business HW

*

CHAPTER 6

Consumer Purchasing Strategies
and Wise Buying of Motor Vehicles

Or

“I’d Like Some More Things, Please!”

Microsoft Chairman Bill Gates told CNBC that he wished he were not the richest man in the world. “There is nothing good that comes out of that,” he said. http://en.wikipedia.org/wiki/Bill_Gates

*

Scandal #6

Clothes

Culture of Consumption

*

“Thanking you for the clothes of your dead people”

A journalist was on assignment covering cultures around the world and specifically, how their cultures relate to and think of our culture. His guide in East Africa (the affluent part of Central Africa) invited him to come see the distribution of the clothes from the dead Americans to the locals. When the journalist asked the guide why the locals thought the clothes were from dead Americans, the guide looked at him oddly and said, “Why would a living person give away any of their clothes?”

*

Scandal #12

Pets

Culture of Consumption

*

A What Therapist?!

How much does a very busy dog therapist charge for six 1-hour sessions with you and your dog?

$250

$500

$1,000

$1,500

The correct answer is (D). That is $250 per hour!

Think Viet Nam.

*

How Much is Fido Costing You?

Speaking of dogs, what is the average yearly cost of owning a dog?*

Less than $500

Between $500 and $1,000

Between $1,000 and $1,500

Over $1,500

The correct answer is (D). Well, of course. Just one series of therapy sessions cost $1,500! Remember, this is per dog.

The total for Americans is $58.5 billion and it is rising quickly.

http://www.americanpetproducts.org/press_industrytrends.asp

*

• Do Not Forget Taxes
• For every $2 spent, you must earn more than $3 – maybe up to $4 depending on your income bracket
• “A Dollar Saved is Two Dollars Earned”
• From The Wealthy Barber
• From The Millionaire Next Door

“I can’t get my wife to spend any money!”

“How did the wife of a millionaire respond when her husband gave her $8 million worth of stock in the company he recently took public? She said, “I appreciate this, I really do.” Then she smiled, never changing her position at the kitchen table, where she continued to cut out twenty-five- and fifty-cent-off food coupons from the week’s supply of newspapers, just as she had done each week for the past 27 years.”

“Frugal, Frugal, Frugal”

*

Speaking of Millionaires…

Spoken by the Senior Vice-President of a trust department of a major bank that had commissioned a focus group interview of twenty first-generation millionaires.

“These people cannot be millionaires! They don’t look like millionaires, they don’t dress like millionaires, they don’t eat like millionaires, they don’t act like millionaires – they don’t even have millionaire names. Where are the millionaires who look like millionaires?”

*

Speaking of Millionaires…

• The median age is 57 years old
• Most are married and have not divorced
• More than 80% are first-generation millionaires
• The median income is $131,000 per year
• Most invest at least 15% of their income each year
• 50% have never spent more than
• $399 for a suit
• $140 for a pair of shoes
• $235 for a wrist watch

There are over 8 million households in America with a net worth of over one million dollars.

From The Millionaire Next Door

(continued)

*

Speaking of Millionaires…

Therein lies the paradox: Do you want to be a millionaire or do you want to live like a millionaire? All the people you think are millionaires – fancy cars, flashy clothes – are really just high-income, high-consumption wage earners with 10 credit cards run up to the maximum.

The millionaires are the penny-pinchers.

Bizarre, huh?

The lesson is clear. If you want to become a millionaire, having a high income is not important. You must be frugal and invest wisely.

(continued)

*

Speaking of Millionaires…

The media loves to showcase the high net worth, high consumption celebrity figures. The truth is that they constitute only a small percentage of the millionaires in the United States.

The media advertisers love them because they encourage the “Little Folk” to over consume.

But what about “The Lifestyles of the Rich and Promiscuous” & Don King & Jennifer Spears & Brittany Lopez? Huh? What about them?

(continued)

*

Speaking of Millionaires…

Over 60% of the population live on less than $1 per day.

About 41% do not have access to clean water.

Over 90% of the women over the age of 15 are illiterate.

Life expectancy at birth is approximately 44 years.

