1. 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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2. 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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3. 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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4. Warranties Used Car Warranties New Car Warranties Service Contracts
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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5. Research-Based Buying Major 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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6. Objective 2 Implement a Process for Making Consumer Purchases
A Research-based Approach to Buying a Motor Vehicle
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7. Buying a Motor Vehicle Phase 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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8. Buying a Motor Vehicle Phase 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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9. 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 CarMax
Your experiences with buying or selling used cars?
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10. Buying a Motor Vehicle Leasing 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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11. 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 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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12. 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
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13. 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?”

14. Buying a Motor Vehicle Price Bargaining for New Cars
Sticker Price = suggested retail price
Includes base price + accessories
Invoice Price = dealers cost
Consumer Reports:
Edmund’s New Car Prices:
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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15. Buying a Motor Vehicle Price 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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16. Buying a Motor Vehicle Price 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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17. Buying a Motor Vehicle Comparing 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)
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18. 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?

19. Buying a Motor Vehicle Phase 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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20. Buying a Motor Vehicle Phase 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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21. Buying a Motor Vehicle Phase 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
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22. Objective 3 Describe 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 or letter
Step 3: Obtain consumer agency assistance
BBB provides pre-purchase information
File a complaint on line at
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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23. Objective 4 Evaluate 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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24. 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?