chapter 32 extended product features - south lake...

INTRODUCE THE CHAPTERChapter 32 introduces the concept of extended product features used in prod-uct planning. It emphasizes the use of warranties and credit to sell products and services. The chapter also explains the laws and agencies involved with product safety and the use of credit.

BUILD BACKGROUNDHave students imagine that they work in the service department of an electronics store. Their store offers warranties with plasma televisions and computers. To assess their knowledge of product and ser-vice planning, their supervisor has asked them to explain the importance of warran-ties in product planning. Ask the students what sources they will use to research and verify the report on service warranties.

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EXPLORE THE PHOTO

Market Talk Lead a discussion with students about the importance of product testing. Ask them how companies can save money in the long run by conducting trial runs and preliminary fi eld tests.

Quick Think Answers will vary, but typically the manufacturer should cover its product under normal wear and tear or defects. If the retail store does not repair the bicycle at no cost, the customer can contact the manufacturer directly for repairs.

Ask students: When you are purchasing an

item from a retailer, do you inquire about the product’s warranty? Why or why not?

REVIEW THE OBJECTIVESIdentify different types of warranties. express, full, limited, implied, merchant-ability warrantiesExplore the importance of warranties in product planning. Extended warranties are benefi cial to businesses and customers.

Product planners create additional extended prod-uct features to boost customer satisfaction.Identify the major provisions of product safety legislation. Manufacturers must be sure that their products are safe, adequately labeled, and properly advertised.Explain consumer responsibilities and rights related to product performance. Consumers have a right to expect quality products at fair prices. Consumers can take several steps when products have not been adequately protected by a warranty. Describe the importance of credit. Credit enables businesses or individuals to obtain products or money in exchange for a promise to pay later.

Explain various sources of consumer credit. bank credit cards, store and gasoline cards, travel and entertainment cards, rebate cards, affi nity cards, debit cards, special customer cards, and secured and unsecured loansIdentify the types of credit accounts extended to consumers. regular or 30-day accounts, installment accounts, revolving accounts and budget accountsDiscuss how businesses use trade credit. Business credit, or trade credit, is similar to consumer credit, in that money is lent for goods and services. Sup-pliers sell materials and inventory to businesses that pay with credit.

672 UNIT 10 — PRODUCT AND SERVICE MANAGEMENT

C H A P T E R 32

Chapter ObjectivesAfter reading this chapter, you should be able to:

• Identify different types of warranties

• Explore the importance of warranties in product planning

• Identify the major provisions of product safety legislation

• Explain consumer responsibilities and rights related to product performance

• Describe the importance of credit

• Explain various sources of consumer credit

• Identify the types of credit accounts extended to consumers

• Discuss how businesses use trade credit

Market Talk Extended product features such

as warranties and the use of credit affect

product planning and relate to consumer

rights and responsibilities. If a consumer buys

a bicycle and the brakes do not work on the

fi rst day that the customer uses the bike, the

product is probably defective and might be

covered by a manufacturer’s warranty.

Quick Think Would a warranty cover the same

bicycle if a part broke after a month of use?

Explain your opinion.

Extended Product Features

EXPLORE THE PHOTO

Michael Blann/Getty Image

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For the Teacher TeacherWorks™ Plus

Teacher Resources at glencoe.com

Interactive Chalkboard ExamView® Assessment Suite Fast File Unit 10

For the StudentMarketing Essentials Online Edition

Student Activity Workbook Marketing Math Workbook Marketing Research Project Workbook School-to-Career Activity Workbook Competitive Events Workbook BusinessWeek Reader with Case Studies

Interactive Student EditionStudent Resources at glencoe.com

32

DECA events that require knowledge of extended product features are described here. Discuss the performance indica-tors to make sure students understand how to demonstrate their understanding.

The events acronyms stand for:

AAAL: Apparel and Accessories Marketing

Series, AL

AAML: Apparel and Accessories Marketing

Series, ML

ADC: Advertising Campaign Event

BSM: Business Services Marketing Series

EMDM: E-Commerce Management Team

Decision Making Event

FMAL: Food Marketing Series, AL

FMDM: Financial Analysis Management

Team Decision Making Event

FMML: Food Marketing Series, ML

FSRM: Full Service Restaurant Manage-

ment Series

HMDM: Hospitality Services Management

Team Decision Making Event

MMS: Marketing Management Series

QSRM: Quick Serve Restaurant Manage-

ment Series

RMAL: Retail Merchandising Series, AL

RMML: Retail Merchandising Series, ML

SMDM: Sports and Entertainment Marketing

Management Team Decision Making

Event

TMDM: Travel and Tourism Marketing

Management Team Decision Making

Event

TSE: Technical Sales Event

VPM: Vehicles and Petroleum Marketing

Series

Find timed DECA Prep activities correlated to the Competitive Events Workbook for students and DECA tips for teachers at the Marketing Essentials OLC through glencoe.com.

Chapter 32 — Extended Product Features 673

ROLE PLAY Check your understanding of DECA performance indicators with the DECA activity in this chapter’s review. For more information and DECA Prep practice, go to the Marketing Essentials OLC through glencoe.com.

glencoe.com

DECA Events These acronyms represent DECA com-petitive events that involve concepts in this chapter:AAMADCASMBMDMBSM

EMDMFMALFMMLHLMHMDM

MMS QSRMRFSMRMS SEM

SMDMTMDM

Performance Indicators The performance indicators represent key skills and knowledge. Relating them to the concepts explained in this chapter is your key to success in DECA competitive events. Keep this in mind as you read, and write notes when you fi nd mate-rial that helps you master a key skill. In these DECA competitive events, you should follow these perfor-mance indicators:• Explain warranties and guarantees• Identify consumer protection provisions of

appropriate agencies• Explain business ethics in product/service

management• Describe legal issues affecting businesses• Explain the purposes and importance of creditSome events include these performance indicators:

ASM Describe the role of warranties and guarantees used in vehicle and petroleum marketingBMDM Identify legal considerations for granting creditHLM Run credit check reportHMDM Run credit check reportQSRM Validate credit historyRFSM Validate credit historyTSE Explain the purposes and importance

of credit

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SECTION 32.1

BELLRINGER ACTIVITY

Ask students to recall the defi nition of the term product feature; write it and its meaning on the board. Then, have students defi ne the term extended product feature. Have them brainstorm ways a product’s features could be extended.

Preteaching

VOCABULARYKEY TERMS Have students predict defi nitions for the key terms in class. Then have volunteers check those defi ni-tions against the ones found in the text.ACADEMIC VOCABULARY Refer students to the OLC through glencoe.com for the Academic Vocabulary Glossary before they read the section.

GRAPHIC ORGANIZERModel using the graphic organizer for students. Tell students to go to the OLC through glencoe.com for a printable graphic organizer.

NCLB

NCLB connects academic correlations to book content.

READING GUIDE

Warranties and guarantees are important elements of product planning

because they help to increase sales and profi ts.

BEFORE YOU READ

Have students suggest ways warranties might help to market a product. Answers may include that they

suggest that the product meets certain standards.

D Develop Concepts

THE MAIN IDEALead a discussion with students about whether they think warranties are useful sales tools.

Warranties

ExpressWarranties


Warranties Extended product features offered after the sale, such as

warranties, often determine the likelihood of repeat sales. A warranty is a promise or guarantee given to a customer that a product will meet certain standards. Typically, these standards apply to materials, workmanship, and performance.

Guarantee is another term for warranty. The major difference between a guarantee and a warranty is the promotional value

THE MAIN IDEAWarranties encourage customers to purchase a product or service. Warranties can boost sales, but they can also pose product and customer service problems.

GRAPHIC ORGANIZERDraw this chart to take notes about extended features and warranties.

OBJECT IVES• Identify different types of

warranties

• Explore the importance of warranties in product planning

• Identify the major provisions of product safety legislation

• Explain consumer responsibilities and rights related to product performance

KEY TERMS• warranty

• express warranty

• full warranty

• limited warranty

• implied warranty

• warranty of merchantability

• warranty of fitness for a particular purpose

• disclaimer

ACADEMIC VOCABULARYYou will find these words in your reading and on your tests. Make sure you know their meanings.• assurance • adequate

Go to the OLC through glencoe.com for printable graphic organizers, Academic Vocabulary definitions, and more.

READING GUIDE

Predict Why are warranties a good marketing tactic?

SECTION 32.1

BEFORE YOU READ

Warranties

ACADEMIC STANDARDSEnglish Language ArtsNCTE 1 Read texts to acquire new information.

Social StudiesNCSS 6 Develop a comprehensive awareness of rights and responsibilities in specific contexts.

Analysis Why

are warranties and

guarantees both

essential components

of product planning?

D

NCLB

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SECTION 32.1

Extended ActivityExtended Auto WarrantiesAsk students to research an extended auto warranty. Ask students to then use word processing software to write a 200-word compare and contrast paper on the value of purchasing an extended warranty for an auto of their choice. In the papers conclusion, students should outline their per-sonal stance on such a warranty, its value, and whether they would purchase it. The students should cite their sources either in the report or in a bibliography.

