Throughout your life, your buying decisions reflect many influences. You
should consider opportunity costs to maximize the satisfaction you obtain
from available financial resources. Commonly overlooked trade-offs when
buying include
Paying a higher price over time by using credit to buy items that you
need now.
Buying unknown, possibly poor-quality brands that are less expensive.
Selecting brands that may be difficult to service or repair.
Ordering by mail or online, which saves time and money but may make
it harder to return, replace, or repair purchases.
Shopping decisions are based on a specific decision-making process. This process will be most valuable with large purchases such as appliances, sports equipment, electronic products, home improvements, and vacations. When buying such items, most people want to get the most for their money.
You probably make many routine purchases of low-cost items, such as food and clothing, without thinking about them, and often this is exactly what you should do. Following all of the steps in the consumer buying process for low-cost items may not be the best use of your time.
Phase 1: Preshopping Activities
First, define your needs and obtain relevant product information. These activities are the foundation for buying decisions to help you achieve your goals.
Problem Identification. Objective decision making should start with an open mind. Some people always buy the same brand when another brand at a lower price would also serve their needs, or when another brand at the same price may provide better quality. A narrow view of the problem is a weakness in problem identification. You may think the problem is "I need to have a car" when the real problem is "I need transportation."
Information Gathering. Information is power. The better informed you are, the better buying decisions you will make. Knowing the least expensive place to buy an appliance can enhance your financial well-being. Information for buying decisions commonly falls into three areas:
Costs-what is the price at various locations?
Options-who offers which items, brands, and services?
Consequences-how might a purchase affect my time, health, and financial situation?
Some people spend very little time gathering and evaluating buying information. At the other extreme are people who spend much time obtaining consumer information. Consumer information sources should be evaluated for reliability, completeness, relevance, and objectivity.
As you research a consumer purchase, identify the attributes that are important to you. Helpful sources for this task are friends who own the product, salespeople, periodicals such as Consumer Reports, and the Web. The specific attributes will vary depending on the product or service.
Price Analysis. Research shows that prices can vary for all types of products. For a camera, prices may range from under $200 to well over $500. The price of aspirin may range from less than $1 to over $3 for 100 five-grain tablets. While differences in quality and attributes may exist among the cameras, the aspirin are the same in quantity and quality.
Differences in quality (based on information from others and on your personal evaluation of product attributes) need to be assessed in relation to price. When the quality and quantity are the same (as with aspirin), the lowest price is likely to be the wisest choice, except, perhaps, if the place of purchase is not convenient.
Always be cautious of the common belief that "you get what you pay for." Many studies have revealed low relationships between price and quality, especially for expensive, highly technical products.
Comparison Shopping. Many people view comparison shopping as a waste of time. While this may be true in certain situations, comparison shopping can be beneficial when
Buying expensive or complex items.
Buying items that you purchase often.
Comparison shopping can be done easily (with advertisements, catalogs,
or online).
Different sellers offer different prices and services.
Once you've done your research and evaluations, some other activities and decisions may be appropriate. Certain products, such as real estate or automobiles, may be purchased using price negotiation.
Whether to pay cash or use credit should be considered in terms of the costs and benefits. Before using credit, evaluate the various financial and opportunity costs based on
In the past, certain items would go on sale the same time each year.
People could obtain bargains by buying winter clothing in mid- or late
winter, or summer clothing in mid- or late summer. Many people save by
buying holiday items and other products at reduced prices in late December
and early January. In recent years, as retail competition has intensified,
sales and discounts occur throughout the year.
Store Selection
Your decision to shop at a particular store is probably influenced by
the quality and variety of merchandise. Also important are the store's
policies on matters such as check cashing, exchanges, and frequency of
sales. Most stores offer customers various services, including free parking
and delivery, telephone and mail orders, and product advice. Finally,
your selection of a store is affected by store hours, location, reputation,
and the accessibility of shopping alternatives.
Brand Comparison
Comparison shopping is the process of considering alternative stores,
brands, and prices. In contrast, impulse buying is unplanned purchasing.
