Consumer Rights, Responsibilities, and Remedies: Understanding the Marketplace - Prof. Pat, Study notes of Production and Operations Management

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Consumer Movie Notes 22/09/2008 21:15:00 ← Consumer: One who acquires goods and services for ultimate consumption or used by a person, family, or household. ← Roles of Individuals  Citizen: concerned about policies/laws that affect a community, etc.  Worker: concerned with having a job  Consumer: interested in spending, saving, and investing ← Economic Activities Performed by Consumers  Earning (income): a gain from services  Consuming: expenditure made consumers and non-profit institutions for goods and services  Utilizing: using for a certain purpose  Borrowing: obtaining/receiving something with the intent to return  Saving: setting aside for future use  Investing: committing money/property to a productive use  Taxpaying: pay money to government ← Sovereignty in the Marketplace  Consumer Choice: market place condition in which consumers are presented with options to buy or not to buy o If consumers have freedom to buy and how to use it, then consumer choice exists.  Consumer Sovereignty: have power to decide which products and services society will produce and consume.  Producer Sovereignty: Have the power to decide which products and services will be produced and consumed by society. ← Consumer Problems: conditions that cause dissatisfaction in selecting, using, and disposing of goods and services.  Conditions that cause… o Producers don’t have products/services fully available to satisfy consumers. o Lack of consumer information o Market system doesn’t resolve consumer grievances easily or effectively. o Consumer interest is underrepresented by government. ← Consumers Ship in Imperfectly Competitive Markets  Insufficient competition among sellers  Seller profiteering that encourages misrepresentations, deceptions, and frauds.  Selling goods and services that place consumers at greater risk than can be readily foreseen (unsafe toys)  Negative externalities are overprovided and difficult to avoid. o Produce from farmers who use pesticide.  Consumers lack information  Overuse of public goods. ← The Seller-Consumer Conflict  Sellers and consumers perceive consumer issues differently.  Consumers are not truly sovereign.  Challenge: reduce the level of conflict. ← The Consumer Interest is About Value for Money AND Equity  Securing, protecting, and asserting consumer rights in marketplace transactions.  Goal: All consumers receive an acceptable quality of goods and services at low or fair prices. ← interest #1- Seeking Value for Money  Consumers constantly make tradeoffs… Chapter 3: Consumer Rights, Responsibilities, and Remedies 22/09/2008 21:15:00 ← Right: an entitlement to something or to be treated in some particular way.  Implied Warranty: written or oral assurance from the seller that the item is useable and will not fail under normal use. o Warranty of Merchantability: right to expect that the product is reasonably fit for ordinary purposes for which the goods are expected to be used. (i.e. that car will run) o Warranty of Fitness for a Purpose: If a seller knows of a particular purpose the buyer has for the product purchased, the seller is guaranteeing that the item is fit for that particular purpose. (i.e. that car will tow a boat)  Express Warranty: written or verbal words by demonstration o Sets out specific assurances of the manufacturer or seller o Federal Magnusson-Moss Act  A warranty should mean what it says  Easy-to-understand language  Full (repair or replace entire product – labor and parts) or Limited (tells you specifically what is covered/not covered) o State Laws  Some states allow merchants to sell as it (must state in clear, specific language)  Other Legal Statutory Rights Exist o Many legal rights by law, such as  The right to know why you are turned down for credit  Do Not Call Act – telemarketers  Moral Rights of Consumers o Equitable treatment (young vs. old people, etc) o Courteous treatment o Opportunity to compare o Standards of quality o Safe products o Honesty o Privacy o Fair Treatment  Consumer Rights o Choice o Information (to be informed) o Safety o Voice o Redress o Environmental Health o Service o Consumer Education o * first four were from JFK, last four were added later. ← Consumer Responsibilities  Asset consumer rights in marketplace transactions  Know what questions to ask and to ask them. If you don’t ask, they don’t have to answer.  Complain when not satisfied ← Consumer Issues  Top areas of complaints o FTC  Identity theft (42%)  Internet Auctions (10%) o State and Local consumer protection agencies  New and used cars  Home improvement  Auto repairs  Why consumers don’t complain o Think it is not worth their time o Do not think it will do any good o Do not know how or where to complain o Believe benefits of complaining will not exceed costs  Business and complaints o Many people don’t complain o BUT they tell others (friends, family, etc) o Every complain represents dozens of others o Some businesses see complaints as opportunities ← Return Policies  NOT required by law  Options o Refund, Exchange, Credit  Requirements o Involve the media ← Privacy Under Threat  Profiling information o Collect and retain individual consumer transaction information  Cookies o Record where you go online, how often, and for how long.  Black Box for cars o Event data recorded – monitors speed, braking, seatbelt use, etc.  Caller ID o When customer calls business, personal information can be linked.  