them

Legislation Affecting Credit Credit and Charge Card Disclosure Act of 1988- helps consumers by requiring credit card issuers to provide information about card costs

Assignment Page 598 Reviewing Key Terms #1-5