BUSN380 Week 5 TCO 4 Chap 8 Consumer Purchasing Strategies & Legal Protection
BUSN380 Week 5 TCO 4 Chap 8 Consumer Purchasing Strategies & Legal Protection
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8 CONSUMER PURCHASING STRATEGIES AND LEGAL PROTECTION CHAPTER 8 QUIZ ANSWERS TrueFalse Multiple Choice 1. F (p. 250) 6. B (p. 247) 2. T (p. 251) 7. A (p. 253) 3. T (p. 245) 8. D (p. 255) 4. T (p. 247) 9. A (p. 263) 5. F (p. 260) 10. C (p. 265) CHAPTER 8 QUIZ TRUEFALSE _____1. The first element in a purchasing decision is gathering information. _____2. Consumer information from business organizations includes advertising, product labels, and packaging. _____3. National name products usually cost more than store brands or generics. _____4. An express warranty is usually in a written form. _____5. Most consumer complaints are resolved with the use of a government agency or by taking legal action. MULTIPLE CHOICE _____6. A(n) __________ warranty covers most repairs of a product. a. limited b. implied c. full d. express _____7. The highest prices for used cars are usually at a a. newcar dealer. b. usedcar dealer. c. privateparty sale. d. public auto auction. _____8. When leasing a motor vehicle, the capitalized cost refers to the a. security deposit. b. residual value. Copyright © 2009 The McGrawHill Companies, Inc. All rights reserved. 81 c. interest rate. d. price of the vehicle. _____9. A legally binding decision by a third part is a. arbitration. b. mediation. c. a legal society. d. a prepaid legal service. _____10. __________ are publicly supported community law offices that provide legal assistance to consumers who cannot afford their own attorney. a. Small claims court b. Class action suits c. Legal aid societies d. Legal clinics SUPPLEMENTARY ACTIVITY Consumer DecisionMaking Styles Inventory Your Consumer Choices This page contains statements on different interests and priorities consumers have. Please read each statement and circle the number indicating how much you agree or disagree with the statement as a description of you. r e a e e g i r e e a e g l g i A n o D I t t S S 1. Getting very good quality is very important to me 1 2 3 4 5 2. The wellknown national brands are best for me 1 2 3 4 5 3. I usually have one or more outfits of the very newest style 1 2 3 4 5 4. Shopping is a pleasant activity to me 1 2 3 4 5 5. I buy as much as possible at “sale” prices 1 2 3 4 5 6. I should plan my shopping more carefully than I do 1 2 3 4 5 7. There are so many brands to choose from that often I feel confused 1 2 3 4 5 8. I have favorite brands I buy over and over 1 2 3 4 5 9. When it comes to purchasing products, I try to get the very 82 Copyright © 2009 The McGrawHill Companies, Inc. All rights reserved. best 1 2 3 4 5 10. The more expensive brands are usually my choices 1 2 3 4 5 11. I keep my wardrobe uptodate with the changing fashions 1 2 3 4 5 1 2 3 4 5 12. Going shopping is one of the enjoyable activities of my life 13. The lower price products are usually my choice 1 2 3 4 5 14. I am impulsive when shopping 1 2 3 4 5 15. Sometimes it’s hard to choose which stores to shop 1 2 3 4 5 16. Once I find a product or brand I like, I stick with it 1 2 3 4 5 Copyright © 2009 The McGrawHill Companies, Inc. All rights reserved. 83 Scoring Summary Directions: Add your scores for items on Your Consumer Choices: Perfectionist Consumer = 1._____ + 9._____ = _____ Brand Conscious Consumer = 2._____ + 10._____ = _____ Fashion Conscious Consumer = 3._____ + 11._____ = _____ Recreational Shopping Conscious Consumer = 4._____ + 12._____ = _____ PriceValue Conscious Consumer = 5._____ + 13._____ = _____ Impulsive Consumer = 6._____ + 14._____ = _____ Confused by Overchoice Consumer = 7._____ + 15._____ = _____ HabitualBrand Loyal Customer = 8._____ + 16._____ = _____ Scoring Interpretation Scores of 910 = You are HIGH on this consumer characteristic. Scores of 68 = You are MODERATE to AVERAGE on this consumer characteristic. Scores of 25 = You are LOW on this consumer characteristic. ANSWERS TO CONCEPT QUESTIONS, FINANCIAL PLANNING PROBLEMS, FINANCIAL PLANNING ACTIVITIES, FINANCIAL PLANNING CASE, DIGITAL CASE, AND CONTINUING CASE CONCEPT QUESTIONS Concept Check 81 (p. 249) 1. What factors commonly influence a person’s daily buying choices? Buying decisions are most influenced by economic factors (inflation, taxes, interest rates, government regulations), personal factors (age, sex, income, family situation), and social factors (lifestyle, interests, hobbies, advertising). (Exhibit 81, p. 244) Different individuals tend to overlook different factors. An increased awareness of these factors can assist in making wiser and more satisfying consumer choices. 