CHAPTER 8
Consumer Purchasing Strategies
and Legal Protection
Personal Finance 6e
Kapoor
Dlabay
Hughes
8-1
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© The McGraw-Hill Companies, Inc., 2001. All Rights Reserved.
Financial Implications of
Purchasing 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, possible poor-quality brands
that are less expensive.
 Selecting brands that may be difficult to service
or repair.
 Ordering by mail or online can save time and
money, but may make return or repair difficult.
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 Taking time and effort to comparison shop.
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Economic Factors
inflation
Interest rates
Supply/demand
Brand name
Warranty
Product Quality
Tax rates
Social Factors
CPI-
Sex
Culture
Attitudes
Consumer
Buying
Influences
Personal Factors
and age
Marital status
Occupation
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Lifestyles
Income
Education
Family
size
Ads/media
Hobbies
Peer
group
Housing
type
Ethnic group
Religion
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Consumer Purchasing Phase 1:
Preshopping Activities



Problem identification.
Information gathering.
 Costs - price variance.
 Options - who offers brands and services.
 Consequences - to time, health and
financial situation.
Information sources.
 Personal contacts and experience of others.
 Business organizations advertising & media.
 Independent testing organizations.
 Government agencies.
 Online - company web sites.
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Consumer Purchasing Phase 2:
Evaluation of Alternatives

Attribute assessment.
Based on personal values and goals, time and
money, costs and benefits, and specific needs with
regard to product size, quality, quantity, and
features. Four steps to take include...
 Identify attributes such as features, performance,
design, and warranty, and assign a weight based
on attribute importance. See Consumer Reports
and the Web.
 Select brands to be evaluated.
 Rate each brand (from 1-10) based on the
attributes you identified to get a weighted score. 8-5
 Total and assess the results.
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Consumer Purchasing Phase 2:
Evaluation of Alternatives (continued)

Price analysis.
 Assess differences in quality in relation to price.
 Price and quality are not always closely related.
 Comparison shopping can be beneficial when...
 Buying expensive or complex items.
 Buying items that you purchase often.
 Comparison shopping can be easily with ads,
catalogs or online.
 Product quality or prices vary greatly.
8-6
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Consumer Purchasing Phase 3:
Selection and Purchase
 Negotiation may be used on some products.
 Have all the necessary information.
 Deal with a person who has the authority to


give you a lower price or additional features.
Decide on cash or credit. If credit, consider...
 Different places to borrow.
 Different types of credit accounts.
 Different down payment options.
 Different payment periods.
Get all acquisition and installation costs and
8-7
conditions in writing.
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© The McGraw-Hill Companies, Inc., 2001. All Rights Reserved.
Consumer Purchasing Phase 4:
Postpurchase Activities





Maintenance and ownership costs may be
associated with some purchases.
Correct use means improved performance
and fewer repairs.
Investigate, evaluate and negotiate a variety
of servicing options.
Complain if you are not
satisfied with a purchase.
Consider what you have
8-8
learned from the purchase.
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Practical Purchasing Strategies




Timing purchases.
 Be aware if the price varies
with the time of the year.
Store selection.
 Pick a merchant that meets your needs for
store policies, services, quality and variety of
merchandise, and store hours, location,
reputation, and accessibility of alternatives.
Brand comparison versus impulse buying.
 Store brands can be low-cost alternatives.
8-9
Look for label information, such as open dating.
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Practical Purchasing Strategies

(continued
)
Price comparison.
 Unit pricing provides a standard of measurement.
 Coupons and rebates (partial refund).
 More convenience and ready-to-use products,
may mean higher prices.
 “Sale” does not always mean saving money.
 Evaluate warranties.
 Full or limited express warranties.
 Implied warranties of fitness and merchantability.
 Service contracts - also called extended warranties.
8-10
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Steps for
Resolving Consumer Complaints
Return to place of purchase.
Contact the company’s main office via
telephone or their web site.
Obtain assistance from a consumer agency.
 Better Business Bureau web site to file a
complaint on line: http://www.bbb.org.
 Local Better Business Bureau.
 Mediation.
 Arbitration.
 State consumer protection office or agency.
8-11
 Federal agencies.
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Steps in Resolving
Consumer Complaints
(continued)
Take legal action.
 Small claims court.
 Class action suits.
 Use a lawyer.
 Other legal alternatives.
 Legal aid society.
 Prepaid legal services.
 Research legal
questions at
www.nolo.com.
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Personal Consumer Protection

To protect yourself as a consumer…
 Deal with reputable companies.
 Avoid signing contracts and other
documents you do not understand.
 Be cautious about offerings that seem too
good to be true - they probably are.
 Compare the cost of buying on credit with
the cost of paying cash. Compare interest
rates the seller offers with other sources.
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 Avoid rushing to get a good deal.
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CHAPTER 8 Appendix
Buying and Operating
Motor Vehicles.
Personal Finance 6e
Kapoor
Dlabay
Hughes
8-14
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2001. All Rights Reserved.
Buying a Used Vehicle


Sources of used vehicles.
 New-car dealers.
 Used-car dealers.
 Private parties.
Consumer protection for used car buyers.
8-15
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Inspecting a Used Car




Outside the car.
Inside the car.
The engine.
 Mechanic’s
inspection.
 Odometer fraud.
The road test.
8-16
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Used Car Price Negotiation

Price information sources
 Edmund’s Used Car Prices or
edmunds.com
 NADA Official Used Car Guide.
 Kelly Blue Book kbb.com
8-17
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Negotiating the Price

Sticker price - suggested retail price. It
includes the base price of the plus
accessories.
 Invoice price - dealers cost + Know the dealer’s cost by consulting...
 Consumer Reports
consumerreports.org
 Edmund’s New Car Prices
edmunds.com
8-18
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Selecting Options

Mechanical devices.
 Engine size.
 Cruise control.
 Comfort and convenience options.
 Air conditioning.
 Stereo systems.
 Aesthetic features.
 Special paint.
 Mag wheels.
 Service contract.
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Determining a Purchase Price
Price bargaining.
 Set-price dealers.
 Car buying services.
 Also called an auto broker.
 Online car buying.
 The sales agreement.
 Consumer protection for new-car buyers.

8-20
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Financing an Automobile Purchase

Financing sources.
 Banks, credit unions, finance
companies, or dealer financing.
 Many lenders will preapprove a certain
amount.
 Consider the length of the loan.
 Upside down equity means that your
car is worth less that what you still owe
on the car loan.
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8-21
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Leasing a Vehicle


Advantages.
 Small cash outflow.
 Lower monthly payments than buying.
 Lease provides detailed records.
Disadvantages.
 No ownership interests.
 Must meet requirements.
 May have additional costs.
8-22
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Costs of Operating a Car

Fixed Costs.
 Depreciation.
 Interest on loan.
 Insurance.
 License, registration & taxes.
 Variable Costs.
 Gas and oil.
 Tires.
 Maintenance & repairs.
 Parking and tolls.
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8-23
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Servicing Your Car

Follow the maintenance schedule in
the manual.
 Vehicle servicing services.
 Car dealers.
 Automobile repair shops.
 Service stations.
 Discount stores.
 Specialty shops.
 Jiffy Lube.
 Midas.
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