INTRODUCTION TO THE PROJECT.
There has been growth in use of credit cards among students of various universities in the recent times. This begun late 1970’s when there was the regulations of detail banking in compasses. Credit card was known to be for the few that is customers who had extra disposable income and who were seen as able to finance credit facilities in their businesses. However this traditional, way of issuing credit cards changed after there were enormous losses reported among the American banks.
this led to the change of marketing policies of firms. They started marketing credit cards to all people with extra income to spend and since then the credit cards has been sold to all including the university students. This program of unsecured wrongs began with a few students joining but now almost a half of the population of students posses credit cards. Recently it is reported that credit cards have become more profitable among the products and services offered by banks.
Their students, some of them who are employed are low income earner workers have contributed greatly to the growth of profitability of credit card orders as offered by banks. The banks approached the students after finishing with middle income class in late 1980’s (money 1999; 2000). Students are not economically stable therefore credit facilities to them are increasing the burden of debts to them.
Sometime back all students were not allowed to have credit cards without the consent of their parents which was obtained through a signature on the credit card. But of recent things have changed, students are obtaining credit cards and never before in the history of our country the credit cards has been sold to unemployed individuals as today. It is common knowledge at the time when a parent was sought for there was low default rate and profits were high but the late method of campaigning where young students are targeted for credit cards is unprecedented. The removal of the parents signature as a way of consenting for a student to have a credit card has increased the accumulated debts among low income earners but with high potential future income at the higher rates.
Banks in recent, past, banks have embarked on marketing strategies targeting students in high schools so as to have a large market share. The key to improving profitability in banks is to get more clients and win the marketing share, keep the existing customers by making them to be loyal and then the benefits will increase. However to have such a big market share full of unemployed youths with only hopes of future potentiality poses a danger to both credit holder and the bank. Under these propositions we have prestige proposition. Non prestige customers have large amounts of money invested in banks but they do not bring profit because they have large cost which are associated with them because of personalized banking. Unlike the students who have no extra income invested in the banks.
To keep the loyalty of a high school student to the bank is one issue and maintaining them is another issue. This is because at times once a student graduates may change his minds and get out of the bank because of the credit accumulated.
1.1 Background of study
Banks have also embarked on segmentation of their customers into different value propositions according to the profitability of customers. This is when the 80-20% profit generation against customers arises from. Banks customer segments have people with similar needs and worth broadly in the same economic value, earn almost similar income etc. They are given a combination of services, products, prices and branding which fit them. This is called managing customers according to segments. Banks also compute the lifetime value or profitability of customers through forecasting and use of strategies like introducing new products that will fit the customers in future. Banks can also modify existing products to fit customers in a particular way hence making them satisfied and this will lead to increased revenue.
Banks should also try to come up with strategies that are directly related to how customers know their products and how the products solve their needs. Customer understanding is vital because a good strategy is that which is related to the improvement of bank products, whether asset products like loans or liability products where customers entrust their money to the banks. This means banks should come up with strategies aimed at particular target customers. This type of strategy is persuasive in that it explains to customers why they should take particular products.
Banks can also pick on the behavior based segmentation strategy and this involves looking at past and present relationship of the customer and the bank. Banks should look at how long a client has been in the bank. Has the client been on and off-has he ever left the bank for another bank and back? They should also look at the value of customers in terms of how much money the customer has in the bank or how much he has borrowed or he is willing to borrow. Segmentation of clients is important in banks because customers are given a bundle of benefits that have been used. Geographic-where the banks take into account the geographical boundaries and this majorly assists the bank in staffing and opening of new branches and also to assess market potential. They have also been using psychographic segmentation that deals with customer lifestyle, tastes and preferences, why customer want a particular product instead of the other.
The demographic segmentation deals with dividing customers according to age, stage in life cycle etc. and it helps banks to design production for all types of people depending on their age, income, etc.
Apart from the behavior based segments, the bank can also adopt segmentation, depending on what the bank wants and not what customers want, banks have different value propositions that it wishes to give customers hence it will segment its products according to its value propositions and as customers take them they automatically fall to segments. The banks have three major objectives and these are get deposits and minimize the cost of funds producing quality credit balances at maximum spread income and to generate free income and reduce services expenses. This leads to the following four segments. There are those people who want to invest others want to borrow, others want convenience and on others are fast limited customers. These segments can be used as a basis for the bank to develop long-term strategies, to attract customers to the different segments.