Discussion Starter

WARRANTIESMany students may be familiar with the concept of product warranties. Read to the students the sample warranty below. Ask the students to keep the following items in mind: 1) promises to repair defects in material, 2) under certain conditions, and 3) within a certain period of time. Then have the class brainstorm limited warranty language for a mobile phone. Sample limited one-year warranty: This product is warranted to be free from manufacturing defects for a period of one year from the date of purchase, subject to the following: that it is not misused and/or taken apart and that it has not been used for commercial purposes. This warranty does not cover failure caused by build-up of food matter or water depos-its. If this appliance becomes defective under the terms of this one-year warranty, we will repair it free of charge, includ-ing both materials and labor, provided it is returned to our nearest Authorized Service Center.

Answer A warranty is a promise or guarantee

given to a customer that a product will meet certain standards, which typically apply to materials, workmanship, and performance.

D Develop ConceptsGuided PracticeExpress Warranties Lead the stu-dents in a discussion about a company’s concern for warranty cost management. Ask students to identify some challenges a company might have to consider when manufacturing a product and putting it into the marketplace. Answers might include that the company must consider ways to reduce warranty costs, to reduce product failure, to reduce product recall, and so on.


of the promise. The term guarantee (or guar-anteed) is usually used in conjunction with promotional phrases such as money-back guarantee, results guaranteed, guaranteed for 1,000 hours of use, or satisfaction guaranteed.

A warranty, on the other hand, is usually framed as a series of specific promises. An example is, “Norm’s Body Shop will repair any defects in workmanship billed on the repair invoice unless caused by or damaged from unreasonable use, maintenance, or care of the vehicle, excluding paint work if the vehicle’s original finish is defective.”

Typical warranties set time or use limits for coverage and restrict the seller’s liability. The most familiar language is usually found in auto warranties: “Warranty ends at 36 months or 36,000 miles, whichever occurs first.”

Role of Warranties in Product Planning

Warranties are an important element of product planning because they help increase sales and profits (see Figure 32.1 on page 676). Customers often make purchasing deci-sions based on warranties.

Businesses are not required by law to issue warranties, although most do to assure their customers that their products and services meet quality standards. For some companies, notably automobile manufacturers, warran-ties play a prominent role in their product advertising. Warranties are also significant to businesses because:

• They direct a company to focus on customer satisfaction.

• They require a company to adhere to performance standards.

• They generate customer feedback. • They encourage quality in product

development. • They boost promotional efforts.

Warranties come in two different forms, express and implied. These forms, in turn, can be divided into specific types.

Express WarrantiesAn express warranty is one that is

explicitly stated, in writing or verbally, to encourage a customer to make a purchase. A written warranty can appear in a number of places: on the product packaging, in the product literature, in an advertisement, or as part of a point-of-purchase display. The location of the warranty should be acces-sible to customers before purchase. The war-ranty must always be clearly worded so that customers can easily understand its terms. Spoken warranties, however, even if clearly worded, may not be enforceable unless they are also in writing.

Here is an example of how an express war-ranty works. A broadcast advertisement shows that a portable MP3 player will operate while the user jogs. You purchase the player and dis-cover almost immediately that it shorts out when you jog. You are entitled to whatever relief the warranty specifies. Now imaginethat the MP3 product package features a run-ner using the product in the rain. You find that the product shorts out in the rain. Once again, you are entitled to warranty relief because the illustration on the package constitutes a prom-ise of performance, even though the promise is not a written one. There are two types of written warranties: a full warranty and a lim-ited warranty.

Full WarrantyA full warranty guarantees that if a

product is found to be defective within the warranty period, it will be repaired or replaced at no cost to the purchaser. A manufacturer who offers a full warranty agrees to repair a defective product “within a reasonable time and without charge.”

Limited WarrantyA limited warranty may exclude certain

parts of the product from coverage or require the customer to bear some of the expense for repairs resulting from defects. It is notuncommon, for example, for a limited war-ranty to specify that the manufacturer will pay

Defi ne What is a warranty?

D

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SECTION 32.1

CONTINUED

S Skill PracticeIndependent PracticeUnderstanding Warranties

L1 Ask the students to choose a prod-uct and to brainstorm and list at least four extended product features (in addi-tion to a warranty) for this product.

L2 Ask students to imagine this sce-nario: The business college they attend requires each student to purchase a laptop computer and a DVD that includes their textbook and course packets needed for the years to come until graduation. The upfront cost is between $3,000 and $6,000. Ask students to write a 300-word paper discussing the advantages and dis-advantages of such an agreement versus the traditional method of buying text-books and borrowing a school computer. L3 Ask students why they think a state’s Department of Education requires teachers to be certifi ed. Ask students to investigate what the word certifi ed means. Does this process guarantee a good teacher? Students should defend their answer in a one-page essay. Answers will vary, but requiring teacher certifi cation is the state’s attempt to ensure that teachers are technically competent in the subject area and have mastered entry-level teaching skills.

32.1 Warranties and Product Planning

Discussion Lead a discussion about why product warranties would encourage quality control. Answers might include that it is less expensive for a company to produce a quality product than to replace a defective one.

Caption Answer Warranties help companies focus on customer needs, deliver products that meet specifi c standards (and build the company’s image), generate customer feedback (through warranty registrations), control quality, and promote their products.

For instructions, ideas, and answer guidego to the Teacher Center at theMarketing Essentials OLC through glencoe.com.

Ask students to share their experiences of having to return a purchase.

SET CLE AR STANDARDS

OF PERFORMANCE

ENCOUR AGE QUALITY CONTROL

GENER ATE CUSTOMER FEEDBACK

BOOST PROMOTIONAL EFFORTS

676 UNIT 10 — PRODUCT AND SERVICE MANAGEMENT glencoe.com

Warranties and company

policies that set specific

standards tell the customer

how the product is

manufactured or how it will

perform.

Product or warranty registrations help provide

customer feedback about the product.

Quality manufacturing is

necessary since products

that are defective or cannot be

repaired must be replaced under

a warranty program.

Long-term warranties speak for the

reputation of the company and the

confidence it has in its products.

Go to the Marketing Essentials OLC through glencoe.com to find a project on the role of warranties.

Warranties help to guide

expectations for product

performance.

32.1 Warranties and Product Planning• Appealing to the Customer Following are some of the ways warranties affect product planning.

Why do companies issue warranties?

FOCUS ON CUSTOMER

SATISFACTION

UPI Photo/Bill Greenblatt/Landov

S

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CONTINUED

SECTION 32.1

D Develop ConceptsDrawing ConclusionsWarranty Disclaimers Let students know that warranties have advantages and disadvantages. While some warran-ties are implied, or guaranteed by law, most warranties contain general or spe-cifi c disclaimers. Have students brain-storm why purchasing a warranty with dis-claimers might be a risk for a consumer.Generally, consumers should be skepti-cal of warranty sales. Often people move, lose, or forget they purchased original warranty contracts; hence, it is diffi cult to redeem their value when products fall to such circumstances. In some stores the salespeople might push hard for selling a product’s warranty or service contract. They push hard because they earn commission on each contract they sell. Remind students of the pitfalls of commission sales versus what’s in the consumer’s best interest.

Extended ActivityProduct Recalls and WarrantiesBring into class an article from a news-paper, a magazine, or the Internet that discusses a specifi c product recall. Have students decide if the product recall was covered by warranty or not (likely due to a mass manufacturing error).

AD GUIDE • A ROOF WITH COVERAGE

Discussion Ask students to discuss how the sale of this item to a consumer could result in new or repeat business.

Caption Answer Answers might include that this warranty might justify the higher price because its durability makes it a long-term investment that will increase in value.

For instructions, ideas, and answer guide, go to the Teacher Center at the Marketing Essentials OLC through glencoe.com.

Ask students to list all the assumptions (both implicit and explicit) that this ad claims.


for replacement parts but charge the customer for labor or shipping.

Implied WarrantiesMost major consumer purchases are

covered by written warranties provided by manufacturers. When there are no written warranties, implied warranty laws apply. An implied warranty is one that takes effect automatically by state law whenever a pur-chase is made. There are two types of implied warranties: a warranty of merchantability and a warranty of fitness for a particular purpose.

Warranty of MerchantabilityA warranty of merchantability is the

seller’s promise that the product sold is fit for its intended purpose. Some examples of sell-ers’ promises are: a gasoline-powered lawn-mower that will cut the grass and an electric power saw that will cut wood.

Warranty of FitnessA warranty of fitness for a particular

purpose is used when the seller advises a cus-tomer that a product is suitable for a particular use, and the customer acts on that advice. A customer, for example, might buy a small truck based on a salesperson’s recommendation that it will pull a trailer of a certain weight. The dealership must take back the truck and refund the buyer’s money if it turns out that the truck cannot tow the anticipated load.

Warranty DisclaimersWarranties often have disclaimers to protect

the businesses issuing them. A disclaimer is a statement that contains exceptions to and exclusions from a warranty. Disclaimers are used to limit damages that can be recovered by a customer. A common form of disclaimer limits recovery to a refund of the purchase

• A ROOF WITH COVERAGE A 50-year warranty on a metal roof appeals to consumers who want low-maintenance roofing.

Why might a 50-year warranty help justify a higher price?