2. How are daily buying decisions related to overall financial planning? As shown in Exhibit 81 (p. 244), a person’s spending patterns can result in either financial difficulties or achievement of desired financial goals. 84 Copyright © 2009 The McGrawHill Companies, Inc. All rights reserved. 3. What types of brands are commonly available to consumers? Consumers have a choice of brandname, storebrand, and generic products. (p. 245) 4. In what types of situations can comparing prices help in purchasing decisions? Comparing prices can be helpful when buying expensive or complex items, when competing brands are available, when different package sizes are available, and when product quality varies. (pp. 246 247) 5. How does a service contract differ from a warranty? What rights do purchasers of products have even if there is no written warranty? A service contract is a paid agreement for repairs. A warranty is a feature offered by a manufacturer or distributor. Even if there is not a written warranty, certain implied warranties are present. For example, sale of an item implies that the store owns the product or an item must do what it is intended to do, at least for a while! (p. 247) Action Application: In recent years, increased competition and expanded availability to information (such as the Internet) has tended to reduce brand loyalty in our society. This activity can provide students with an understanding of how brand loyalty affects buying habits. Concept Check 82 (p. 259) 1. What are the major sources of consumer information? The major sources of consumer information are personal contacts, business organizations, media information, independent testing organizations, online sources, and government agencies. (pp. 251) 2. What actions are appropriate when buying a used car? Identify sources of used vehicles, research and compare prices, condition of vehicle, and options. 3. When might leasing a motor vehicle be appropriate? Leasing may be appropriate for business use or when a new vehicle is desired every few years. 4. What maintenance activities could increase the life of your vehicle? Frequent oil changes, regular tuneups, and checking belts, hoses, and fluids regularly can minimize major repairs and maximize vehicle life. Action Application: Students should discuss the advantages and disadvantages of obtaining these products at different types of businesses. While in some situations a higher price may mean better quality, which is not likely to always be true. Concept Check 83 (p. 263) 1. What are common causes of consumer problems and complaints? Copyright © 2009 The McGrawHill Companies, Inc. All rights reserved. 85 Not being informed in advance of factors such as warranties, service availability, prices at various stores, or cost of installation can result in consumer complaints. Also, not asking questions and not obtaining details in writing are common causes of consumer problems. (pp. 259260) 2. How can most consumer complaints be solved? Most consumer complaints are solved by contacting the store or company office. (pp. 260) 3. How does arbitration differ from mediation? Mediation is the involvement of a third party to suggest solutions in a dispute; arbitration is a legally binding decision by a third party made once the two parties in dispute agree to the process. (pp. 263) Action Application: Ask students to compare their findings to the items listed on pages 259260. Concept Check 84 (p. 266) 1. In what types of situations would small claims court and class action suits be helpful? Small claims court is helpful for minor consumer problems that require legal action. Class action suits can provide legal assistance to a group with the same consumer complaint. (p. 264) 2. Describe some situations in which you might use the services of a lawyer. If a consumer situation is complicated or involves a large sum of money, the use of a lawyer may be appropriate. Situations might include a product injury case, settling an estate, purchase of real estate, adoption of a child, or a divorce. (pp. 264265) Action Application: This activity can be helpful for students to better understand the process of resolving consumer complaints. FINANCIAL PLANNING PROBLEMS (p. 267) 1. Use advertisements, recent news articles, and personal observations to point out the economic, social, and personal factors that influence the purchases of the people in the following life situations: a. A retired person b. A single parent with children aged five and nine c. A dualincome couple with no children d. A person with a dependent child and a dependent parent Student answers will vary based on information collected. Refer to text p. 244. 