And when you are sitting at home watching TV feeling sorry for yourself as you compare yourself to Donald Rump, instead compare yourself to the citizens of Niger.

In fact, about 1.2 billion people around the world (about 1 in 6) survive on less than $1 a day. (Los Angeles Times)

(continued)

*

Speaking of Millionaires…

What You Have

Happiness = ––––––––––––––––

What You Want

So do you still believe that you would live happily-ever-after if you were a millionaire?

Simply put, if you never learn to be happy with what you have, you will never be happy. Your wants will always outweigh what you have. And even if you do become a millionaire, you will still face the same day-to-day travails that everyone faces. Your life will be more comfortable, but there is no guarantee of happiness.

(continued)

*

Scandal #23

Batteries

Culture of Consumption

*

Disposable or Rechargeable?

Given normal usage, how many alkaline batteries would be replaced by one nickel metal-hydride battery?

25

100

500

750

The correct answer is (C). Screw the Energizer Bunny!

*

• Shopping can be an addiction
• Many, many people buy things simply trying to fulfill some unmet childhood desire
• “An addiction is any mood-altering behavior that the participant is no longer in full control of.” John Bradshaw
• Do not think the advertisers do not know all about this and other psychological phenomena

“She had forty-seven cashmere sweaters.”

Beware of Emotions

*

Speaking of Emotions…

Ever wonder why advertisers use sex to sell their products?

“You can keep the beer. But I will take the bubble-headed, bleached blonde with the big kn___kers & the tight b__t, thank you.”

*

Does Advertising Really Work?

Economists estimate that every hour of TV a person watches each week increases their annual spending by about $200.

In 2005, Nielsen Media Research reported that the average person watched approximately 4½ hours of TV a day, or 31½ hours a week.

At $200 in extra spending for each hour watched, that means that the average person spends an extra $6,300 a year that they would not have spent if they didn’t watch TV.

“Television commercials do not affect me!”

Unhappy People Watch TV -- Happy People Socialize and Read

The number has risen to over 5 hours per day. That is 9 years of your life!

http://www.statisticbrain.com/television-watching-statistics/

*

• CPI - inflation
• Interest rates
• Supply/demand
• Brand name
• Warranty
• Product Quality
• Tax rates

Economic Factors

• Lifestyles
• Culture
• Attitudes
• Ads/media
• 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

What Factors Motivate You?

*

Speaking of Influences…

Would someone please tell me why a Roach handbag is worth $600 more than a JCPenney’s handbag?

Oh, I am so sorry. “Coach.” For the prices they are asking, shouldn’t they really call them “First Class?”

And do not even get me started on Lousy Vuitton!

*

Scandal #73

Light Bulbs

Culture of Consumption

*

Incandescent or Fluorescent?

Given normal usage, how many incandescent bulbs would be replaced by one fluorescent bulb?

2

4

8

11

The correct answer is (D). Incandescent bulbs give off 90% of their energy as heat. Fluorescent bulbs are cold.

*

Incandescent or Fluorescent?

Over its lifetime, how much money will one fluorescent bulb save you in energy costs at current electricity rates?

$25

$45

$65

$110

The correct answer is (B). Eventually, fluorescent bulbs will be replaced by LED bulbs.

*

Consumer Purchasing Activities

Problem identification

Information gathering: costs, options, consequences

• Sources of attribute assessment
• Personal contacts and experience of others
• Business organizations advertising & media
• Independent testing organizations – Consumer Reports
• Price analysis: Are quality and price always related?
• Comparison shopping: Do you take the time to comparison shop?

*

Consumer Purchasing Activities

Negotiation may be used on some products

Decide on cash or credit

Get all acquisition and installation costs and conditions in writing

Maintenance and ownership costs may be associated with some purchases

Complain if you are not satisfied with a purchase

Do you complain if you are not satisfied?

all

cash

A 2004 to 2007 survey by Consumer Reports shows that more than 90 percent of shoppers who asked for discounts got at least one. The negotiated price cuts were on a wide range of goods and services, including furniture, electronics, and medical bills.