Some impulse buying may be acceptable; too much can cause financial problems.
Since food and other products come in different brands, customers have
a choice. National-brand products are highly advertised items available
in many stores.
Store-brand products, sold by one chain of stores, are low-cost alternatives
to famous-name products.
Label Information
Certain label information is helpful; however, other information is
nothing more than advertising. Federal law requires that food labels contain
information about the common name of the product, the name and address
of the manufacturer or distributor, the net weight of the product, and
a list of the ingredients in decreasing order of weight.
Unit pricing uses a standard unit of measurement to compare the
prices of packages of different sizes. The process for calculating and
using the unit price is as follows:
Determine the common unit of measurement, such as ounces, pounds,
gallons, or number of sheets (for items such as paper towels and facial
tissues).
Divide the price by the number of common units; for example, an 8-ounce
package of breakfast cereal selling for $1.52 has a unit price of 19
cents per ounce, while an 11-ounce package costing $1.98 has a unit
price of 18 cents per ounce.
Compare the unit prices for various sizes, brands, and stores to determine
the best buy for your situation.
Remember, the package with the lowest unit price may not be the best
buy for you since it may contain more food than you would use before spoilage
occurs.
Two common techniques that offer customers reduced prices are coupons
and rebates. Each year, billions of coupons are distributed on packages
and through newspapers, magazines, and the mail. coupons are especially
valuable if you already plan to buy the products. A family saving about
$8 a week on their groceries by using coupons will save $416 over a year
and $2,080 over five years (not counting interest earned had that amount
been put in a savings account). Coupons are available
online at www.coolsavings.com
, www.centsoff.com
and www.couponsurfer.com.
A rebate is a partial refund of the price of a product. This
technique was originally used to promote sales of automobiles, but it
is now used for selling almost every type of product.
The following guidelines are helpful in comparing prices:
More convenience (location, hours, sales staff) usually means higher
prices.
Ready-to-use products (convenience foods, preassembled toys, furniture)
usually have higher prices.
Large packages are usually the best buy; however, be sure to use unit
pricing to compare different sizes, brands, and stores.
"Sale" may not always mean saving money; the sale price
at one store may be higher than the regular price at another store.
Warranty Evaluation
Most products come with some guarantee of quality. A warranty
is a written guarantee from the manufacturer or distributor that specifies
the conditions under which the product can be returned, replaced, or repaired.
An express warranty, usually in written form, is created by the seller
or manufacturer and has two forms: the full warranty and the limited
warranty. A full warranty states that a defective product can be fixed
or replaced during a reasonable amount of time. A limited warranty covers
only certain aspects of the product, such as parts, or requires the buyer
to incur part of the costs for shipping or repairs.
An implied warranty covers a product's intended use or other basic understandings
that are not in writing. For example, an implied warranty of title indicates
that the seller has the right to sell the product. An implied warranty
of merchantability guarantees that the product is fit for the ordinary
uses for which it is intended: A toaster must toast bread, and a
stereo must play CDs or tapes. Implied warranties vary from state to state.
Most consumer complaints are resolved at the original sales location.
Since most business firms are concerned about their reputations, they
usually honor legitimate complaints. As you talk with the salesperson,
customer service person, or store manager, avoid yelling, threatening
a lawsuit, or demanding unreasonable action. In general, a calm, rational,
yet persistent approach is recommended.
Step 2: Contact Company Headquarters
Express your dissatisfaction to the corporate level if a problem is
not resolved at the local store. The websites
of major companies offer a method to communicate with these organizations;
see www.hoovers.com.
You can obtain a company's consumer hotline number by using a directory
of toll-free numbers or calling 1-800-555-1212, the toll-free information
number.
Step 3: Obtain Consumer Agency Assistance
If you do not receive satisfaction from the company, several consumer,
business, and government organizations are available. These include
national organizations specializing in issues such as automobile safety,
health care, and nutrition, and local organizations that handle complaints,
conduct surveys, and provide legal assistance.