2. You can purchase a service contract for all of your major appliances for $180 a year. If the appliances are expected to last for 10 years, and you earn 5 percent on your savings, what would be the future value of the amount you would pay for the service contract? $180 12.578 (PVA 5%, 10 years) = $2,264.04 86 Copyright © 2009 The McGrawHill Companies, Inc. All rights reserved. 3. If a person saves $63 a month by using coupons and doing comparison shopping, (a) what is the amount for a year? (b) What would be the future value of this annual amount over 10 years, assuming an interest rate of 4 percent? (a) $63 X 12 = $756; (b) $756 X 12.006 = $9,076.54 4. Tammy Monahan is considering the purchase of a home entertainment center. The product attributes and weights she plans to consider are: portability .1 sound projection .6 warranty .3 Tammy rated the brands as follows: portability sound projection warranty Brand A 6 8 7 Brand B 9 6 8 Brand C 5 9 6 Using the Consumer Buying Matrix (p. 252), conduct a quantitative product evaluation rating for each brand. What other factors is Tammy likely to consider when making her purchase? Brand A: (.1 6) + (. 8) + (.3 7) = 7.5 Brand B: (.1 9) + (. 6) + (.3 8) = 6.9 Brand C: (.1 5) + (. 9) + (.3 6) = 7.7 Tammy should also consider many other factors such as store location, availability of service, brand reputation, experience of others, and shipping costs. 5. Using the Consumer Buying Matrix (p. 252), analyze a consumer purchase you plan to make sometime in the future. What factors affected the selection of the attributes and weights you chose for this purchase analysis? This assignment will require students to assess the importance of various attributes when making a major purchase. 6. John Walters is comparing the cost of credit to the cash price of an item. If John makes a $60 down payment, and pays $34 a month for 24 months, how much more would that be than the cash price of $695? [($34 24 months) + $60] $695 = $181 7. Calculate the unit price of each of the following items: Motor oil 78 cents a quart Cereal 14.5 cents an ounce Canned fruit 6.8 cents an ounce Facial tissue 75 cents per 100 Copyright © 2009 The McGrawHill Companies, Inc. All rights reserved. 87 Shampoo 23.3 cents an ounce 8. What would be the net present value of a microwave oven that costs $159 and will save you $68 a year in time and food away from home? Assume an average return on your savings of 4 percent for five years. $68 4.452 (PV of a series of amounts, 4%, 5 years) $159 = $143.74 9. Use “Financial Planning Calculations: Net Present Value of a Consumer Purchase” (p. 246) to analyze a past or future purchase. This assignment will encourage students to consider various costs and benefits of a major consumer purchase. 10. Based on financial and opportunity costs, which of the following do you believe would be the wiser purchase? Vehicle 1:∙a threeyearold car, with 45,000 miles, costing $8,700, and requiring $585 of immediate repairs Vehicle 2: a fiveyearold car, with 62,000 miles, costing $6,500, and requiring $960 of immediate repairs Students can make a case for either vehicle since #1 has lower mileage, is newer, and requires fewer repairs. However, some people may find #2 more appealing due to the lower initial costs. 11. Using Sheet 38 in the Personal Financial Planner, calculate the approximate yearly operating cost of the following vehicle: Annual depreciation $2,500 Annual mileage 13,200 Current year’s loan interest $650 Miles per gallon 24 Insurance $680 Average gasoline price $3.68 per gallon License and registration fees $65 Oil changes/repairs $370 Parking/tolls $420 Fixed Ownership Costs Variable Operating Costs $2,500 depreciation $2,024 Gasoline 650 interest on loan 370 oil/repairs 680 insurance 420 parking/tolls 65 License/registration $2,814 total variable costs $3,895 total fixed costs Total costs $6,709 divided by 13,200 miles equals 50.8 cents cost per mile. 12. Based on the following, calculate the costs of buying and of leasing a motor vehicle. Purchase Costs Leasing Costs Down payment $1,500 Security deposit $500 Loan payment $450 for 48 months Lease payment $450 for 36 months Estimated value at End of lease charges $600 End of loan $4,000 Opportunity cost interest rate: 4 percent 88 Copyright © 2009 The McGrawHill Companies, Inc. All rights reserved. Purchase: $1,500 + [450 X 48] – 4,000 + [1,500 X .04 X 4] = $19,340 Lease: [450 X 36] + 600 + [500 X .04 X 3] = $16,860 FINANCIAL PLANNING ACTIVITIES (p. 269) 1. Using a Web search, library resources, or a survey of acquaintances, determine the major factors people consider when (a) buying food, (b) selecting a store at which to shop, and (c) using information from advertisements. This assignment should expand student awareness of consumer buying patterns and motivations. Have students prepare a summary of their findings along with suggestions for wise purchasing. 