(continued)

*

Timing purchases

• When is the best time to buy Christmas cards?

Brand comparison versus impulse buying

• Store brands can be low-cost alternatives
• Evaluate warranties and service contracts
• Price comparison
• Unit pricing provides a standard of measurement
• Coupons and rebates (partial refund)
• More convenience and ready-to-use products mean higher prices (Tightwad Gazette – Potatoes)
• “Sale” does not always mean saving money
• In fact…

Practical Purchasing Strategies

*

Pretzel Logic

• “But it’s on sale! Think of how much we will save!”
• You may spend less, but you never save money whenever you buy something; you always spend money whenever you buy
• Repeat after me:
• “Spending is NEVER Saving!”
• “Spending is NEVER Saving!”
• “Spending is NEVER Saving!”

*

(continued)

How much did we save? $37?

We didn’t save nothin’!

We spent $75!

Pretzel Logic

*

Scandal #118

Meat

Culture of Consumption

*

Societal Cost of Meat?

How many gallons of fresh water are used to produce one pound of beef?

100 gallons

500

1,000

2,500

The correct answer is (D).

Estimates range from 441 (beef industry) to over 12,000 (Dr. David Pimentel, Cornell University).

*

Societal Cost of Meat?

How many people can be fed via grains with the resources needed to feed one person with beef?

5 people

10

20

30

The correct answer is (D). Plus, eating lots o’ meat jest ain’t the best thing for yer health, neither. http://www.nytimes.com/2009/04/28/health/28brod.html?em

*

The Cost of Convenience

Sources: Vons, Baron’s, McDonald’s

(revisited)

*

World average is 2,700 calories per day

Speaking of Food…

Source: United Nations Environment Programme

3,600 calories per day

2,400 calories per day

3,200 calories per day

*

Speaking of Food…

The total daily caloric intake of the average American has risen by 148 calories per day since 1980. This amount reflects an extra 15 pounds per person each year.

-- U.S. Department of Agriculture

Your clothes feeling a little tighter recently? Yeah, me too.

(continued)

*

Speaking of Food…

8,000 years ago, this was the image of the ideal woman.

Today, this is the image of the ideal woman.

(continued)

*

Speaking of Food…

According to recent studies sponsored by the USDA and the NRDC, how much of the nation’s food ready to harvest never gets eaten?

2% to 5%

10% to 15%

20% to 30%

40%+

The correct answer is (D). http://www.nrdc.org/food/files/wasted-food-ip.pdf

(continued)

*

Speaking of Food…

And the average family of four throws out how many dollars worth of food each year?

$50 to $75

$100 to $150

$250 to $300

$575 to $600

The correct answer is (D). Some studies have the number much higher.

(continued)

*

Scandal #235

Bottled Water

Culture of Consumption

*

Ads We Would Love to See

http://www.democracynow.org/2007/8/1/the_bottled_water_lie_as_soft

*

But It’s Really Not Just Water!

How many plastic water bottles make their way into landfills or wind up as litter each year?

5,900,000,000 (almost 6 billion)

12,100,000,000 (a bit over 12 billion)

22,600,000,000 (about 22½ billion)

28,000,000,000 (around 28 billion)

The correct answer is (C). 62 million each day.

http://www.container-recycling.org/

But the State of New York says that it is really closer to (D).

*

Steps in 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
• Federal agencies – Federal Trade Commission
• http://www.consumer.ftc.gov/
• Mediation – parties decide for themselves (non-binding)
• Arbitration – third-party decides (binding)

*

Steps in Resolving
Consumer Complaints

Take legal action

• Small claims court
• Class-action suits
• Use a lawyer? (can not use one in small claims)
• Other legal alternatives
• Legal aid society
• Prepaid legal services
• Research legal questions at www.nolo.com
• Try mediation or arbitration first

(continued)

*

Personal Consumer Protection

• To protect yourself as a consumer…
• Deal with reputable companies
• Avoid doing any business with or giving any information to telemarketers / spammers
• www.donotcall.gov
• Avoid signing contracts and other documents you do not understand
• Compare financing through the seller with other sources such as credit unions
• Avoid rushing to get a good deal
• Be cautious about offerings that seem too good to be true – they usually are!
• http://www.ftc.gov/bcp/edu/multimedia/interactive/grandscam/index.html

*

Scandal #1

Cars

Culture of Consumption

http://www.youtube.com/watch?v=Z2mf8DtWWd8&feature=player_embedded

*

CHAPTER 6 Appendix

Buying and Operating
Motor Vehicles

Or

“You Are Not What You Drive!”