As much as strategies are good, bank should avoid using one strategy for all products or marketing applications effective segments or marketing applications effective segments. A strategy will vary according to what are the marketing objectives. In the case of attracting new customers who have no history with the bank. The bank will come up with a wedge product strategy where they give customers of other banks a chance to sample some of its products or services for the time being and this will enable them to cross-sell more profitable products to them and create a long lasting relationship with them. This is done by direct marketing for example they can send letters to customers requesting them to try products or phone calls.
In making existing customers to be more profitable, the bank should study their behavior carefully and give them the most appropriate product or service that can turn a marginally customers, their lifestyle and the amounts of cash they handle and the needs comes from good data management. When the bank can use the data it has to identify best ways in available banks, database can enable them to know which customers are profitable, marginally profitable and unprofitable.
Apart from keeping existing customers, banks also need get more and more customers by prospecting well and turning these prospects to potential customers. The methods we have seen that are employed here is the direct mail methods and telephone calls. Geographical prospects can also be employed by use of strategic positioning of new branches at areas where trade is high and directing advertisements to such areas to lure more customers into the banks customer base, whichever the method, banks have realized that CRM is very important because it concerns more on customer satisfaction rather than products. Most banks then have realized that in order to understand customers well and this information is in the banks database. There should be therefore good management of data that gives information about the customers and whether they are profitable or not. For good data management, banks should ensure that:
They have relevant and accurate data(information) about the customers,
Develop daily, weekly, yearly etc analysis of customers’ profitability and
Develop tactics on these segments that modify behaviors of both customers and employees to increase sales and revenue while lowering costs.
Banks should ensure good data management by careful collection of customer data, turning this data into knowledge and then using this knowledge to develop strategies and tactics to modify behavior of both employees and customers and prospects to improve long-term profits.
Banks should realize that just aiming at having a large market share is not enough to generate profits. They should also ensure that they do good customer relations management in order to achieve good results. This is by understanding their customer needs well and then the bank will match the customers with available products to ensure maximum customer satisfaction. They should also manage customers well by segmenting them into useful segments based on profitability so as to give them beneficial value prepositions that will make them have good long-term relationship with the bank and hence increase the profitability.
The issue that begs for an answer is that whether selling credit cards to students is ethical. Ethics varies from situation to situation therefore the objectivity of selling the credit cards to students is in question. There is findings that has been carried out on the same question but the finding of these research should be consisted with recent investigations as carried out by other researchers and marketers.
This research cannot ignore the fact that credit cards are in use by a significant portion of both college and high school students although some of them have heard problems in honoring their payments. An issue that has led to the collapse of their credit cards.(Manning & Smith 2005). What is surprising is the approach taken by banks in marketing these credit card facilities. Just imagine a bank marketer marketing a credit card to a teenager at high school without seeking the consent of the parent. This raises the question of ethnocentricity.
Another issue emerging is some of the universities register students from low income households and they are largest proportion of students.
The purpose of the study is to assist in finding out the ethics in marketing credit cards to college and high school students and this research project will be on the high school and college students. In carrying out these projects certain constraints will inhibit effective study, first due to short deadline period to finish the research that is certain aspects may not be researched in details. The study also assumes that effective and efficient management and application of marketing strategies are the determinant of selection of students to be issued with credit card. On the other hand, economic reality there are other factors that affect the issuance of credit cards to students. Such factors includes the family background of the students in question, employment status of the student, employment programs embraced by the university or college, the prevailing economic conditions of the economy, things such as inflation rate, sub prime crisis, wages inequality, flow of capital .
this research assumes that all strategies applied in marketing and issuing of credit cards to students are similar to those used in world marketing to adults raising the question of integrity and professionalism of the market of the product(credit card).
The study will be of great value to the researcher and future researchers, the management of banks and marketers as it will highlight the importance of evaluating the students capability to service credit before issues of credit cards. It will also highlight the ethical issues involved in determining credit cards issuance.
Research questions that will be addressed include
(i) which ethics are violated by issuing credit cards to students?
(ii) What are the advantages of issuing credit cards to students?
(iii) What banking ethics are violated while issuing credit cards to students?