D

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CONTINUED

SECTION 32.1

Using Credit Wisely

D Develop ConceptsRole of Extended Warranties Ask students to name products that are usu-ally covered under service contracts. The students should speculate on the amount of revenue that service contracts bring into a retailer.

Clarify Tell students that companies often offer extended service contracts not only as good customer service but also as major sources of revenue. The warranties gener-ate more sales revenue (and more profi ts if the product performs as expected) on the original sale of the product.

C Critical ThinkingConsumer Laws and Agencies The Federal Trade Commission (FTC) states that education is the key to avoiding consumer injury. It offers various tips and reminders to prevent becoming a victim of fraud. Ask students to brainstorm some tips they and other smart consumers can follow when shopping online.

Summarize Remind students that they should never be deprived of knowing and acting on their consumer rights. For example, you might mention that before a purchase is complete, the consumer should read the fi ne print, check the refund or return policy, check the delivery dates, and assess the warranty.

Clarify Remind students that to ensure safe and secure online shopping not only during the holidays but anytime, the consumer should have updated anti-virus software installed, they should not enclose their fi nancial information in an e-mail, and they should be wary opening any e-mail attachment.

Discussion Lead a discussion with students about the various costs associated with credit card use: charges for interest, late payments, exceeding credit limits, etc.

Answer: Some students may say that, because credit card companies are lending consumers money, they can charge whatever fees they want for late payments. If users want to avoid such fees, they should pay their bills on time. Others will suggest that such fees take advantage of consumers, who have come to depend on the cards for doing business.

For instruction, ideas, and answer guide, go to the Teacher Center at the Marketing Essentials OLC through glencoe.com.

Ask students to research statistics on personal bankruptcy.


product’s normal warranty period. Customers pay extra for such a contract at the time of pur-chase or shortly afterward. Costs range from a few dollars on a low-cost item to hundreds or even thousands of dollars on a higher-priced item, such as a car. There is often a deduct-ible amount, which the customer pays before work is performed.

Extended warranties are beneficial to both businesses and customers. Businesses ben-efit by receiving additional money (and more profit, if the product performs as expected) on the original sale of a product. Customers benefit from the assurance of long-term satis-faction with their purchase.

There are also disadvantages to service con-tracts. Consumer Reports magazine estimates that only 12 to 20 percent of people who buy extra repair or service protection ever use it.

Other Extended Product Features In addition to warranties, product planners

create additional extended product features to boost customer satisfaction. These features include delivery, installation, billing, service after the sale, directions for use, technical assistance, and training.

Businesses gain feedback by conducting customer service and satisfaction surveys. After an initial purchase, customers are frequently asked to submit product registration cards to gain customer data and ideas for product and service improvements.

Consumer Laws and Agencies Business people need a working knowl-

edge of relevant federal, state, and local laws. Manufacturers must be sure that their prod-ucts meet all legal requirements. They must be safe, adequately labeled, and properly advertised; if they are not, the manufacturer could face fines or product recalls.

Larger companies often employ consumer affairs or legislative specialists to advise man-agement about legal requirements. Smaller companies often join trade associations to stay informed about existing and pending laws that affect their products.

price. It can specifically exclude any other costs that may have been incurred by the owner as a result of product failure. Another common disclaimer waives customers’ rights under implied-warranty laws.

Role of Extended WarrantiesExtended warranties or service contracts

provide repairs or preventive maintenance for a specified length of time beyond a

Using Credit Wisely

Credit card issuers make money on credit card interest rates and special fees. Late payment fees can run from $15 on small balances to up to $39 dollars on larger balances. Late payment fees or additional fees are charged to customers who exceed their authorized credit limits, do not pay their minimum charges within the payment grace period, take cash advances, or trans-fer balances from one card to another. For example, to get a cash advance, a credit card user has to pay a minimum fee of two to three percent of the advanced amount plus a minimum charge of $2 to $10. Late payment and cash advance fees increased at the same time many credit card issuers have introduced introductory rates of zero to three percent to attract new customers. The average U.S. household’s credit card debt is nearly $9,000.

Go to the Marketing Essentials OLC through glencoe.com to find an activity about ethics and credit.

Do you think that late payment fees are fair to customers? Why or why not?

D

C

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CONTINUED

SECTION 32.1

CONTINUED

D Develop ConceptsFederal Statutes Lead students in a discussion of whether and in what way corporations should comply with federal statues which protect consumers, the environment, and businesses. However, some corporations choose to pay the fi nes for violating the statues rather than complying with them. Ask students whether they feel that this is ethical behavior. Then ask students how environ-mental policies have infl uenced business-es’ ethics and their social responsibilities.

Extended ActivityComparing WarrantiesAsks students to conduct a price compari-son for a warranty on two different brands of the same type of appliance (for example, a washer or a dishwasher). Have students create a spreadsheet including the service contracts, quote price, and details of the warranty for both products. They can then summarize the information in a brief oral or written statement.


Federal StatutesMaking sure products meet all federal prod-

uct safety standards is an important function of product planning. Cars and trucks have their emission standards set by the Environmental Protection Agency (EPA), their price stickers regulated by the Federal Trade Commission, and any potentially dangerous design flaws investigated by the National Highway Traffic Safety Administration.

Magnuson-Moss Consumer Product Warranty Act

Many of the warranty features have their origins in a federal statute called the Magnuson-Moss Consumer Product Warranty Act of 1975. This statute governs written warran-ties for all consumer products costing $15 or more. It sets minimum standards for such war-ranties, rules for making them available before a product is sold, and provisions for lawsuits against manufacturers if a warranty is not ful-filled. The Federal Trade Commission enforces this act.

Consumer Product Safety ActOther federal statutes protect consumers

by forcing companies to manufacture and sell safe products. The Consumer Product Safety Act of 1972, for example, established the Con-sumer Product Safety Commission (CPSC). This agency monitors the safety of more than 15,000 nonfood items, such as toys; house-hold, outdoor, sports, recreation, and specialty products; and appliances. The agency issues standards for the construction, testing, pack-aging, and performance of these products to protect the public from unreasonable risks of serious injuries or deaths. When the CPSC findsany product defective or dangerous, it can do any of the following:

• Issue a product safety alert. • Require that warning labels be attached

to the product. • Recall the product and order repairs. • Withdraw the product or prohibit its sale.

Since its inception, the CPSC has recalled more than 4,000 products. In June of 2004,

Payless ShoeSource, Inc., voluntarily recalled 441,000 Smart Fit and Teeny Toes athletic shoes because the eyelet lace holder can detach, pos-ing a choking hazard for children.

To ensure consumer awareness of product recalls, notices for unsafe children’s products, appliances, toys, and other items are placed in all U.S. Postal Service offices.

Food, Drug, and Cosmetic ActThe Food, Drug, and Cosmetic Act of

1938 is another federal statute designed to ensure that products will be safe. Safe in this case means pure, wholesome, and effective. It covers features such as informative labels and truthful advertising. The Food and Drug Administration is responsible for the safety of drugs, medical devices, foods, and some food supplements; it also enforces the act. The agency also regulates the advertising and sale of imported and exported foods, drugs, cos-metics, medical devices, animal drugs, animal feed, and products that emit radiation.

State StatutesMany states have passed their own con-

sumer protection laws. Most of these laws are aimed at preventing poorly made or poorly serviced products.

The most common form of state regulation affects service businesses. Most states require certain individuals such as auto mechanics, realtors, and police and fire safety officers to meet training requirements. It is necessary to hold a license or state certification before legally practicing in those professions. The process frequently involves testing and the payment of a substantial fee.

Lemon LawsNearly all states have lemon laws to protect

customers. Lemon laws are statutes designed to protect consumers from poorly built cars. Under most lemon laws, a car is a lemon if it is out of service at least 30 days during the first year of ownership or if four attempts have been made to fix the same problem. Lemon owners are entitled to a refund or a comparable replacement car.

D

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SECTION 1.2

CONCEPTSHave the students study product packag-ing at home or in a local store for product warnings. Have students give reasons that warnings for seemingly obvious hazards are often included in product packaging.If the warnings are not included, a cus-tomer can always say he or she did not know about the potential hazards of using the product and can sue the manufac-turer if injured while using the product. Product warnings are included with food products for this reason.

KEY TERMSIn small groups, have students review key terms, spellings, and defi nitions.

INDEPENDENT REVIEWL1 Assign and review Chapter 32activities in the Student Activity Workbook.

L2 Assign and review Chapter 32 activities in the Marketing Math Workbook.

L3 Assign and review Chapter 32 activities in the BusinessWeek Reader with Case Studies.

AFTER YOU READHave students complete the Section 32.1 After You Read section review.

ONLINE STUDY TOOLSHave students go to the Marketing Essentials OLC through glencoe.com for the Section 32.1 practice test.

Ask students why such an independent, not-for-profi t product-safety testing center is needed in the business world. Have them explain why companies cannot guarantee their own quality assurance and control units.

AD GUIDE • CHECKING SAFETY

Discussion Ask students what they can surmise from this ad. Have them tell you what the com-pany does, a little about its history, and so on. Ask the students if they think this is an effective ad.

Caption Answer The mark of an independent testing service may give the consumer added assurance. Where safety is a concern, as with electronic products, the products are tested; the results of the test passed on to the consumer.