The Better Business Bureaus are a network of offices that resolve
complaints against local merchants. Better Business Bureaus are sponsored
by local business organizations, and companies are not obligated to
respond to the complaints. The Better Business Bureau in your area may
be of value before you make a purchase. Its files will tell you about
the experiences of others who dealt with a firm with which you are planning
to do business.
Mediation involves the use of a third party to settle grievances.
In mediation, an impartial person-the mediator-tries to resolve a conflict
between a customer and a business through discussion and negotiation.
Mediation is a nonbinding process. It can save time and money compared
to other dispute settlement methods.
Arbitration is the settlement of a difference by a third party-the
arbitrator-whose decision is legally binding. After both sides agree
to the arbitration process, each side presents its case to the arbitrator.
Arbitrators are selected from volunteers trained for this purpose. Most
major automobile manufacturers and many industry organizations have
arbitration programs to resolve consumer complaints.
A vast network of government agencies is also available. Problems
with local restaurants or food stores may be handled by a city or county
health department. Every state has agencies to handle problems involving
deceptive advertising, fraudulent business practices, banking, insurance
companies, and utility rates.
Every state has a court system to settle minor disagreements. In small
claims court, a person may file a claim involving amounts below
a set dollar limit. The maximum varies from state to state, ranging
from $500 to $10,000; most states have a limit of between $1,500 and
$3,000. The process usually takes place without a lawyer, although in
many states attorneys are allowed in small claims court.
To make best use of small claims court, experts suggest the following
tips:
Become familiar with the court's location, procedures, and filing
fees (usually from $5 to $50).
Observe other cases to learn more about the process.
Present your case in a polite, calm, and concise manner.
Submit evidence such as photographs, contracts, receipts, and other
documents.
Use witnesses who can testify on your behalf.
While obtaining a favorable judgment in small claims court may be
easy, the collection process is frequently difficult. Since the defendant
may not appear, you may have to pay a sheriff to serve a court order
or use a collection agency to get your money.
Class-Action Suits
Occasionally a number of people have the same complaint-for example,
people who were injured by a defective product, customers who were overcharged
by a utility company, or travelers who were cheated by a tour business.
Such people may qualify for a class-action suit. A class-action suit
is a legal action taken by a few individuals on behalf of all the people
who have suffered the same alleged injustice. These people, called a
class, are represented by one lawyer or by a group of lawyers working
together.
Once a situation qualifies as a class-action suit, all of the affected
parties must be notified of the suit. At this point, a person may decide
not to participate in the class-action suit and instead file an individual
lawsuit. If the court ruling is favorable to the class, the funds awarded
may be divided among all the people involved, used to reduce rates in
the future, or assigned to public funds for government use.
Recent class-action suits included auto owners who were sold unneeded
replacement parts for their vehicles and a group of investors who sued
a brokerage company for unauthorized buy-and-sell transactions that
resulted in high commission charges.
Using a Lawyer
When small claims court or a class-action suit is not appropriate,
you may seek the services of an attorney. The most common sources of
available lawyers are referrals from people you know, the local branch
of the American Bar Association, and telephone directory listings. Lawyers
advertise in newspapers, on television, and in other media. Be aware
that impressive advertising does not mean competent legal counsel.
Deciding when to use a lawyer is difficult. In general, straightforward
legal situations such as appearing in small claims court, renting an
apartment, or defending yourself on a minor traffic violation usually
do not require legal counsel. But for more complicated matters such
as writing a will, settling a real estate purchase, or suing for injury
damages caused by a product, it is probably wise to obtain the services
of an attorney.
When selecting a lawyer, you should consider several questions. Is the
lawyer experienced in your type of case? Will you be charged on a flat
fee basis, at an hourly rate, or on a contingency basis? Is there a fee
for the initial consultation? How and when will you be required to make
payment for services?
While many laws, agencies, and legal tools are available to protect
your rights, none will be of value unless you use them. Consumer protection
experts suggest that to prevent being taken in by deceptive business
practices, you should
Do business only with reputable companies with a record of satisfying
customers.
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;
also, compare the interest rates the seller offers with those offered
by a bank or a credit union.