(iv) What is the relationship, between credit card issuance and the burden of debt among the students?
(v) What customer relationship strategy is used in issuing the credit card?
(vi) What are the customers needs that are violated by issuing credit cards to the students?
(vii) What can you say about the past and the present market situation of the credit card in terms of market growth, market share among banks.
The research hypothesis for the project will be as follows.
H1 On average the effect of credit card among students will be similar in all banks and the sample will be a true representation.
H2 The students is a viable market segment in the banking sector.
H3 All banks makes choices of credit card management policies without the banking sector regulations interfering .
H4 The parents, students and other stake holders are aware of the impacts of the credit cards among the students.
H5 Credit card products is a profitable venture to all banks. The ideas underlying the problem solving task to be solved is understood by key players in the industry.
The credit card is a very powerful tool initiating the banks profitability and position in the market. The results obtained can be used to assist banking sector in adjusting marketing strategies in the banks and it cannot be ignored. The banking sector is important in the circular flow of money in the economy and youths are important economic players for present and future. Therefore the issuances of credit cards should be handled with care to ensure the future development of the economy is not hampered by the youths with credit facilities or deny them opportunities at their tender age.
DEFINITION OF TERMS.
The terms that are in use in this thesis and defined in the context in which they are being used in this research and they are as follows.
Strategy : strategy is the direction and scope of an organization over the long term, which achieves advantage in changing environment through the configuration of resources and competences with the aim of fulfilling stake holders expectations.
Growth strategies: this refers to the power to capture growth in terms of turnover, expansion as well as recuperation of market share.
Market share: this refers to the total sales of a bank divided by the total sales of other firms for a specific product – market. It may be calculated on the basis of actual sales or forecast sales.
Intended strategy: this is an expression of desired strategic direction deliberately formulated or planned by managers.
Emergent strategy: emergent strategy is a strategy developed through everyday routines, activities and process in organizations.
Credit card: this is referred to a card issued by banks to their customers to use at times in investment for money. At times it is referred as money card.
Student: refers to any person in high school or college whether working or not.
The main purpose of the research is to find out the ethical issues surrounding students credit card holding. Research from various scholars will be reviewed and discussed in details.
Collections of sources.
Various resources have been used ranging from the university library materials, journal articles of the same topic and internet global search. These materials have assisted us to address the central question with the research and are the basis of the conclusion and recommendation. The research materials have assisted to portray credit card marketing in colleges and the rising or increasing of burden of debt among students. It can be said simply, the credibility of these literature review is solely based on the articles and other scholarly written manuscript.
MARKETING CREDIT CARDS IN COLLEGES.
According to manning (2005), the explosive growth of credit card use on college campuses results from the deregulations of retail banking, beginning the late 1970s. in the essence credit cards used in colleges has grown drastically and has increased the number of students holding them. It is known that most banking institutions has increased their campaigning efforts including the university students to among their customers in the credit cards. This emerged after what was seen as a loss of profits ii the economic downtown of 80’s.
A moral question that arises is the question of educating students about financial literacy and financial stability (manning 1999: 2000;2003; Jamba – Joyner, et al.,2000; State of Lowa, 2000; GAO, 2001: Hoover, 2001; Bianco & Bosco, 2002; Tan, 2003; Hystand & Heavner, 2004 )
The marketing of credit cards in colleges is governed by the ethics as set out by the banking regulators state that the marketing team should identify themselves as agents selling the credit cards but does not put limitation as to the type of people to be sold. This leaves room for the inclusion of students who have had difficulties or who have difficulties in the credit card.
Majority of the banks however have issues proper documented policy and fair practice called for the use and fair practice of credit card. Among them include:
(a) the marketer should asses the risk of credit facility to the persons especially students since they do not have independent source of finances. To asses the students credit worthiness and ability to raise funds becomes very difficult because of disclosure. Take an example a student wants funds to use while in college but does not have any source of income and he gives false information he will get the credit card. Then he will be unable to finance the credit card and will be heavily burdened.
(b) Assessing availability of credit to card holders through the use of their form filled but this has also shortcomings which can be addressed in any way.