Many states have incorporated arbitration programs into their lemon laws. In arbitration, an impartial third party, such as a representa-tive of the Better Business Bureau, decides the crucial issues—for example, whether a vehicle is a lemon and how much the refund should be. In most cases, the arbitrator’s ruling is not binding on the parties. The owner can sue the carmaker in a court of law if he or she is not satisfied with the outcome. The principal ben-efit of arbitration is that it saves all parties the long delays and excessive costs often associ-ated with a lawsuit.

Consumer Rights and Responsibilities

Consumers have a right to expect quality products at fair prices. What happens when the extended features fail? Consumers can take sev-eral steps when they have not been adequately protected by a warranty.

• The consumer should contact thebusiness that sold the product or provided the service via phone, letter, or the Internet.

• If the problem is still unresolved, the consumer should contact the local, state, or federal offices that can assist with consumer complaints. Contact information can be found on the World Wide Web or in a telephone directory.

• Finally, if the problem is still not re-solved, consumers can take legal action.

Consumers can sue manufacturers or retailers on at least three grounds: breach of federal law (written warranty), breach of state law (implied warranty), and negligence. Neg-ligence means failure to take proper or reason-able care.

When a company does not fulfill its war-ranty or when the company shows careless-ness, consumers have the right to take a case

• CHECKING SAFETY Underwriters Laboratories (UL) is a multinational corporation that tests products for safety. Products that pass the tests can bear a UL mark.

Why might a consumer prefer to buy a product with a UL mark?

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CULMINATING ACTIVITYAsk students to recall and provide answers to the following questions:

• Many unsafe and potentially dangerous toys enter the country from other countries. What should the federal government do to prevent this from happening? It can involve the U.S. Customs Service and Consumer Product Safety Commission to prevent dangerous toys from entering the country.

• What can consumers do when they feel that a product’s warranty has not adequately protected them? Consumers can sue the company, possibly return it, or throw it away.

SECTION 32.1

NCLB

NCLB Activity correlated to Mathematics and English Language Arts Standards

Extended ActivityAsk students why reading or watching the news can help make them better consumers.

Key Terms and Concepts

1. Types of warranties include: 1) express warranties (including full warranties and limited warranties); 2) implied warranties (including warranties of merchantability and warranties of fi tness); and 3) extended warranties.

2. Warranties are important because they focus on customer needs, set clear stan-dards of performance, generate custom-ers, encourage quality control, and boost promotional efforts.

3. Products must be safe, adequately labeled, and advertised in an honest manner.

Academic Skills

4. 4.78 percent; $47,800,000 � $1,000,000,000 � 4.78 percent

5. Each student should rewrite the warranties using terms that are easily understood.

Find answers at the Marketing Essentials OLC through glencoe.com.

32.1 AFTER YOU READ

Number and Operations:Percents Percents compare a part toa whole. A percent can be determined by using division. • To solve this problem, divide the

amount that was given away, $47.8 million, by the total amount of the settlement to determine the percent as a decimal number.

For help, go to the Math Appendix located at the back of this book.


to court. Courts have held manufacturers and retailers liable for defects in products or when injury is caused by use of the product. Indi-viduals can also bring food suppliers to court if unhealthy practices or bad food cause sickness.

Consumers, cities, and states can file class action suits against manufacturers who make unsafe products. Class action suits are lawsuits filed by more than one party. It is estimated that Bridgestone/Firestone has spent more than $1.5 billion in product recalls and legal fees since the year 2000 on cases related to some of its tires being involved in SUV roll-over accidents.

Businesses can take steps to minimize lia-bility suits during product planning. Manu-facturers should examine product design and consider what might go wrong. Prod-ucts should be tested thoroughly. Besides federally mandated tests, there are extensive use tests that manufacturers can do to make suggestions for recommended product use.

Manufacturers should give special attention to package design and provide warnings on the package and labels about any potential hazards involved in using the product. When a manufacturer suspects a problem with a product, the manufacturer may find it more cost effective to recall that product than to risk liability and a damaged reputation.

Private distributors can limit their liability by questioning manufacturers before accept-ing a product for sale. They should obtain the manufacturer’s test data and determine the company’s ability to stand behind the prod-uct before it is put on store shelves.

As a final line of defense against product liability, businesses should encourage their customers to be responsible consumers. They should take every opportunity to remind customers of their duty to be informed. Cus-tomers are responsible for reading and fol-lowing the safety directions provided with products. This is especially important with items for children, such as car seats, cribs, and even toys.

Check your answers at the Marketing Essentials OLC through glencoe.com.

Key Terms and Concepts 1. List the different types of warranties. 2. What is the role of warranties in product planning? 3. What are the basic provisions of federal product safety laws?

32.1 AFTER YOU READ

Academic SkillsMath

4. In 2004, the state of Michigan gave $47.8 mil-lion of the $1 billion it received from the 1998 national tobacco award settlement to biomedi-cal research and new business development. What percentage of Michigan’s settlement award does this amount represent?

English Language Arts/Reading and Writing

5. Warranties are written in legal terms and many consumers find them hard to understand. Using a warranty from a household appliance, electronic equipment, or other consumer product you or your family recently purchased, rewrite the warranty in language that is clear and easy to understand.

681



READING GUIDE

SECTION 32.2

BELLRINGER ACTIVITY

First ask students to defi ne the term credit. Ask them to brainstorm two lists: (1) things that people normally buy on credit and (2) things that businesses buy on credit. They may have a more diffi cult time with the latter, since they may not have con-sidered the fact that businesses buy things on credit.

Preteaching

VOCABULARYKEY TERMS Ask the students to skim the section, paying attention to headers and key terms. This technique allows students to grasp the context of the text ahead.ACADEMIC VOCABULARY Refer students to the OLC through glencoe.com for the Academic Vocabulary Glossary before they read the section.

GRAPHIC ORGANIZERModel using the graphic organizer for students. Tell students to go to the OLC through glencoe.com for a printable graphic organizer.

NCLB

NCLB connects academic correlations to book content.

Lead students in a discussion about why credit cards appeal to consumers. Answers may include convenience

or the ability to buy high-cost items and receive them at once.

D Develop Concepts

THE MAIN IDEAAsk students to discuss why a business might extend credit to its customers.

Students may indicate that one advantage is the ability to purchase items

that would not be available for cash. A disadvantage is the high interest.

BEFORE YOU READ

C Critical ThinkingCredit Reports Ask students to research agencies which publish credit reports. Have students choose at least one credit reporting agency and sum-marize the content of what is found on a personal credit report from that agency. Have students report on their fi ndings in class, and lead a discussion on the uses of consumer credit reports.

ConsumerCredit

Types ofAccounts

Credit


Credit and Its Importance Credit enables businesses or individuals to obtain products

or money in exchange for a promise to pay later. Credit allows most consumers to make major purchases such as homes, autos, appliances, furniture, and recreational vehicles. Consumers also use credit to make less costly purchases, such as meals, clothing, groceries, and movies.

THE MAIN IDEAExtending credit to customers and accepting credit cards for purchases is important to product planning. Wisely using credit can benefit a business and its customers.

GRAPHIC ORGANIZERDraw this chart to take notes about the features of credit.

Go to the OLC through glencoe.com for printable graphic organizers, Academic Vocabulary definitions, and more.

READING GUIDE

OBJECT IVES• Describe the importance

of credit

• Explain various sources of

consumer credit

• Identify the types of credit

accounts extended to

consumers

• Discuss how businesses use

trade credit

KEY TERMS• credit

• 30-day accounts

• installment accounts

• revolving accounts

• budget accounts

ACADEMIC VOCABULARYYou will find these words in your reading and on your tests. Make sure you know their meanings.• exceed

• enable

Predict More than 185 million U.S. consumers have at least one credit card. Why are credit cards so popular?

SECTION 32.2

Credit

ACADEMIC STANDARDSEnglish Language ArtsNCTE 1 Read texts to acquire new information.

Social StudiesNCSS 6 Develop a comprehensive awareness of rights and responsibilities in specific contexts.

BEFORE YOU READ

Connect Based on

your prior knowledge

about credit, what are

the advantages and

disadvantages of using

credit for purchases?

D

NCLB

C

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CONTINUED

SECTION 00.00

683

DiscussionStarter

ROLE OF CREDITDiscuss with students that credit card companies have promoted their cards as status symbol items. For example, American Express offers tiers of member-ship: the green card, the gold card, the platinum card, the blue card, and the black card (also known as the CenturionTM Card). Each tier has certain benefi ts and credit lines.

Recall Remind students credit card com-panies are a billion-dollar industry—the most successful sector of the U.S. banking system—because of the need or desire for people to borrow money.

D Develop ConceptsGuided PracticeConsumer Credit On the fi fth business day of each month the Federal Reserve issues an up-to-date report on consumer credit. Over a six-year span ending in 2004, outstanding consumer credit has increased $523.1 billion. Lead students in a discussion about why people might have been spending more and saving less during that time period.

Explain Tell students as a responsible credit card holder, he or she can pay the statement’s minimum balance, a sustainable amount of the balance, or the balance in full.