*

First, Some Statistics…

• Percentages of Short Motor Vehicle Trips…
• 49% – Three miles or less
• 40% – Two miles or less
• 27% – One mile or less

• The Average American Uses as Much Energy As…
• 3 Japanese
• 13 Chinese
• 153 Bangladeshis
• 499 Ethiopians

“…gas mileage usually decreases rapidly at speeds above 50 mph. You can assume that each 5 mph you drive over 50 mph is like paying an additional $0.25 per gallon for gas.”

http://www.fueleconomy.gov/feg/driveHabits.shtml

*

Societal Cost of Cars?

For every one gallon of gas you burn, how much carbon dioxide do you pump into the atmosphere?

7 pounds

15 pounds

20 pounds

125 pounds

The correct answer is (C). Here is the chemical formula:

C8H12 + O2  H2O + CO2

*

Societal Cost of Cars?

How much of our oil do we import?

12%

27%

40%

66%

The correct answer is (C). However, for almost two decades, it was approximately 66%. http://www.eia.gov/energy_in_brief/article/foreign_oil_dependence.cfm

Source: United States Energy Information Administration

*

Societal Cost of Cars?

And how much, per person per year, do we spend on imported oil?

$256

$409

$859

$2,240

The correct answer is (B). Six months ago, it was C.

The summer of 2008, it was D.

(7.4 million barrels/day) * ($50/barrel) * (365 days/year) / (330 million people)

*

Societal Cost of Cars?

Let's see, $409 per person per year multiplied by 330,000,000 people – That is approximately...

$82,000,000,000 ($82 billion)

$135,000,000,000 ($135 billion)

$283,000,000,000 ($283 billion)

$672,000,000,000 ($672 billion)

The correct answer is (B). This is your money going to foreign oil producing countries like Saudi Arabia.

*

Societal Cost of Cars?

So how many barrels of oil (42 gallons of crude oil) does each person consume in the United States each year?

2.5 barrels

12.8

20.6

112.3

The correct answer is (C).

*

Our Addiction to Oil

• Barrels of Oil Consumed per Person per Year in the United States
• 1970 – 26.3 barrels
• 1978 – 31.0
• 1983 – 23.7
• 2000 – 26.5
• 2007 – 25.4

For years, public policy makers and environmentalists speculated on what price per gallon would people finally stop buying Sport Utility Vehicles. The answer came in 2008. Once gas rose over $4.50 per gallon, SUV sales plummeted and people drove less. And then the Great Recession hit us …

We are now down to around 20.6 barrels per person per year and that number has been falling.

*

New or Used Car?

• Which do you prefer? Why?
• What are the pros and cons?

*

Buying a Used Vehicle

• Sources of used vehicles
• New-car dealers
• Used-car dealers
• Private parties
• Consult Consumer Reports
• Yearly Buying Guide – Reliability statistics
• Consumer protection for used car buyers

*

Inspecting a Used Car

• Outside the car
• Inside the car
• The engine
• Mechanic’s inspection
• Odometer fraud & crashed, salvage vehicles
• Check carfax.com
• The road test

Find an honest mechanic and pay for an inspection!

*

Used Car Price Negotiation

• Price information sources
• Edmund’s Used Car Prices edmunds.com
• NADA Official Used Car Guide nadaguides.com
• Kelly Blue Book kbb.com
• Craigslist is my personal favorite
• Consult a friend who is a car enthusiast!
• Better yet, have him or her come with you when you shop

*

Buying a New Vehicle

• Over half of all new vehicle purchases now involve some Internet interaction
• From gathering information to actual purchasing
• Average cost of a new vehicle now exceeds $30,000 – Ouch! (source: http://www.consumer.ftc.gov/articles/0209-buying-new-car)
• Do not be swayed by advertising
• Check Consumer Reports

*

Service Contract?

