How Do You Make Better Decisions About Purchasing Anything
To be an efficient buyer we need to put into practice the following criteria:
- Do you need it?
- Can you afford it?
- Is it the best time to buy?
- Which is the cheapest?
- Do you need the best?
- How much should you buy?
- Who offers the best terms (is it interest free)?
These guidelines can help you in attaining a good buy. Believe it or not we are a consumer-orientated society and most of us are compulsive buyers. We are constantly being bombarded with advertising. This does affect us; just have a look at young children when an advertisement appears on the television – they are totally captivated. We are told, and it is reinforced all the time, that unless we buy now prices will increase! Anxiety sets in and off we go straight to the retailer and buy. It is amazing afterwards how relieved we feel. Think before you buy!!
Do you need to buy?
It is important to consider carefully where “want” replaces “need”. If you have a bed on which you sleep comfortably and well, but is rather worn and shabby you do “want “a new one, but do not “need” a new one. On the other hand, if your bed is lumpy or gives you backache it is reasonable to say that “need” is the driving force for buying a new one.
Can you afford it?
Have you got the money to make a cash purchase? If not does the “need” for the purchase justify entering into a loan or credit agreement, which will require regular payments in the future?
Is this the best time to buy?
Goods are offered at Sale prices at regular intervals through the trading year. Businesses change seasonal stock and will often reduce the prices of goods considerably to clear space for new stock. It is possible to pick up bargains at such times. Additional considerations might be an imminent change in your circumstances – such as are you about to face a large amount of other expenditure on more essential items?
In a business context, buying new goods only makes sense if the business is satisfactorily moving current stock lines, unless there is a policy to sell what are known as “loss leaders”. Consider a supermarket that advertises chicken for sale at a ridiculously low price. The manager knows that people will rush in to buy the chicken, but then have to buy vegetables and potatoes or rice to go with it, and then remember that they needed milk and eggs and bread and so on, thus naturally generating increased sales of other product lines.
Which is the cheapest?
“Cheap” is a word which means different things to different people! “Cheap” can be used by sellers in many clever ways. Loss leaders are mentioned in the previous paragraph. Cheap goods are most often cheap for a reason and the pros and cons must be carefully weighed up: it is rare to get something for nothing!
Consider printer ink for your home computer: some companies offer ink cartridges at significantly lower prices than the big brands. However, these inks often differ slightly in colour compared with the “own brand” ink: in addition the ink may be thinner and “bleed” on the paper. This may not be a problem, but if you are printing photographs or other quality images the cheap ink is a false economy.
Similarly consider a farmer with a glut of soft fruit such as ripe strawberries. If he drops the price, it is likely that people will buy larger quantities of cheap strawberries than they would of higher priced ones. However, there is a reasonable chance that the buyer will not eat the large quantity of strawberries quickly enough and they will go rotten and be thrown away. This means that the strawberries are no longer cheap – the percentage waste equates to the small extra cost of the higher priced fruit.
Similarly if a business is buying stock, an apparently cheap purchase price must be weighed against things such as:
- do I have to buy a larger quantity than I want to get the cheap rate?
- is there an additional storage and/or shipping cost involved which negates the apparently cheap unit price?
- do I have sufficient cash flow to cover additional purchases to take advantage of cheap prices?
- is the item seasonal, so will sales gradually tail off over time?
Do you need the best?
If you are buying a seasonal fashion garment, it is likely that you will want to change it when next season’s fashion dictates a different style. If you are buying a plain overcoat, the chances are that you will use it for many years. The first garment need not be the best – for the second it is worth buying the very best that you can afford.
How much should you buy?
One variety of frozen pizza is on sale at half price. Will you buy 100 pizzas and fill up your freezer? It would be silly to do so – you will soon tire of the same pizza over and over again and also be unable to take advantage of other bargains that need to be kept in the freezer!
Similarly, as a business purchase, you should only buy as much stock as your usual sales record justifies – however cheap the goods may seem to be at the time. If you ultimately don’t sell the surplus stock, you will either have to sell it at a loss or dump it.
Who offers the best terms?
It is sometimes possible to get good deals by buying goods on interest free credit. Where a high cost item is available at a bargain price, perhaps as a promotional offer, interest free credit allows a buyer flexibility. But remember you still have to meet the payments of the credit agreement. When considering credit agreements or loans it is worth getting quotes from several companies to find the best deal – check the small print; what seems like a good deal may have conditions and restrictions which are disadvantageous to the buyer.
