Section 6-1 Consumer Purchasing

Factors that Influence Buying Decisions, “What Influences you to make a Purchase?” No matter how much of how little you shop, wise buying decisions help you get the most of your purchases Buying decisions based on economic, social, and personal factors See Figure 1 pg. 153

Marginal Cost and Marginal Benefit Consider Marginal Cost and Benefit before making a purchase Marginal Cost: Increase of decrease of the cost of a particular action Marginal Benefit: The increase or decrease of the benefit of the action Ex: If 2 items are identical and priced differently, the marginal benefit increases when the lower priced option is selected Ex: If 2 items are similar but not identical you would have to assess the costs and benefits of each more If marginal cost exceeds the marginal benefit you should not purchase the item or consider another option

Trade-Offs and Buying Decisions Think about the use of buying using credit before you buy with credit You get what you pay for (agree?) Buying decisions always involve trade- offs Pg. 152 Economics and you

Factors That Influence Buying Decisions To get most for your money you need to recognize elements that affect your buying habits Credit Advantages: Can get item before you have full amount saved. Important to est. credit for future purchases. Credit Disadvantage: May pay more in the long run

Consumer Purchasing: A Research- Based Approach Approach = A method Doing research will enable you to get more for your money Especially beneficial for high priced items (computer, memberships, cars) By using this process with large items, it will help you make more practical decisions for smaller items Examples of research for large items?

4 Phases to Researched Base Buying PHASE 1) Before you Shop Identify your needs Gather Information Become aware of the market place

Identifying Your Needs Do you need name brand, or do you just need the product Example: Sneakers, IPod

Gathering Information Look at different models and prices Usual Categories: Costs, Options, Consequences Possible to do too much research For expensive items, talk to people you know who purchased, look at advertisements, Consumer Reports (pg. 155) Take notes on what you find

Becoming Aware of the Marketplace After research, you should know of a couple different places to buy the item Should then know brand and features you want to buy and average prices Become aware of common sales, returns, and credit myths (see pg. 157)

Phase 2) Weighing the Alternatives Rent, borrow, or do without Special deals that delay payment Pay with credit card

Decide what’s important to you Features, performance, design Match features with your needs Things to consider: Time for research, money available, do you buy right away, and what brand do you like Importance may change with major purchases: Options (performance and convenience) Visual appeal

Compare Prices Products vary greatly in price Quality could be reason for price difference What items will you buy lower priced/generic items When prices and quality vary you have two options: If can afford all choices, buy the highest quality item. Or if not enough, consider item that gives best value per dollar spent

Do Some Comparison Shopping Comparing prices and features of similar items at different stores Some people see as a waste of time Methods? See used car example pg. 156

Phase 3) Making the Purchase If at all possible, negotiate the price Will need as much information as possible for negotiation and deal, should also talk to manager or supervisor What would you need to know to negotiate the price of a car?

Comparing Financing Options 2 Options: Cash or Credit Credit acts as a loan, buy now pay later Often pay additional fees Cash, no extra fees however money no longer on hand or earning interest Also lose from emergency fund Do you need a down payment? Ex: What are your choices when buying a used vehicle?

Do you know what the real price is? Sometimes what appears to be a bargain, actually isn’t Extra costs can be added Installation/delivery fee Check conditions over carefully

Phase 4) After the Purchase After purchase you may have additional costs Ex: After you buy a vehicle? Pg. 160 How do you handle any problems that may arise? Or Complaints? Feelings/values may change overtime and item might not have as much appeal Avoid problems before hand (reputable)

Smart Buying Strategies Timing Purchases: Look for seasonal items and sales Supply and demand, if possible wait to buy

Selecting the Store Quality and Variety may affect the store you choose Hours, location, prices, reputation, policies and services as well See. Fig. 5 pg. 165 Cooperative: Nonprofit organization owned and operated by its members for the purpose of saving money and purchasing goods and services Direct Selling: Buying online, TV, and catalogs (advantages/disadvantages)

Comparing Brands National well name brands are available in most stores Usually also non brand less expensive items offered that offer good quality as well Often made by the national brand Impulse Buys: Purchasing items on the spur of the moment, often from displays Ex: Lines/Grocery shopping

Label Information Advertising, sometimes for other products Food labels: Weight, main ingredients, nutritional information etc. May stress what is good for you, only is scientifically proven Open Dating: Freshness or shelf life Appliances must tell how much electricity they use

Comparing Items Unit Pricing: Use of a standard unit of measurement to compare the prices of packages that are different sizes See pg. 167 Sometimes the best buy isn’t the best option, because of waste Coupons/Rebates See pg. 166 For comparing guidelines

Evaluating Warranties Warranty: Written guarantee from the manufacturer or distributor that states the conditions under which the product can be returned, replaced or repaired If over $15 and offers a warranty must be made known to customers

Warranty Types 2 Types 1) Implied: Unwritten guarantee that cover certain aspects of a product or its use. Ex: Toaster toasts, CD plays CD Express: Usually written come in two forms –Full Warranty: Says defective product will be remedied within a given time frame free of charge –Limited Warranty: Covers only certain aspects of a product Service Contract: Extended Warranty, need to pay to obtain

Section 4-2 Resolving Consumer Complaints

Sources of Common Consumer Complaints You don’t expect to have problems with purchases that you make, however all purchases involve some degree of risk Most dissatisfaction comes from defective items or poor quality Also complain about unexpected costs, deceptive pricing, and poor repair service Fraud: Dishonest business practices that are meant to deceive, trick, or gain an unfair advantage

Common Types of Fraud Fraud costs consumers tens of billions of dollars annually Telephone and mail scams, fraudulent diets products. Attract customers with saying such as “miraculous cure” Try to recognize fraud before it occurs, and report it if you come across it

Resolving Differences Between Buyers and Sellers If you are dissatisfied and make a complaint, document everything you do What should you document? Usually 5 different ways to resolve complaints

1) Return to the Place of Purchase Return to place of original purchase Best if you have a receipt and stay calm Store want to keep reputation

2) Contact Company Headquarters If local store wont settle, contact the company headquarters Address usually found on package, or on website Make use of a complaint letter (pg. 171)

3) Get help from a consumer agency If company doesn’t answer your response, contact outside agency for help Better Business Bureau one of the most commonly known Deal with complaints against local merchants Most valuable to use prior to purchase FDA, Consumer Product Safety Commission

4) Dispute Resolution Mediation: Use of a neutral third party to resolve a conflict. Not legally binding Arbitration: Same as mediation, only this is legally binding Quicker, less expensive, and less stressful then going to court

5) Take Legal Action Last resort, usually

Legal Options for Consumers Small Claims Court: Used to settle minor disagreements, usually for no more then $5,000. However, in some states $10,000 or less No lawyers, no juries Be polite, have proof (contracts, receipts, pictures)

Class Action Suits Number of people who all have the same complaint. Legal action on behalf of all the people who have suffered Represented by same law firm or lawyer All affected parties are notified of the suit You may take part in your own suit instead Split the winnings

Hiring a lawyer & other legal alternatives Make sure your lawyer is experienced in your type of case Check on fees and policies May not be worth the price of hiring a lawyer to pursue action Legal Aid Society: Help provide free or low- cost legal assistance. Not everyone is eligible for this service Deal with companies that have a strong reputation If offer seems too good to be true, it probably is