SECTION 32.2

Online ActivityCredit Card OptionsAsk students to go to the American Express Web site to research the various credit card options that it offers. They should input the information into a spreadsheet to create a comparative chart. Then have them compare the American Express offerings to another credit card company of their choosing. They should include this other credit card company in another column on the comparison sheet.


An annual fee is a flat yearly charge simi-lar to a membership fee. Interest rates are tied to other lending rates such as the prime rate or the Treasury bill rate. These are called variable-rate plans. Others are not explicitly tied to changes in other rates and are called fixed-rate plans.

Retailers who belong to a bank credit card system either electronically process credit card sales or mail the credit card forms to the bank for payment. First, the bank deducts a service fee from the sale amount. Then it remits the balance to the retailer.

Store and Gasoline CardsSome businesses are large enough to offer

their own credit cards, known as proprietary or house cards. Examples of stores and gaso-line companies that issue credit cards are Home Depot, Target, and Shell. Usually, pro-prietary cards do not have an annual fee, but they do have high interest rates. A business also prefers when customers use proprietary cards because it receives income from finance charges. Finance charges on unpaid credit card balances are very expensive. Interest rates of 18 percent or even 21.6 percent are high, but not uncommon.

Travel and Entertainment Cards Some travel and entertainment companies

such as American Express, Diners Club, and Discover issue charge cards with annual fees and service charges; they require that trans-action balances be paid in full each month. These types of cards are often accepted for nontravel and entertainment-related goods and services. Travel and entertainment charge card companies also charge retailers higher service fees than credit card companies do for processing the payment. Some businesses are unwilling to pay these fees, so these cards are not universally accepted.

Rebate Cards Rebate cards offer some type of reward

or incentive to consumers who use them. These cards are frequently co-branded and offer rewards in cash, airline miles,

The use of credit is essential to the U.S. and global economies. According to CardWeb, in 2004 there were more than 185 million credit cardholders.

Role of CreditBusinesses and consumers alike use credit

to purchase goods and services. Credit is also used between manufacturers, wholesalers, and retailers to buy materials, equipment, sup-plies, and services for use either within their businesses or to sell to other businesses.

Millions of people and thousands of busi-nesses would not be able to buy necessary goods and services without credit. By extend-ing credit to its customers, a business provides a purchasing incentive and enhances its sales and profits.

Consumer Credit Companies that offer credit, such as banks,

department stores, and oil companies, typi-cally issue credit cards. Customers fill out credit applications to provide information about their sources of income and credit his-tory. If they meet the company’s lending cri-teria, they are issued a credit card and agree to a credit contract that establishes the rules governing the use of the card.

Credit cards are issued with credit limits based on customers’ ability to pay and their payment histories. A credit limit is a preap-proved dollar amount. Customers can accumu-late balances up to that amount. Credit limits can range from as little as $500 for first-time cardholders to tens of thousands of dollars.

Purchases made by credit cards go through a computerized preapproval process prior to the purchase. This assures the store or com-pany that a customer has not exceeded his or her credit limit.

Bank Credit Cards Banks or their subsidiaries issue bank credit

cards. Visa and MasterCard sponsor bank credit cards, but these companies do not issue them directly. Banks such as BankOne and Citibank that issue credit cards set their own fees and interest rates.

D

683

S Skill PracticeIndependent PracticeConsumer Credit

L1 Ask students to write down the general types of information a credit card application requests from its potential customers. Have students summarize this information in written form.

L2 Ask students to write a 50-word response stating whether they agree or disagree with the following statement and why: “Both consumer credit and business credit are essential to the U.S. economy. Without it, many people and businesses would not be able to buy products when they need them. Ultimately, extending credit to consumers can give them an incentive to buy and thus increase a business’s profi ts.”

L3 Ask students to interview a credit manager from a local bank, who can talk to them about the types of credit that banks commonly offer. They should take detailed notes during the interview as well as request take-home brochures or pamphlets regarding the bank’s credit services. Then, ask students to prepare a 10-minute presentation that summarizes their fi ndings as well as items they learned while reading the credit application.

SECTION 32.2

CONTINUED

Extended ActivityAsk students if they think credit cards encourage people to live beyond their means. Have students share their responses in a class discussion. Rewards Cards

Discussion Ask students how proprietary cards benefi t the store that issues them.

Answer: To compete with competitors who offer low introductory rates for balance transfers, credit card companies have started loyalty programs that make rewards commonplace, immediate, and obtainable in the short run.


Have students research one credit card rate and calculate how much interest they would pay for six months on an unpaid store credit card balance.


telecommunication service, or special mer-chandise offers. Individuals who plan to carry balances on a rebate credit card should search for a card with the lowest interest rate. Those who use a credit card for convenience, how-ever, and pay the balance every month may find that rebate cards offer the best deal. Rebate cards have higher interest rates because they are subsidizing membership costs by offering special incentives on future purchases. The Chase PerfectCard Visa, for example, enablesyou to earn three percent back on your credit

purchases for gasoline and one percent on all other purchases. However, the card carries a high annual rate.

Affinity Cards Affinity cards are credit cards issued by

banks to demonstrate a consumer’s loyalty to a team, university, charity, business, or other organization. The organization solicits its members or customers to offer them anaffinity card to help with brand promotion. The card issuer returns a small percentage

Rewards Cards

Rewards cards pay a consumer one point per dollar charged. Since many card issuers no longer charge annual fees to have a card, consumers who pay off their balances each month actually earn money by using rewards cards.

Citibank introduced a diamond rewards card that enables cardholders to buy CDs and videos for 1,700 to 2,150 points. Gift certificates are awarded after 500 points are earned. Buy-to-save rewards programs have been launched in the last few years. Upromise is a college savings plan and Nestegg puts a portion of cardholders’ spending into retirement accounts.

A Good Deal?

Consumers who do not pay their balance off every month find that the interest charges cost many times more than the free merchandise. For example, if you charge $5,000 to a rewards card, you would receive credits worth about $50. But every month that the balance goes unpaid costs the consumer $41.25 (based on a 9.9 percent annual interest rate).

Only about a quarter of cardholders pay off their balances every month! Rewards programs are targeted to the cardholders who maintain revolving balances. Experts estimate that about 20 to 40 percent of Americans have rewards cards today.

Why are credit card companies issuing rewards cards?

Go to the Marketing Essentials OLC through glencoe.com to find an activity about rewards cards.

Royalty-free/Jack Hollingsworth/Alamy Images

S

684




S Skill PracticeIndependent Practice

L1 Have students complete these basic mathematical problems required to calcu-late fi nance charges on credit cards.

1. (12 � 400) � (19 � 300) � ________

2. $320 � 1.75 percent �________$10,500; $5.60

L2 A business has to pay a credit card company an additional 4 percent for each purchase charged. If the items of a purchase total $78, how much does the business pay the company?$3.12; $78 � 0.04 � $3.12

L3 A zero-percent interest charge account statement is for the billing period of 4 ⁄ 13 through 5 ⁄ 12. It shows a previ-ous balance of $160 with new purchases of $30 on 4 ⁄ 16. A payment of $100 was posted on 4 ⁄ 20. The credit card company uses new purchases to fi gure the average daily balance. Calculate the average daily balance. $111.03; [($160 � 3 days) � ($190 � 4 days) � ($90 � 22 days)] � 29 days � $111.03

SECTION 32.2

CONTINUED

Extended ActivityCreditworthinessAsk students to think about what it means to be creditworthy. Tell them that the credit history of an individual or a business is an extremely important factor to determine creditworthiness by those who issue credit. When people apply for a loan for a car, business, or house, every detail of their credit histo-ry is examined. Have students research and share the implications of poor credit for an individual or a business.

AD GUIDE • CREDIT for MILES

Discussion Lead students in a discussion about the consumer benefi ts of using a special frequent fl yer card.

Caption Answer Answers might include pros: you can save money on airline tickets, and cons: you will have to pay a yearly fee to use the card.

Tell students that credit card companies often start soliciting young people after high school graduation. Ask students, if they were to receive such a solicitation in the near future, what factors would determine whether or not they would apply for such a card.


(usually less than one percent) of the interest to the organization and reward points or miles to the customer.

Debit Cards A variation of the credit card is the debit

card. When consumers pay for purchases with a debit card, they are authorizing the seller to withdraw funds directly from the consumers’ bank accounts at the time of sale to pay for purchases.

Special Customer Cards These cards enable customers to receive

reduced prices or reward certificates for cash discounts on future purchases. For the busi-ness, they provide marketing research infor-mation about customers’ purchase patterns. Examples include grocery store club cards.

Secured and Unsecured Loans Loans are also a form of credit. Consumers

and businesses can obtain secured loans and unsecured loans for the purchase of goods and services. In secured loans, something of value, such as property, motor vehicles, machinery, or merchandise is pledged as collateral (security). The collateral helps to ensure that a loan will be repaid; if the loan is not repaid, the lender keeps the secured items to cover the debt.

Consumers and businesses can also obtain unsecured loans, which represent a written promise to repay a loan. Unsecured loans do not require collateral but rely on the excellent credit reputation of the borrower who pledges to repay the loan.

In either case, a credit contract is signed to detail payment terms and penalties for not meeting those terms.

