Chapter 08 Consumer Purchasing Strategies and Legal Protection McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. 8-1

Chapter 8 Learning Objectives 1.Identify strategies for effective consumer buying. 2.Implement a process for making consumer purchases. 3.Identify steps to take to resolve consumer problems. 4.Evaluate legal alternatives available to consumers. 8-2

Financial Implications of Purchasing Decisions Objective 1: Identify strategies for effective consumer buying FINANCIAL IMPLICATIONS OF CONSUMER DECISIONS Commonly overlooked trade-offs when buying include… –Paying a higher price over time by using credit to buy items you need now. –Buying unknown, possibly poor-quality brands, that are less expensive. 8-3

Financial Implications of Purchasing Decisions Commonly overlooked trade-offs when buying include… (continued) –Selecting brands that may be difficult to service or repair. –Ordering by mail or online to save time and money, but return or repair may be difficult. –Taking time and effort to comparison shop. 8-4

 Consumer prices  Interest rates  Supply/demand  Brand name  Warranty  Product Quality  Tax rates  Govt. regs. Economic Factors  Lifestyle  Culture  Attitudes  Ads  Media/Internet  Hobbies  Peer group Social Factors  Sex and age  Marital status  Occupation Personal Factors  Income  Education  Family size  Housing type  Ethnic group  Religion Consumer Buying Influences Factors of Consumer Purchases 8-5

Financial Implications of Purchasing Decisions PRACTICAL PURCHASING STRATEGIES n Timing purchases –Be aware if the price varies with the time of the year n Store selection –Choice of retailer depends on location, price, product –Cooperatives -non-profit organization; members save money 8-6

Financial Implications of Purchasing Decisions PRACTICAL PURCHASING STRATEGIES (continued) n Brand Comparison n Comparison shopping of store and national brands; avoid impulse buying (unplanned purchasing) n Label information n Look for information on label and open dating 8-7

Practical Purchasing Strategies Price comparison –Unit pricing provides a standard of measurement –Coupons (online: coolsavings.com; centsoff.com; couponsurfer.com) and rebates (partial refund) –Convenience & ready-to-use products may mean higher prices. Large is not always the best buy, and “Sale” prices vary among stores 8-8

Practical Purchasing Strategies Evaluate warranties –Full or limited express warranties, usually written. –Warranty of Title-the right to sell the product –Implied warranty of merchantability-fit for normal use Service contracts -also called extended “warranties” 8-9

Major Consumer Purchases: Buying Motor Vehicles -The Process 8-10

Major Consumer Purchases: Buying Motor Vehicles Objective2: Implement a process for making consumer purchases Phase 1: Pre-shopping Activities nProblem identification nInformation gathering –Personal contacts –Business Organizations –Media information-television, Websites –Independent testing organizations- Consumer Reports –Government agencies. –Online Sources –

Major Consumer Purchases: Buying Motor Vehicles (continued) Phase 2: Evaluation of Alternatives Comparison shopping Selecting vehicle options-convenience, appeal, etc. Comparing used vehicles

Major Consumer Purchases: Buying Motor Vehicles (continued) Phase 2: Evaluation of Alternatives (continued) Leasing an automobile –lower payments, smaller initial cash outlay –no ownership in vehicle –maximum # of miles/year; charged for extra miles –know the capitalized cost of the lease, the money factor, the monthly payment, number of payments, and the residual value 8-13

Major Consumer Purchases: Buying Motor Vehicles (continued) Phase 3: Determining Purchase Price Negotiation for New and Used cars –Know necessary information about the product –Deal with a person of authority to give you a lower price or additional features. –Used-cars: Check newspaper ads, Kelly Blue Book ( –New cars: Set-price dealers, car-buying services 8-14

Major Consumer Purchases: Buying Motor Vehicles (continued) Phase 3: Determining Purchase Price (continued) Compare financing alternatives –Variety of lenders-some lenders may pre-approve you –Avoid being upside-down or having negative equity in your car –Look for rebates or low-interest financing. –Consider the APR, total finance charge. Check out

Major Consumer Purchases: Buying Motor Vehicles (continued) Phase 4: Post-purchase Activities n Lemon Laws n Automobile operation costs n Use the item correctly to have improved performance and fewer repairs n Investigate, evaluate and negotiate a variety of servicing options n Motor Vehicle Maintenance n Operation costs; fixed and variable expenses n Automobile servicing sources; dealers, service stations, garages, Wal-Mart, etc 8-16

Resolving Consumer Complaints 8-17

Resolving Consumer Complaints Objective 3: Identify steps to take to resolve consumer problems Step 1: Return to place of purchase Step 2: Contact the company’s main to get company hotline Step 3: Obtain assistance from a consumer agency –BBB provides pre-purchase information –Mediation - third party negotiates (nonbinding) –Arbitration - decision is binding –State consumer protection office or agency –Federal agencies - see Appendix B in text 8-18

Legal Options for Consumers Objective 4: Evaluate the legal alternatives available to consumers Step 4: Take Legal Action –Small claims court –Class action suits –Using a lawyer –Other legal alternatives Legal aid society Prepaid legal services –Personal Consumer Protection Follow common sense guidelines on dealing with reputable companies, signing contracts, exaggerated offers, credit vs. cash purchase and rushing to get a deal 8-19