• Service contract – Do Not Fall For This!
• Unless the car you want has a less than stellar repair record (Check Consumer Reports)
• You might even be told that a service contract is required by the lender or the leasing company

*

Negotiating the Price

• Sticker price (a.k.a. suggested retail price)
• It includes the base price plus the accessories
• Invoice price – dealer’s cost
• Set price dealers
• Car buying services – credit unions
• Online buying?
• Know the dealer’s cost by consulting...
• Consumer Reports, Edmunds, Kiplinger’s
• When is the dealer’s cost not the dealer’s cost? When the factory’s monthly incentive check comes in at the end of the month!

*

Financing an Automobile Purchase

• Financing sources
• Banks, credit unions, finance companies, or dealer financing
• Many lenders, especially credit unions, will pre-approve you for a certain amount
• Upside-down equity means that your car is worth less that what you still owe on the car loan (a.k.a. negative equity)
• 20% Gone, Remember?
• Consider GAP Insurance

*

Leasing a Vehicle

• Leasing is a fancy word for renting a car
• Advantages
• Small cash outflow
• Lower monthly payments than buying
• Lease provides detailed records for businesses
• Disadvantages
• No ownership interests
• Must meet requirements
• May have additional costs
• Especially for any extra miles!

You are almost guaranteed to spend far more over the long term leasing rather than buying. My advice? Only lease if you are sure you have no intentions of keeping the car and you are the kind of person who must have a new car every 2 or 3 years.

*

Leasing a Vehicle

• However, the large number of leases creates an excellent opportunity for used-car buyers
• Example:
• 3-year lease of a $45,000 Sport Utility Vehicle
• Expected residual value (a.k.a. lease-end value) of $32,000
• Lessee politely says, “No, Thanks.”
• You pick up the vehicle from the leasing company for around $20,000
• Better yet, buy an economy SUV for $16,000

(continued)

*

What Kind of Vehicle?

According to our authoritative and detailed scientific research, we have found that the larger the motor vehicle,

The smaller the IQ of the driver

The more fragile the ego of the driver

The greater the sense of powerlessness within and anger toward the society around them

The more microscopic the reproductive organ

All of the above

*

Costs of Operating a Car

• Fixed Costs
• Depreciation – 65% after 5 years (average)
• That $30,000 car will be worth $10,000 in five years
• Finance charge – Interest on loan
• Insurance
• License, registration & taxes
• Variable Costs
• Gas and oil
• Tires
• Maintenance & repairs
• Parking and tolls

http://exchange.aaa.com/wp-content/uploads/2014/05/Your-Driving-Costs-2014.pdf

*

According to the AAA, what is the average cost per mile to own and operate a new medium sedan in 2013?

12.5¢ per mile

25.8¢

40.9¢

60.8¢

The correct answer is (D). So at 15,000 miles per year, that’s…

http://exchange.aaa.com/wp-content/uploads/2014/05/Your-Driving-Costs-2014.pdf

Costs of Operating a Car

(continued)

*

Costs of Operating a Car

• Average of over $9,120* per year per car (60.8¢/mi)
• Many families have two cars
• 40 years * $17,560 per year = $729,600!
• Jonathon Pond’s study – 1980’s
• Buying a new car every 4 years, versus
• Buying a new car every 10 years and investing the savings (including the cost of maintenance)
• At the end of 40 years, you would have $350,000
• And those were 1980’s dollars – double it for now

My advice?

Buy a reliable new or used car and run it into the ground!

(continued)

* Forbes says that the number is closer to $12,000 per year for new cars. But that is probably because they concentrate on luxury cars.

*

Servicing Your Car

• Follow the maintenance schedule in the manual (?)
• Vehicle servicing services
• Car dealers
• Automobile repair shops
• Discount stores
• Specialty shops

My advice?

Find an honest mechanic and stay loyal to ‘em! http://www.cartalk.com/mechanics-search