Types of Accounts Four major consumer credit plans are in use

today: regular or 30-day accounts, installment accounts, revolving accounts, and budget accounts. The dollar amount a customer pays to use credit is called the finance charge. A finance charge may include interest costs and other charges associated with transactions.

Regular Regular charge accounts, or 30-day

accounts, enable customers to charge pur-chases during a month and pay the balance in full within 30 days after they are billed. There is no finance charge for this type of credit plan as long as the bill is paid on time.

Installment Accounts Installment accounts, or time payment

plans, allow for payment over a period of time. Installment accounts are normally used for large purchases, such as a college education, travel, automobiles, appliances, and furni-ture. Installment accounts offer a certain inter-est rate over a set period of time. Installment accounts sometimes require a down payment and a separate contract for each purchase.

• CREDIT for MILES Many credit card companies and airlines offer frequent flier programs and credit cards that can accumulate frequent flier miles.

What are the pros and cons of these credit cards?

S

685

SECTION 32.2

INDEPENDENT REVIEWL1 Assign and review Chapter 32activities in the Student Activity Workbook.

L2 Assign and review Chapter 32 activities in the Marketing Math Workbook.

L3 Assign and review Chapter 32 activities in the BusinessWeek Reader with Case Studies.

CONCEPTSAsk students to explain how credit works. Credit allows consumers and businessesto buy goods and services when they are needed in exchange for a promise to pay later.

KEY TERMSIn small groups, have students review key terms, their spellings, and defi nitions.

CONTINUED

D Develop ConceptsGuided PracticeBusiness Credit Discuss with students the process involved for a small business owner to apply for business credit. Ask students to list all the types of informa-tion and intentions this person might bring to a meeting with a lender.

Explain Tell the students that the busi-nessperson requesting the loan needs to clearly state his or her intentions for the purpose of the loan—buying offi ce equip-ment, expanding workspace, etc.

Summarize The businessperson should bring documents such as the business description, personal profi le, proposal of loan requested, business plan, collateral, fi nancial statements, and supporting documentation.

Cash or Charge?Discussion Lead students in a discussion how credit card processing might infl uence a business’s effi ciency and quality control.

Answer: Answers may vary. Fast-food restaurants may have traditionally relied upon cash because they were concerned credit card transactions would slow down the payment process. New technologies, however, have made it possible to pro-cess credit card payments faster than cash, and this, in turn, has opened up a new profi t stream for the fast-food restaurant industry—customers who prefer using credit cards.



Revolving Accounts With revolving accounts, the retailer

determines the credit limit and payment terms. The minimum payment is usually a certain percentage on the balance owed or a minimum dollar amount, such as $15. The customer can choose to pay more than the minimum payment to reduce the bal-ance owed. An interest charge is added to the unpaid balance for the billing period.

Customers can make purchases up to the credit limit when using a revolving account. Under most credit card arrangements, regular accounts become revolving accounts if the full amount is not paid for the billing period. Most billing cycles are 25-day periods.

Budget Accounts Budget accounts allow for the payment

of a purchased item over a certain time period without a finance charge. The most typical interest-free time period is 90 days, but some businesses have extended the time period to as much as one year. Some retailers who handle expensive products, such as furniture and appliances, offer budget accounts. Bud-get accounts do not require the customer to pay any interest charges if the amount owed is paid within the interest-free time period. Finance charges are applied if the amount is not paid within the specified time period. Offering budget accounts is one way that a company can stay competitive.

Business Credit Business credit, or trade credit, is similar

to consumer credit in that money is lent for goods and services. Suppliers sell raw materi-als, equipment, and inventory to businesses that agree to pay for these items with credit. Businesses often use credit for the same rea-sons that individual consumers do.

Unlike consumer credit, trade credit does not involve the use of a card. Credit memo-randums, letters of credit, and credit drafts are used in trade credit arrangements. Money is lent and the parties involved in the transac-tion agree to payment terms.

Cash or Charge? McDonald’s customers are now able

to pay for their burgers and fries in about 6,000 of the restaurants using credit and debit cards. The world’s largest restaurant chain, with more than 31,000 restaurants in more than 100 countries, McDonald’s signed agreements with Visa, MasterCard, American Express, and Discover. In 2004, McDonald’s did not plan to launch credit or debit cards with its own logo.

A Happy Meal for Credit CardsIn the past, if McDonald’s franchises (80

percent of its restaurants are franchises) wanted to accept credit or debit cards, they had to negotiate individual agreements with credit card companies and banks. The company’s agreement with major credit card brands, however, saves its franchises the trouble of negotiating individual agreements. Prior to 2004, only 3,000 McDonald’s restaurants accepted cashless payments.

Credit cards, which were once used mostly for big-ticket items, are now being used for the everyday transactions such as paying tolls, buying gasoline and groceries, or reserving movie tickets to build up frequent-flier miles or promotional bonus points.

Why have fast-food restaurants like McDonald’s been slow to accept payment by credit card?

Go to the Marketing Essentials OLC through glencoe.com to find an activity about technology and product features.

D

686




SECTION 32.2

NCLB

NCLB Activity correlated to Mathematics and Social Studies Standards

Key Terms and Concepts

1. Credit enables consumers and businesses to buy goods and services when needed in exchange for a promise to pay later.

2. Answers may include: bank credit cards, store and gasoline credit cards, travel and entertainment cards, secured and unse-cured loans.

3. Regular or 30-day accounts, installment accounts, revolving accounts, and budget accounts.

Academic Skills

4. 4.16 years: Step 1: $3,000 total purchases � (2 � $1/purchases) � $6,000; Step 2: 25,000 miles � 6,000 � 4.16 years

5. Student reports should give an example of consumer credit laws.

Find answers at the Marketing Essentials OLC through glencoe.com.

32.2 AFTER YOU READ

AFTER YOU READHave students complete the Section 32.2 After You Read section review.

ONLINE STUDY TOOLSHave students to the Marketing Essentials OLC through glencoe.com for the Section 32.2 practice test.

CULMINATING ACTIVITYAsk students to recall and provide answers to the following questions:

• Why might some businesses set a minimum total dollar amount before they allow the user to charge a pur-chase to a bank credit card?Banks charge the business a service fee for processing each card purchase. By setting a dollar minimum on these card purchases, businesses are hoping to reduce their service fee costs.

• Why do federal and state governments pass legislation regulating credit? It is necessary due to the tremendous impact credit has on the economy and its individuals.

Problem Solving: Multi-Step Problems When solving problems that require multiple steps, it will help to make a list of the informa-tion given in the problem as well as the information for which you will be solving. This will make the relationships between what you are looking for and what is given clear.1. To solve this problem, multiply the

yearly charges by two, the number of miles earned for each dollar spent, to determine the annual miles earned.

2. Divide the total miles needed for an airline ticket by the annual miles earned to determine the number of years it would take to earn the ticket.


Chapter 32 — Extended Product Features 687glencoe.com

Legislation Affecting Credit Many government regulations protect con-

sumers and their credit standing. Government regulations also provide for making available information on the proper use of credit.

The Truth in Lending Act of 1968 requires that lenders disclose information about annual percentage rates, the name of the company extending credit, and the amount financed. It also requires lenders to provide the total purchase price minus any down pay-ments and taxes, the actual finance charge in dollars, a payment schedule, and late pay-ment penalties.

The Fair Credit Reporting Act of 1971 requires that a lender report the name and address of the credit bureau that was used when a consumer is denied credit. The act gives consumers the opportunity to check their credit histories for errors that prevent them from obtaining credit.

The Equal Credit Opportunity Acts of 1975 and 1976 set guidelines for the review of applications for credit. These acts also prohibit discrimination based on age, gender, race, religion, or marital status.

The Fair Debt Collection Act of 1980 pre-vents businesses from harassing or abusing customers to collect debts.

The Fair Credit and Charge Card Disclo-sure Act of 1988 helps consumers by requir-ing credit card issuers to provide information about card costs to open credit and charge accounts.

The Fair and Accurate Credit Transactions Act of 2003 requires businesses to verify iden-tities and addresses before opening accounts to fight identity theft. Consumers will also be able to receive free credit reports each year, correct errors more easily in their credit files, and opt out of sharing their information for marketing purposes.

Check your answers at the Marketing Essentials OLC through glencoe.com.

Key Terms and Concepts 1. Why is credit important as an extended

product feature? 2. What are five sources of consumer credit? 3. List the four major consumer credit plans.

Academic SkillsMath

4. The average American charges $3,000 per year on a credit card. How many years would it take to earn 25,000 miles for a free airline trip, if the rebate was two miles earned per $1 spent with an airline affinity card?

Social Studies/Government

5. Perform Internet or library research on one of the federal laws regarding consumer credit. Prepare a 150-word paper on the purpose and provisions of the selected legislation.

32.2 AFTER YOU READ

687





Students may state that being able to imag-ine and visualize in 3D is important for the product planning stage because complete visualization helps creators analyze potential problems and issues.


Lifelong Learning

CAREER INFORMATION Have students go to Marketing Essentials OLC through glencoe.com, fi nd Chapter 32 Careers page, and click on the link for the American Marketing Association’s Careers Strategies and Tips. Ask students to select one article, read it, and summarize it.