2. Obtain a recent issue of Consumer Reports (or go to www.ConsumerReports.org) to evaluate and compare different brands of a product. Also obtain information on this product from people who sell and who have recently purchased this item. Compare the information received from these sources. The product reviews and ratings in Consumer Reports can provide helpful insight into a purchase. But the magazine’s results can sometimes be different from those of individual consumers. Have students report on their findings of differences between what was in the article and what consumers experienced with the product. Encourage students to start with the Web sites listed in the “Your Personal Financial Planner in Action” 3. Use Sheet 35 in the Personal Financial Planner to compare different sources of used motor vehicles. This activity can involve use of advertisements and a Web search rather than visits to used car sales locations. Students should be able to point out economic, operational, and other factors that influence costs of vehicles from different sources. 4. Use Sheet 36 in the Personal Financial Planner to compare the costs of buying and leasing a motor vehicle. A increasing number of organizations are offering leases on motor vehicles. Encourage students to use dealer visits, advertisements, and Web sites to obtain information for this activity. 5. Collect print or online advertisements that appear to be “too good to be true.” Why are these ads deceptive? Should government agencies take action against any of the companies that presents these ads? Additional information about common frauds may be obtained at www.fraud.org Once again, this activity can provide insight into causes of common consumer complaints as well as areas where government action may be appropriate. 6. Prepare a survey of legal services available to students and others in your community. Use Sheet 35 in the Personal Financial Planner to compare the fees and services provided by lawyers and other sources of legal assistance. Some colleges have legal services available for students, this alternative should be considered along with others. Copyright © 2009 The McGrawHill Companies, Inc. All rights reserved. 89 INTERNET CONNECTION Obtaining Consumer Protection Assistance (p. 269) After obtaining this data, students should be able to better understand sources of consumer assistance. Also, have students report the key findings from their research. FINANCIAL PLANNING CASE Online Car Buying (p. 270) 1. Based on Mackenzie’s experiences, what benefits and drawbacks are associated with online car buying? While ease and convenience may be associated with online car buying, uncertainty of vehicle performance and dealer reputation may be a concern. 2. What additional actions might Mackenzie consider before buying a motor vehicle? Talk to people who have purchased vehicles through various online sources; research local dealers who actively participate in the online buying process. 3. What do you consider to be the benefits and drawbacks of shopping online for motor vehicles and other items? While student answers will vary, encourage students to communicate their knowledge related to online shopping. DIGITAL CASE “The Cheapest of Them All” (p. 270) 1. What actions can help a person control spending to achieve better personal financial security? Know your needs and priorities to avoid spending money on items that have little lasting value. Collecting information for a variety of sources will allow for better comparison shopping and wiser spending. 2. How might spending extensive time and effort for a bargain result in reduced financial benefits? Shoppers should put a value on their time and effort in order to best use all resources. Unwise use of time to save a small amount may not be in a person’s best intest. 810 Copyright © 2009 The McGrawHill Companies, Inc. All rights reserved. CONTINUING CASE Purchasing Choices (p. 271) 1. What major factors could affect the Brocks’ spending habits? The fact that the Brocks have two preschoolage children is affecting their spending habits. As a result, Pam has chosen to “retire” for a while. This means that the Brocks must live on Josh’s salary. 2. What transportation alternatives should the Brocks consider? If they decide that they need a second motor vehicle, how should they finance it? Assuming the Brocks decide they need a second automobile, they must determine if they should purchase a new or a used automobile. Each option has advantages and disadvantages. Ideally, they would pay cash for the automobile. If they purchase a new, expensive automobile, they will probably have to finance their automobile. Given the fact that the Brocks are considering the purchase of a home, a used car may be appropriate for the Brocks at this time. 3. Describe how various elements of Personal Financial Planner sheets 3239 could be useful to the Brocks when making various purchasing decisions? Have students highlight various aspects of these sheets that they believe could help the Brocks to better plan and implement buying decisions. DAILY SPENDING DIARY (p. 272) This activity can assist students with an ability to reduce unplanned buying and to better achieve long term financial goals. Copyright © 2009 The McGrawHill Companies, Inc. All rights reserved. 