(c) The bank should be able to express in percentages their assessment of credit worthiness of the holder of the card. This will assist in deter4mining the amount of credit that should be issued at any given period to the students. The bank should be able to take full responsibility for all information assessed and verifies. What it means is that in case there is failure on part of the student to honor their payment the bank should use other means of recovering if they did not initially take the necessary step to capture the correct information. This is because in the world of today human beings are living beyond their means. Therefore anybody issuing a credit card for student on the basis of the information supplied should know that if not properly counterchecked is giving money to a person to use who does not afford. Why should a bank a credit card to students without proper verifications destroying the future of a potential customer. It is a habit of unchecked spending that will create huge amounts of debts thus if the client does not get money to pay immediately it will be written off.
(d) The credit cards to students is unasked for therefore if proper credit limits are not set out the soft loans will be beyond the reach of the owners (the card holders).
(e) the banks before issuing the credit cards should be able to identify a proper methods which does not violate the rights of the students or the card holder. The method used or planned to be used should be consistent with the best human right as set out by the dUnited nations human rights commission and the constitution acts. Issues like verbal or physical threats humiliating public utterances making anonymous calls or false statements should not be part of methods used in collecting funds.
IMPORTANCE OF CREDIT CARDS.
Credit card is important to all old and young, educated and uneducated with income or without income if properly used. However if not properly use it may be like falling into a pit and having a few broken ribs and jaws. Even if you take a corrective measure it will be difficult to recover (Mukerchee H.S & Balaji Vedha 2005).
Before taking up the credit card one needs to understand his financial position, the needs of the family , whether there are other sources of borrowing, saving and investment, opportunities available and the times of use of credit cards
Research by international marketing conference on marketing and the society found out credit card rates are high as compared to mortgage loan interest rates and this was their findings about mortgage and green card around the world.” Around the world the interest on a credit card is significantly higher than a home loan. For example in the US the current average interest rate for a 30 year fixed rate home loan is around 6% whereas the average credit card interest rate is around 14%. This means that, in the US, a credit card is about 2.3 times more expensive than a home loan on an average. In comparison in India a credit card (at an average rate of 34%) is about 3.2 times more expensive than a home loan (at an average rate of 10.50%). What this comparison does not reveal however is that the lowest interest rate in the US on a credit card is around 7.50% p.a, which is not that far off from the home loan rate. In india however the lowest credit card is around 20% which is still twice the home loan rate.” (Mukerchee H.S & Balaji Vedha 2007)
Market segmentation involves the systematic analysis of market characteristics: the relationship between demand and certain consumer traits needs, needs and preferences and the manner in which specific goods fits into certain market segments in the process of need – satisfaction.
In most cases market segmentation is applied on the basis of geographical, demographical and psycho graphical information or a combination of such data. Every marketing problem, however must, obviously be approached in the light of particular objectives and circumstances. Consequently the research needs and the criteria used for purposes of market segmentation will differ from one product to another and one type of market segment to another.
In traditional marketing research, surveys were mainly aimed at collecting information on standardised demographical and social – economic variables such as age, population group, language differences, levels of education, occupation and income groups. A more recent development in research for market segmentation purposes in the analysis of the market in terms of the consumer motivations and expectations as well as actual buying behavioral patterns.
The figure illustrates certain groups of variables which can be employed for purposes of segmenting markets for consumer goods. This diagram illustrates the meaning and connection of the various geographical factors (and their components) in an analysis of consumer characteristics and behavior. Depending on the nature of the relevant products and the distinguishing nature of market segments, the analysis of certain variables might be superfluous and it might be necessary to give special attention to the variables.
In geographical segmentation the market is subdivided according to regional boundaries such as economically identifiable religions, provinces, urban and suburb areas, and retail shopping areas. The geographical distribution of population is for example, significant since regional differences occur in respect of population densities and groupings., cultural differences, topographical factors and climatic conditions. Even typically observable consumer characteristics such as level of education , age distribution and occupational structures differ from one area to another.
The depopulation of the rural areas and the rapid urbanization of all the population groups in Republic of South Africa render geographical segmentation more important since the trend of urbanization has very significant influences on changes in the demographical and psychographical characteristics of urban consumers.
Demographical (including – economic ) segmentation.