PRODUCT DEVELOPMENTConsumers can research products that had problems because they were rushed to mar-ket, had manufacturing issues, were found to be hazardous, or where the business employed poor or unethical testing. Knowl-edge of past issues can inform consumers to make educated purchasing decisions and can help businesses decide what issues to look for when developing similar products.

PrimarySourceAsk students to go to the Marketing Essentials OLC through glencoe.com and fi nd Chapter 32 Resources. Ask them to click on the link for the American Market-ing Association’s marketing dictionary and read the defi nitions of the terms related to extended product features.

Test-Taking StrategiesAs students study for section, chapter, or unit tests, tell them to review the chapter objectives. They should write them down on a piece of paper and then write everything they remember about the content from that particular objective. Once their memory list is fi nished, they can go back to the textbook and fi ll in the gaps in their notes.


JEFF KRAUSEPRODUCT DEVELOPMENT CONSULTANT

What do you do at work?

Industrial design encompasses nearly every discipline needed to take any product from a mere idea to a more or less completely functional physical reality. I create sketches, hand renderings or computer-generated renderings, non-functional or functional physical examples of the concept, as well as 3D

computer-generated models of the design. If an industrial designer is properly experienced, he or she can also supply most of the specifi cations needed for the product to be “tooled” and actually manufactured.

What skills are most important to you?

A modern industrial designer uses a blend of aesthetic skills, mechanical design, and a knowledge of numerous manufacturing processes. This includes the ability to mentally visualize shapes and mechanisms in 3D, and create mock-ups, appearance prototypes, and even working prototypes. Advanced skills include Computer-Aided Design (CAD).

What is your key to success?

Success as an industrial designer means being good at interpreting the concepts of others and maintaining their intent throughout. But they do need to make the originator’s vision their own, and along the way they evolve that vision into a product that can be manufactured inexpensively in the real world.

Courses graphic design, arts, mechanical design, CAD

Degrees High School, BA

Most industrial designers begin work within an established fi rm, but the market is ripe for freelancers with experience under their belt and a portfolio of their work.

Growth about as fast as average for the next ten years

Source: Occupational Outlook Handbook

An artistic eye, strong computer skills, and a real-world understanding of what products work

Go to the Marketing Essentials OLC through glencoe.com to fi nd a career-related activity.

Why is it important for an industrial designer to be able to imagine and visualize in 3D?

688






2. A warranty is a promise, or guar-antee, given to a customer that a product will meet certain standards.

3. An express warranty is explicitly stated in writing or verbally. An implied warranty is one that exists automatically by state law whenever a purchase takes place.

4. Under a full warranty, a product found to be defective within the warranty period will be repaired or replaced at no cost to the purchaser. A limited warranty offers less coverage.

5. A disclaimer is a statement that contains exceptions to and exclusions from a warranty.

6. Advantages: 1) customers ben-efi t from continued satisfactory product performance; and 2) peace of mind that comes with a pre-ventative maintenance program. Disadvantages: 1) some contracts overlap existing coverage while the manufacturer’s warranty is in effect, and 2) most people never need them.

7. Credit is a promise to pay later. A credit limit is a preapproved dollar amount that can be spent to pur-chase items on credit.

8. Credit cards are issued with a credit limit based upon customers’ ability to pay and their payment his-tory. Debit cards allow funds to be withdrawn directly from a checking account and transferred to the place of purchase.

9. Travel and entertainment cards re-quire the payment in full for charges incurred each month. Bank, store, and gasoline cards do not.

10. Business or trade credit is similar to consumer credit in that money is loaned for goods and services. Unlike consumer credit, trade credit does not involve credit cards.

11. Consumers receive free credit re-ports each year, correct errors more easily in credit fi les, and can opt out of sharing their information for marketing purposes.

CHAPTER 32 REVIEW

Ask students to volunteer a few details they learned under each section’s bulleted point.

See the Glossary at the back of this book for defi nitions of Key Terms. Academic Vocabu-lary defi nitions are on the book’s OLC.

1. A sample answer might read:Key Terms A warranty is a promise or guarantee given to a customer that a product will meet certain standards.Academic Vocabulary To enable means to make possible, practical or easy.


C H A P T E R 32 R E V I E W

SECTION 32.1• Warranties are an important element of product planning because they help to increase

sales and profi ts. Customers often base their purchasing decisions on the availability

of warranties. A working knowledge of relevant federal, state, and local laws regarding

warranties is essential for businesspeople.

SECTION 32.2• Credit enables businesses or individuals to obtain products or money in exchange for a

promise to pay later. The use of credit is essential to our economy. Many government

regulations protect consumers and their credit standing along with providing information

on the proper use of credit.

Key Terms• warranty (p. 674)• express warranty (p. 675)• full warranty (p. 675)• limited warranty (p. 675)• implied warranty (p. 677)• warranty of merchantability

(p. 677)• warranty of fi tness for a

particular purpose (p. 677)

• disclaimer (p. 677)• credit (p. 682)• 30-day accounts (p. 685)• installment accounts (p. 685)• revolving accounts (p. 686)• budget accounts (p. 686)

Academic Vocabulary• assurance (p. 675)• adequate (p. 678)• exceed (p. 683)• enable (p. 684)

1. On a sheet of paper, use each of these key terms and academic vocabulary words in a written sentence.

2. What is a warranty? (32.1)

3. What is the difference between an express

warranty and an implied warranty? (32.1)

4. How does a full warranty differ from a limited

warranty? (32.1)

5. What is a warranty disclaimer? (32.1)

6. Explain the advantages and disadvantages

for extended warranties or service contracts.

(32.1)

7. Compare and contrast credit and credit limits.

(32.2)

8. What is the difference between a credit card

and a debit card? (32.2)

9. How do travel and entertainment charge

cards differ from bank, store, and gasoline

credit cards? (32.2)

10. What is the difference between consumer and

business credit? (32.2)

11. How does the Fair and Accurate Credit

Transactions Act of 2003 assist consumers?

(32.2)

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12. Workplace Skills Students should identify the name

of the card, features, current interest rate, and grace period for payment.

13. Technology Applications Students should be able to fi nd this

information without directly contacting the business by searching online and checking Web sites.

CHAPTER 32 REVIEW

14. Math Practice The customer will spend less money

for the year with the existing situation. Existing Situation

$9,000 � 0.03 � $270 per month $270 � 12 � $3,240/year Different Situation $9,000 � 0 percent � $0 for 3 months $9,000 � 0.05 � $450 $450 � 9 � $4,050/year Based upon minimum payments

only, the customer should not switch. However, the customer needs to compare the interest rates charged for the new and existing cards. If the interest rate was lower on the new card and the customer continued to pay the minimum payment, it would be benefi cial to change.

15. Social Studies Examples could include warranties for

a small electronic device, such as a cal-culator, compared to much more costly electronic device, such as a computer.

16. Consumer Credit

Regulations It is necessary due to the tremendous

impact credit has on the economy and individuals. These laws regulate companies issuing cards and protect consumers’ credit standing.

17. Finding the Better

Business Bureau Presentations should express an un-

derstanding of the services provided by the Better Business Bureau.

Formative AssessmentFormative assessment is an essential component of classroom work. This type of assessment provides information that is then used as feedback to modify teaching and meet student needs.

L1 Review key terms for this chapter. Ask students to write one sentence for each key term.

L2 Provide various examples of factors that affect extended product features or credit. Have the students identify which factors affect each one.L3 Ask students to create stories that illustrate ideas for successfully utilizing consumer or commercial credit.

If the results of this formative assessment seem low, consider the following activity:

Assign and review the answers to section assessments in class.


12. Workplace Skills Communication Perform an Internet

search on available credit cards from a

selected bank, store, gasoline, or travel and

entertainment credit card company. Write a

one- to two-paragraph description of the card,

features, current interest rate, and grace

period for payment.

13. Technology ApplicationsObtaining a Warranty Quote Use the

Internet to fi nd a direct marketer of extended

warranties. Obtain a quote for the following

items:

• A car

• A recreational vehicle

• A motorcycle

• A boat

14. Math Practice Consolidating Debt A household has

$9,000 in credit card debt and pays three

percent per month interest on all credit card

payments. The family gets an offer for a new

card. It promises no minimum payment for

three months on all balance transfers and

then a fi ve percent interest rate thereafter.

Assuming that the household pays only the

interest each month on a $9,000 balance,

under which scenario will the customer

spend less money over a year? What other

information would you need to advise the

customer about consolidating credit cards?

Problem Solving: Interest

Rates Credit card interest rates are based

on a percentage of the credit card’s monthly

balance. When fi guring the total amount of

interest paid each year, it is important to

understand that the interest rate might not be

applicable for the entire year.


15. English Language Arts Warranties Research two or three products

that come with a warranty. Choose one and

write a paragraph explaining the terms of the

warranty. Discuss why you feel the product

comes with a certain type of warranty and

whether it is practical for this product.

16. Consumer Credit Regulations

List three reasons why it is necessary to

have federal and state legislation regulating

consumer credit.

17. Finding the Better Business Bureau Research a Better Business Bureau located in your state.

Activity Use presentation software to create an oral report that summarizes the various services it provides and where it is located.