811 TM 81 A ResearchBased Approach to Consumer Purchases (Exhibit 83) 812 Copyright © 2009 The McGrawHill Companies, Inc. All rights reserved. TM 82 Common Advertising Techniques Product quality adss Comparative adss Humorous adss Emotional adss Lifestyle adss Endorsement adss (or testimonials) (or testimonials) Copyright © 2009 The McGrawHill Companies, 813 All rights reserved. TM 83 Consumer Buying Matrix Item Information Sources/Comments Step 22 Step Step 11 Step 44 Step 3 Step 3 814 Copyright © 2009 The McGrawHill Companies, Inc. All rights reserved. Copyright © 2009 The McGrawHill Companies, Inc. All rights reserved. 815 TM 84 Practical Purchasing Strategies Timing Brand purchases Store comparison selectio n Label Warranty information Price evaluation comparison 816 Copyright © 2009 The McGrawHill Companies, Inc. All rights reserved. TM 85 Unit Pricing Total price of an item divided by the cost per unit (ounces, pound, gallon, number of sheets) Examples … a 16ounce bottle selling for 80 cents has a unit price of 5 cents an ounce a 2.5 gallon selling for $8 has a unit price of $3.20 per gallon 350 napkins selling for $2.52 has unit price of 72 cents per 100 napkins Copyright © 2009 The McGrawHill Companies, Inc. All r817s reserved. TM 86 Wise Buying Techniques: A Summary (Exhibit 82) Compare brands of similar products to determine which is best for your intended use. Compare stores and online buying sources with regard to prices, services offered, product quality, and return privileges. Read and evaluate label information. Use coupons for products that you buy regularly or are trying out. Use unit pricing to compare packages of different sizes. Obtain "rain checks" for outofstock advertised specials that you can use for purchase later. Use open dating to determine the freshness and shelf life of perishable products. Use various consumer information sources to assist you with your buying decisions. Consider the nutritional value and the health aspects of the foods you buy. Evaluate and compare the warranties of different brands. Read product testing reports to determine which items are the safest and of the highest quality. Plan your purchases to take advantage of sales and special offers. 818 Copyright © 2009 The McGrawHill Companies, Inc. All rights reserved. Consider the time and effort it takes to evaluate alternatives and go to different stores. Copyright © 2009 The McGrawHill Companies, Inc. All rights reserved. 819 TM 87 Suggested Steps for Resolving Consumer Complaints (Exhibit 88) Step 1 Local communication… Return to the place of purchasee Contact the company’s main officee Step 2 Higherlevel communication… Obtain assistance from a consumer agencyy Step 3 Thirdparty involvement… Take legal actionn Step 4 Litigation… 820 Copyright © 2009 The McGrawHill Companies, Inc. All rights reserved. TM 88 Sample Complaint Letter (Exhibit 89) EXHIBIT 89 from p. 262 of text Copyright © 2009 The McGrawHill Companies, Inc. All rights reserved. 821 TM 89 Common Automobile Repair Frauds (Exhibit 87) The majority of automobile servicing sources are fair and honest. Sometimes, however, consumers waste dollars when they fall prey to the following tricks: When checking the oil, the attendant may put the dipstick only partway down and then use it to show that you need oil. An attendant cuts a fan belt or punctures a hose. Watch carefully when someone checks under your hood. A garage employee may put some liquid on your battery and then tries to convince you that it is leaking and you need a new battery. Removing air from a tire instead of adding air to it can make an unwary driver open to buying a new tire or paying for an unneeded patch on a tire that is in perfect condition. The attendant may put grease near a shock absorber or on the ground and then tells you that your present shocks are dangerous and you need new ones. You are charged for two gallons of antifreeze with a radiator flush, when only one gallon was put in. Dealing with reputable businesses and having a basic knowledge of your automobile are the best methods of preventing deceptive repair practices . 822 Copyright © 2009 The McGrawHill Companies, Inc. All rights reserved. Copyright © 2009 The McGrawHill Companies, Inc. All rights reserved. 823
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