The demographical and socio –economic characteristics of consumers represent the most common traditional bases of market segmentation. These variables includes: levels of education and income, ethnic groupings, language groups, age , sex, family size and the position of decision –makers/ purchasing agents in the family life –cycle. The main reason why such information is generally used as criteria for segmentation purposes is that it is usually readily available. Some of these variables will be dealt with briefly in the following paragraph.
Levels of income.
Consumption is to a large extent a function of disposable income. Thorough analysis of consumer income, income distributions and manner in which consumer units appropriates their disposable income (expenditure patterns) is thus essential in any quantitative market study. Information on differences and trends in the distribution of income on a geographical basis and by ethnic group can be particularly valued in the demarcation of regional market segments and target market segments. Income data on cities and parts of cities is also used for purposes of decision making on the location or branch stores and shopping centers.
A decrease in the percentage of families with a very low disposable income ( especially amonst non- whites population groups), coupled with rapid rate of growth in the number of consumer units in the higher income brackets, spells a dramatic increase in free purchasing power. The level of discretionary income (free purchasing power) of any community is of special significance since it implies a growing market potential for durable consumer goods and certain types of services. Information on the relationship between income and consumer expenditure on particular categories of goods and services is particularly useful for purposes of market segmentation. The research surveys of the Bureau of market research of the University of South Africa amongst urban Non – whites household show a remarkably close relationship between income levels of households and their proportional expenditure on certain categories of goods and services.
Levels of education.
The education level of consumers can be closely related to occupational structures and income distribution patterns in a market. The educational levels of the various population groups in the Republic of South Africa differ markedly and this exerts an important influence in the potential use of especially printed communication media in particular Non –whites market segments.
The size of the various age groups has an important bearing on the market for certain goods. The present -day interest in the youth market emphasizes, for example, the importance of age (when related to other consumer characteristics) as a basis for market segmentation. Youth market bases serve a three fold purpose in segmenting target markets: decision – making and buying by parents on behalf of their children (along process of the family life –cycle); the influence of children on the purchasing decisions of parents; and spending by the youths themselves.
At the end of the age spectrum there are two important groups for the marketers of luxury goods and conventional necessities, namely persons in their fifties and sixties and those over 65 years of age. In general, both groups are relatively well-to –do and have few if any financial responsibilities towards dependants. They generally constitute a significant target market for goods of a higher quality and at higher prices and for service enterprises such as savings institutions and travel agencies.
The use of age groupings per se for market segmentation and targeting can be dangerous. For example, the use of demin clothing is not by means restricted to the younger generation. Another typical example: current fuel prices and restrictions have opened new markets for motor – scooters and ,motor –cycles amongst the older generation.
A subdivision of markets according to sex would seem to be a logical basis for market segmentation, since the logical assumption would be that the sexes significantly differ in respect of their, physiological, psychological and certain sociological characteristics and that they would consequently have totally different need patterns and buying habits. With many product groups such as items for personal care, footwear and even motor vehicles, women seek different need satisfying characteristics in a product than men would.
Another significant factor is that certain types of goods are traditional purchased by the wives and others by the husband. The role of the two sex groups as purchasing agents in south Africans households differ significantly amongst the various race groups. The roles of the sexes as buyers also change over time. With the increasing number of working wives it seems that men tend to .play a more important role as buyers of items such as groceries, vegetables and meat products, while women are increasingly buying items such as petro and garden requisites.
The increasing number of working women furthermore generates an increased demand for frozen foods, household appliances and other labour saving devices and services.
A factor about which we have inadequate knowledge is the degree to which the sexes mutually influence each other within the family in their respective roles as decision – makers and purchasing agents. The use of information on the husband wife/ child roles within the family requires a clear distinction between individuals decisions and those taken jointly by the husband, wife and child. In this regard, it is important to have some knowledge of whom the decision –maker(s) are with respect to specific goods. This could assist the enterprise to determine target markets and to adapt its policies and strategies where necessary.
Marketing policy and strategy embrace three basic activities, namely, the formulation of marketing objectives, setting of market targets, and developing marketing mixes in order to best exploit the selected target markets. Marketing objectives can better be formulated and attained through concentrated action in specific market segments. Market segmentation involves the grouping of consumer types from an overall heterogeneous market into a series of homogeneous segments on the basis of certain types of consumer characteristics and reactions. Market targeting involves marketing management decisions regarding which market segments (market targets) to serve.
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