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18. Learn How to Use Credit Students might look for articles

about people who used credit wisely as well as those who did not. Suggest that they offer a realistic portrait of the advantages and dis-advantages to using credit.

MINI-QUIZAdminister the Mini-Quiz orally. Students should answer these questions as either true or false.

1. An arrangement whereby businesses or individuals can obtain products or money exchanged for a promise to pay later is called a warranty. (false, it is called credit.)

2. A promise to a customer that a product will meet certain standards is called credit. (false, it is called a warranty.)

3. A service contract that provides service or preventative maintenance for a specifi ed period beyond a product’s normal warranty period is called an extended warranty. (true)

For an expanded chapter quiz, go to Chapter 32 in the TeacherWorks™ Plus DVD and to Chapter 32 in the ExamView© Assessment Suite.

CHAPTER 32 REVIEW

STANDARDIZED TEST PRACTICE

ANSWERS

1. B 2. T

TEST-TAKING TIPSWhen your students have a standardized test coming up, these last-minute tips and strate-gies will help students relax and do their best.

Test Format Help your students become familiar with the format of the specifi c test they are going to take by practicing with test items that imitate the actual test items.

Test Timing Have your students take one or more timed practice tests so that they become comfortable with the test format.

The students should be evaluated on the performance indicators noted in the role play. For another DECA role play, go to the Competitive Events Workbook or the Student Activity Workbook, or go to the Marketing Essentials OLC through glencoe.com.


DECA Advisors CornerTo build leadership skills, break students into small groups and ask them to discuss the following questions: 1) What are the most important skills for tomorrow’s leaders?; 2) How has technology changed leadership?; 3) How can high school students develop their own leadership skills?

Chapter 32 — Extended Product Features 691glencoe.com


Role PlayElectronic Store Sales AssociateSituation Assume the role of sales associate for an electronics store. The store carries a large selection of televisions of all sizes and types. You are assisting a customer (judge) who wants to purchase a high-defi nition television with a large screen. This is an expensive item, and the customer (judge) wants to be sure that the television is covered by warranty. The customer (judge) is confused about full and limited warranties and extended warranties. The customer (judge) asks you to clarify the types of warranties.Activity You are to explain to the customer (judge) the difference between full and limited warranties, and then explain extended warranties and their advantages and disadvantages.Evaluation You will be evaluated on how well you meet the following performance indicators:

• Explain warranties and guarantees.

• Describe legal issues affecting businesses.

• Explain business ethics in product/service management.

• Respond to customer inquiries.

• Interpret business policies to customers/

clients.

For more information and DECA Prep practice, go to the Marketing Essentials

OLC through glencoe.com.

18. Learn How to Use Credit Use the library or the Internet to investigate

how to use credit wisely. Research by reading

advice in personal fi nance columns in

newspapers and on Web sites. Prepare a

one-page report on tips for using credit

wisely.

1. Directions Choose the letter of the best answer. Write the letter for the answer on a separate piece of paper.

How much interest will be charged to a credit card with a balance of $2,300 and a fi ve percent interest rate?

A $15 B $115 C $230 D $300

2. Directions Choose either True or False as the answer. Write the letter for the answer on a separate piece of paper.

An express warranty is explicitly stated to encourage a customer to make a purchase.

T

F

Study for tests over a few days or weeks, continually reviewing class material. Do not wait until the night before and try to learn everything at once.

Test-Taking Tip

STANDARDIZED TEST PRACTICE

691





692

History of Diet FoodsAsk the class to research the history of diet foods. Ask them to detail the turning points (such as the introduction of artifi cial sweeteners such as saccharin or aspartame) and trends (like the creation of low-carb drinks) and summarize the developments in a two-page essay. Encourage students to focus on a single company, a single product, or an industry-wide trend. Students should include information on the types of information about diets and nutrition available to the public, the sources of that information, and whether and how businesses adapted food products in response to that information. Have students discuss the current and future markets for diet foods.

SET-UPDiscuss basic background to make sure students understand the simulation. Ask students to discuss what they know about low-carb diets. Are they healthy, and do they work? Have students debate whether it is preferable for a food company to feed customers what they want or market a less popular but healthier diet.

PROCEDURESYou may want to list procedures on the board and talk about any questions the students might have. Remind the students that a suggested outline for their project is available at the Marketing Essentials OLC through glencoe.com.

TIME MANAGEMENTSet goals, block schedules, and mile-stones. Assign interim deadlines for each step of the project.

ASSESSMENTThe rubrics for evaluation of the written, oral, and computer presentations are available at the Marketing Essentials OLC through glencoe.com.

FPO

BASIC BACKGROUND Mainstream Foods wants to create healthy

food for people on the go. Its competitors have meal replacement products and low-carb alternatives.

W h o I s D o i n g What? Unilever has a low-carb product line called Carb Options®, which includes salad dressings, peanut but-ter, iced tea, steak sauce, and a choco-late chip brownie bar. Keto carries an even broader line of low-carb

foods, including spaghetti, elbow macaroni, pizza dough, macaroni and cheese, tortilla chips, ce-real, ice cream, and ketchup. Russell Stover has low-carb candies and DeBoles offers low-carb spaghetti. Manufacturers have developed meal replacement bars such as Balance®, Atkins®, and Zone® bars, which target adults, and milk and cereal bars which target children.

YOUR OBJECTIVE You are on the team of research and de-

velopment (R&D) scientists and marketing staff members. The team’s role is to develop a new line of low-carb foods or meal replacement prod-ucts. The clock is ticking: Mainstream Foods wants the new products introduced in six months

because it wants to capitalize on the active-lifestyle and low-carbohydrate crazes and popular diets such as Atkins, South Beach, and Zone.

SKILLS NEEDED Preview the project and brainstorm a list

of skills you will need to complete it. Describe how you might apply them. Some skills might include:

Academic Skills reading, writing, math, science, social studies, and researching

Basic Skills speaking, listening, think-ing, and interpersonal skills

Technology Skills word processing, presentation, telecommunications, and Internet skills

ASSIGNMENT AND STRATEGY • Get the background

Conduct an environmental scan to identify threats and oppor tunities for Mainst ream Foods. Include the popular diets and products noted above and any food labeling laws or other government regu-lations. Research what com-petitors have already done

Create a New Exciting Food Product

A SIMULATED SPORTS AND ENTERTAINMENT MARKETING EVENT




Explain to students that portfolios provide evidence of their knowledge and skills in working with data, people, and concepts. Developing a portfolio can be a valuable career development and planning tool. Point out to students that quality is more important than the quantity of entries. Encourage students to check the portfolio information available at the Marketing Essentials OLC through glencoe.com.

Peer ReviewFellow students who share common interests can serve as reviewers of the fi nal portfolios. This review can be completed through the use of a checklist. Go to the Marketing Essentials OLC through glencoe.com to fi nd a suggested checklist.

10

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1

Unit Review

Now that students have completed the chapters in Unit 10, ask them to review their answers to the Think and Write activ-ity on page 630. Would they answer it differently? Why or why not?

Conclude this unit with a general review of all elements of product planning, including new product development, product mix, branding, packaging, label-ing, warranties, and credit. Have products such as Liquid Paper, Post-Its, or other handy products available to use as spe-cifi c examples.

Ask students to visit the supermarket and fi nd a product that is labeled as new or improved. Have them simulate the product’s planning, conveying the process as a series of steps.

STEP AHEADHave the students suppose they have invented a new product and are about to create a business to produce and sell it. Ask them what steps might be taken to prepare for entrepreneurship.

Internship Wrap-UpHave students research the government regulations on manufacturing and selling food products of their choice. Direct them to the Food and Drug Administration to fi nd out what is required in terms of the food product preparation and packaging.

Option 1 Internship Report Once you have completed your Marketing Internship project and presentation, include your written report and a few printouts of key slides from your oral presentation in your Marketing Portfolio.

Option 2 Designing a New Product Develop a new product or service of your choice. Use the steps in product development to decide on a new product. Analyze current market and PEST (political, economic, socio-cultural, and technological) conditions. Prepare a comprehensive written report and an oral presentation noting the target market, product name, packaging, labeling, price, place, and promotion. See a suggested outline and key evaluation points at the Marketing Essentials OLC through glencoe.com.

to capitalize on these trends. Research at a library or online and in food stores.

• Develop the product concept Use the steps for new product planning to design one or more products or product lines for Mainstream Foods. Once your team has developed a new prod-uct or product line, conduct marketing research with the intended target market(s) to see if any changes should be made. Include the product concept, its packaging, and the other marketing mix strategies in your market research study.

• What your project should include Your ideas for your product and/or product line should include its name, packaging, labeling, warranty or guarantee, and other marketing mix strategies (place, price, promotion). Be sure to conclude with a strong ar-gument as to why this new product or product line will be successful.

YOUR REPORT Use a word processing program and presen tation

software to prepare a double-spaced report and an oral presentation for Mainstream Foods. See a suggested outline and key evaluation points at the Marketing Essentials OLC through glencoe.com.

Go to the Marketing Essentials OLC through glencoe.com to review prod-uct and service management con-cepts that relate to DECA events.

glencoe.com Unit 10 Thematic Project — Marketing Internship 693







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