To increase your privacy: www.privacyrights.org Chapter 4: Ripoffs and Frauds 22/09/2008 21:15:00 ← Consumer Interest Organization Extra Credit  Wednesday, September 17 o 100 Wallace Hall o 7 PM ← Ripoffs  Unfair acts of exploitation of consumers in marketplace transactions. o Most are legal (i.e. infomercials on weight loss products) ← Deception or Fraud  Material representation, omission, or practice that is: o Likely to mislead a consumer acting reasonably in the circumstances, o To the consumer’s detriment ← Information required to prove fraud (up to the victim to prove it)…  False representation  Knowledge that the facts were untrue  Intention to deceive the victim  Belief by the victim that the false representations are true  Damages suffered by reliance on the untruths ← Top 10 Ripoffs ( in book ) ← Insurance Frauds and Scams  By companies o Rogue agents  Not associated with established companies  Engage in illegal activities o Failure to forward premiums (in terms of insurance)  Agent pockets premiums  Consumer has no coverage  *** ALWAYS get a receipt when purchasing insurance o Understatement of risk  Agents omits pertinent health information  Consumer gets coverage  May not meet company’s risk management requirements o Overselling  Selling too much information to an individual  By consumers o Overstating the value of a claim (saying you have GPS when you don’t) o Submitting false claims o Applicant Fraud  Provide false information for lower premium o Deceptive Claims  Staging accident  Exaggerating injury o 1 in 4 Americans believe it is ok to commit insurance fraud  Identification of mail order crooks difficult o Convictions of about 1,000 swindlers every year.  Telemarketing o >140,000 telemarketing firms in operation  about 14,000 deliberately practice fraud (10%)  phony credit card offers  prizes and sweepstakes  advance-fee loans  Americans cheated out of $40 billion/year ← “Classic” Scams  Ponzi Schemes o Illegal  Multilevel Marketing/Pyramid Schemes o Legal o Many legitimate  Infomercials  Ponzi Schemes o Pyramid scheme with enticing offers  Huge profits from a small investment  Charles A. Ponzi  1920  Made an estimated $15 million in 8 months  Shuffled money from new investors to old  First round of investors made money  Later investors lost everything  6 banks crashed ← Top Scams of 2006  Fake lottery – charge entry fee  Phishing-Vishing – ask you in email to provide information/ ask to call toll free line which will ask for your information, fake paypal  Negative Option – have to pay for “free” gift  Nigerian 419 – someone claims to be from Nigeria, asking for information.  Grandparents – pretend to be somone’s grandson, ask for money  Craigslist.org – false money orders ← How to Avoid Swindlers  Before investing o Check out source o Check out company’s background o Talk with previous owners or investors o Keep detailed records o Seek advice  Never… o Get in pressure situations o Act on impulse o Pay cash (for records) o Permit a courier service to pick up cash, money orders or checks o Reveal account numbers to a caller/emailer o Take an automobile home for a couple days (extended test drive) ← Protection for consumers…  Federal Trade Commission o Uniform Commercial Code (in book…, will be on exam) o State Office of Attorney General and Office Affairs  Consumer Protection Acts  Laws may use federal or state definitions  State Websites o Office of the Attorney General o State Corporation Commission o Office of Consumer Affairs  Total cost of buying (include cost of credit)  Price only? Fair treatment of labor, community support, environmentally friendly, etc.  A purchase is a vote of support for the store ← Geistfeld Model of Consumer Choice (more in-depth in book)  Helps explain factors that determine o Optimal consumer purchase decisions  Information needed: o Indifference curves (willingness to trade)  Needs  Wants o Budget constraint (ability to trade)  Income  Prices ← Environmental Concerns  Green labeling – tells how environmentally friendly a product is. o Ozone friendly o Biodegradable o Compostable o Recyclable  Guiding Questions: o Does it reduce waste? o Are the containers and products reusable? o Are the products and packaging recyclable? ← Types of Truth in Advertising  Literal Truth o Can be supported objectively by facts (can be misinterpreted, though, find the source and information)  True Impression o Literally true but creates a false impression  i.e. Tylenol “contains twice as much pain reliever as other brand”  does not mean it is twice as effective. o Endorsement of testimonial o Comparative claim – unfairly comparing their product to another products (i.e. Subway vs. Quizno’s)  Discernible exaggeration o So far from literal truth that no consumer is deceived (“The finest money can buy!”)  False Impression o Deliberately or unintentionally creates false impression.  i.e. this can make you healthy with wonderbread, but does not mean this is only bread that can do this. ← Corrective advertising  Remedial (in response to)  An unfair advantage that an advertiser may have gained by running unfair advertisements. This is ordered by the FTC. o Profile Bread (stated they have fewer calories by slice, this is because they sliced it thinner). o Exxon (said premium gas is better for car, in corrective ad had to say that it doesn’t necessarily make a difference). ← Advertising to Children  Child advocate argument o Lack maturity and knowledge o Many have difficulty distinguishing between programs and commercials. o Subtle merchandising  Toys and foods written into animated shows o Advertisers should be held to a higher standard when advertising to children.  Argument for advertising to children is that it will prepare them for the market.  Captive Schoolchildren o School district contracts with sellers  Limit student choice  Require schools to only say good things about seller