Bài giảng Personal Financial - Chapter 6: Consumer Purchasing Strategies

6 Consumer Purchasing StrategiesPractical Purchasing StrategiesTiming purchasesPrice variations by time of year (seasons)Store selectionLocation, price, selection, services Brand Comparison Private-label or store brands (sold by one chain) vs. national brandsLabel InformationOpen dating (shelf life of products)6-*1Practical Purchasing Strategies Price comparisonUnit pricing = standard of measurementCoupons and rebatesMore store convenience higher pricesReady-to-use products higher pricesLarge is not always best buy (check unit price, usage)“Sale” prices not always a savings (anchoring)Online sources can save time6-*2Practical Purchasing StrategiesWarrantiesWritten guarantee from manufacturer or distributor specifying conditions under which a product can be returned, replaced, or repaired.Express Warranty (usually written); 2 FormsFull 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)6-*3WarrantiesUsed Car WarrantiesFTC requires a “buyers’ guide sticker”Tells if car has warranty and, if so, what it coversWarranty of merchantability (item fit for intended use)New Car WarrantiesBasic parts against defectsPower train coverage (engine, transmission)Corrosion warranty (covers holes due to rust)Service Contracts“Extended warranty”6-*4Research-Based Buying Major Purchase Decision-making ProcessPhase 1: Pre-shopping ActivitiesProblem identification: prioritize needs and wantsInformation gathering: information is power! WHERE to go?Follow the RULE OF THREE (all major products and services)Phase 2: Evaluating AlternativesPrice analysis (range of prices and differences in cost)Comparison shopping (especially complex and expensive items)Phase 3: Determining Purchase Price and SelectionNegotiation (cars: start with dealer invoice, NOT sticker price)Payment alternatives (cash, loan, lease)Acquisition and installationPhase 4: Post-purchase ActivitiesMaintenance and operationAfter-sale service alternativesResolution of purchase concerns6-*5Objective 2 Implement a Process for Making Consumer PurchasesA Research-based Approach to Buying a Motor Vehicle6-*6Buying a Motor VehiclePhase 1 – Pre-shopping ActivitiesProblem IdentificationFocus on real needs (e.g., reliable transportation)Information GatheringPersonal contactsBusiness organizationsMedia informationIndependent testing organizationsGovernment agenciesOnline sources6-*7Purchase Alternatives (e.g., new vs. used, makes/models, delaying)Selecting Vehicle OptionsPerformance 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 vehiclesLeasing a motor vehicleBuying a Motor VehiclePhase 2 - Evaluating Alternatives6-*8 Common sources of used cars include:New-car dealersUsed-car dealersPrivate salesAuctions and dealers sell previously owned carsUsed-car superstores such as CarMax a Motor Vehicle Comparing Used Vehicles6-*Your experiences with buying or selling used cars?9AdvantagesSmall 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 purposesAble to obtain a more expensive car more oftenDisadvantagesNo ownership interestMust meet requirements to qualify (similar to credit)May have additional costs for extra mileage, “wear and tear”, turning car in early, moving, or certain repairsBuying a Motor Vehicle  Leasing a Motor Vehicle6-*10Capitalized Cost = price of the vehicle Average buyer pays 92% of listAverage leaser pays 96% of listMoney Factor = interest rate paid on cap. costPayment Schedule Monthly payment amountnumber 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 valueOpen-End Lease- lease holder pays difference between projected residual value and actual market value at end of leaseBuying a Motor Vehicle Financial Aspects of Leasing6-*11Buying a Motor Vehicle Phase 3 - Determining Purchase PriceNegotiation may lower price or add featuresHave all the necessary informationDeal with a person who has the authority to give you a lower price or additional featuresUsed-Car Price NegotiationEdmund’s Used Car Prices - Blue Book - more new cars sold, the more used cars there are for sale, keeping the prices down6-*12Car-Buying TermsHighballing – dealer offers a trade-in allowance that is higher than the vehicle is worthCounterbalanced 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?”13Buying a Motor Vehicle Price Bargaining for New CarsSticker Price = suggested retail priceIncludes base price + accessoriesInvoice Price = dealers costConsumer Reports: Edmund’s New Car Prices: a cost somewhere in range in betweenUntil price of the new car is settled:Don’t mention any trade-in Don’t mention dealer financing 6-*14Buying a Motor Vehicle Price Bargaining for New CarsPrice bargaining - compare dealersSet-price dealers (“no-haggling” prices)Car buying services = auto brokerCar prices $50 - $200 over dealer’s cost Fee-based; arranges purchase with dealerSales agreement = specific detailsConsumer protection for new-car buyersWarranties State lemon laws6-*15Sales Techniques to AvoidLowballing 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 incentivesSales agreements with preprinted amountsCross out inappropriate numbersBuying a Motor Vehicle Price Bargaining for New Cars6-*16Buying a Motor Vehicle Comparing Financial AlternativesFinancing SourcesBanks, 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 longCheck the APR and any RebatesUse online calculators to determine whether to take low interest rate OR rebate (usually can’t get both) 6-*17Researching RebatesRebate – 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?18Buying a Motor Vehicle Phase 4: Post-Purchase ActivitiesMaintenance and ownership costs are associated with some purchasesCorrect use yields improved performance and fewer repairsInvestigate, evaluate, and negotiate a variety of servicing optionsComplain if not satisfied with a purchase6-*You can expect to spend over $200,000 on car expenses over your lifetime!19Buying a Motor Vehicle Phase 4: Post-Purchase ActivitiesAutomobile Operating CostsFixed CostsDepreciationInterest on loanInsuranceLicense, registration ,and taxesVariable CostsGas and oilTiresMaintenance and repairsParking and tolls6-*20Buying a Motor Vehicle Phase 4 - Post-purchase ActivitiesVehicle Servicing OptionsCar dealersService stationsIndependent auto repair shopsMass merchandise retailers like Sears and Wal-MartSpecialty shops such as oil/lube, muffler, transmission, and tire shopsBe alert for signs of fraud6-*21Objective 3 Describe Steps to Take to Resolve Consumer ComplaintsStep 1: Return to place of purchaseCalm, rational, persistent approach Step 2: Contact company headquarters “Contact Us” on firm’s website Use e-mail or letterStep 3: Obtain consumer agency assistance BBB provides pre-purchase informationFile a complaint on line at - third party negotiates (non-binding on parties)Arbitration – Third party’s decision is legally bindingState consumer protection office or agencyStep 4: Take legal action6-*22Objective 4Evaluate Legal Alternatives Available to ConsumersLegal Options for ConsumersSmall claims courtClass action suitsUsing a lawyerOther legal alternativesLegal aid society (public agency)Prepaid legal services6-*23Wrap UpChapter QuizConcept 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?24