TTFish - -
There’s a lot of detailed information about the credit card market and
segmentation in this answer. However, you’re probably intimately
aware of marketing efforts Visa, Mastercard and others in your local
market, so there’s lots of examples (maybe even from today’s post)
that you can add to the segmentation area.
You may want to pay careful attention to the section on “Future
Segmentation” because there may be particular points regarding buyer
behavior that you wish to make. I’ve referred to a summary of Howard
and Sheth’s work but you’ve probably had very specific discussions on
the process.
And you may wish to note specific product offerings that you’re seeing
in the mail or in on-campus promotions in section 3.
1. DESCRIPTION OF THE AUSTRALIAN CREDIT CARD MARKET
------------------------------------------------------
There are 8 million credit card users among the 15.5 million
Australians over age 15, according to Australian Broadcast Corporation
(ABC) reports. There are 1.3 credit cards “per wallet” according to
the ABC, putting a total of 9 million cards in existence.
Australian Broadcasting Corporation
“7:30 Report” (Jan. 1, 2003)
http://www.abc.net.au/7.30/s756464.htm
Consumers use their cards for about 45% of all retail purchases,
charging an average of $9,638, according to MWE Consulting, an
Australian firm that tracks the credit industry. The average balance
carried over from month-to-month on the cards is $2,256, according to
MWE Consulting’s September, 2002 numbers. Cash advances are the other
major use of credit cards and they average $1,085 per year.
The Age
“True Cost of Cards” (Jan. 21, 2002)
http://www.moneymanager.com.au/planning/guides/articles/debt08.html
It is important to note the types of cards used for financial
transactions and how they differ:
* credit cards are unsecured lines of credit, with annual interests
rates applied to any monthly balance unpaid. In Australia, interest
rates average 15% on these cards.
* charge cards, such as American Express or Diner’s Club, which
require full payment within 30 days of billing. These are not
included in the credit card numbers.
* debit cards, which though they may carry a Visa or Mastercard logo,
deduct balances immediately from a checking or savings account. These
also are not included in credit card counts; in fact they’re
competitors for financial transactions.
“A lot of the growth in credit card spending over the last few years
has been driven by a shift away from cash and cheques rather than a
huge increase in consumer spending,” says John Steward, country
manager for American Express in Australia. Australian use of debit
cards had cut into the use of credit cards for various transactions
and by 1998 has risen to 45% of transactions (leaving credit cards
with 55%), according to The Age article linked above. But with
incentive rewards programs, such as the popular ANZ/Qantas card which
provides airline miles for purchases, credit card usage has expanded
to 67% of payments.
MWE Consulting says that credit card spending continues to increase,
rising 23% in the past year. However, growth in spending is slowing,
as 18 months ago the annual growth rate was 35%.
The Age
“ Low cost credit cards overtake loyalty reward schemes” (Nov. 25,
2002)
http://www.theage.com.au/articles/2002/11/24/1037697990461.html
The Credit Card Industry
-------------------------
According to the sources cited above, credit card transaction fees
account for $3.5 billion in revenues for banks. The Australian
Reserve Bank has been so critical of the dominance of the market by
the four major banks and the high transaction fees, that it’s proposed
reforms that industry observers say will cost the financial
institutions about $350 million or 10% of that income.
But, of course, transaction fees are only one part of income. In
June, 2002, outstanding debt on credit card balances was $21 billion –
which would generate an additional $3.8 billion in income at the
prevailing 15% interest rate (which is really a compounded 18%
annually). And more recently, the leading banks have started charging
fees of 1.5% for cash advances.
Credit card profits are important to the big 4 banks: National
Australia Bank, Commonwealth Bank, ANZ and Westpac. ANZ, which has an
estimated 1 million holders of its jointly-branded ANZ/Qantas card
earned 6% of $1.8 billion profit in 2001 from credit cards.
The major banks accounted for 74.5 per cent of Australia's credit card
market and 77.7 per cent of balances, according to MWE Consulting.
According to a recent article in the Sun-Herald, which is only
available in the Google cache of the original page, market shares for
the leading companies are:
Market shares (2002/2001)
-------------------------
ANZ 17.9%/17.7%
Commonwealth Bank of Australia 21.6%/21.4%
National Australia Bank 16.2%/16.9%
St. George 3%/2%
Westpac 19%/20.5%
The Sun Herald
“You’ve Got to Give Them Credit, No-frills Cards Have Magnetism” (Jan.
5, 2003)
Google cache:
http://216.239.51.100/search?q=cache:5NHVt7oQWPgC:www.newsclip.newscentre.com.au/mlc/030105/p005/0301050742.html+%22MWE+Consulting%22+%2B+Ebstein&hl=en&ie=UTF-8
A Maturing Marketplace?
-------------------------
This is a maturing marketplace, as the slowing in spending per card
indicates, but growth is still continuing at a high rate, given a
slow-growing economy. And there’s room for more transactions in
several areas:
* Australians rarely can pay taxes or government fees with credit
cards, an option commonly offered overseas
* use of credit cards by teenagers is below Japanese and U.S. levels
* European, Japanese and American users carry an average of between
2-3 credit cards per wallet, including specialty store cards and
gasoline cards - - far higher than the Australian average of 1.3 cards
per wallet.
However, Australians already have 9.3 million cards for 7 million
households, indicating a high rate of usage. In looking at household
penetration in adoption/diffusion models, credit cards are somewhere
in the stage where the “late majority” or “laggards” are the only
non-users left. As credit cards are now often necessary to hire a car
or rent a hotel room - - and not even debit cards will always serve
that purpose - - the Australian credit card industry is probably
addressing the last segment of the business, the “laggards.” When you
take out the 12.9% of Australian households that are termed
“financially distressed” by the Australian Bureau of Statistics, it
would be even more obvious that the industry is addressing the
“laggards.”
Australian Bureau of Statistics
“AusStats”
http://www.abs.gov.au/
But the credit card industry demonstrates the weakness of this model
as surely as the television, radio or personal computer industry did
before it. Initially maturity is defined as one user per household,
but as the technology or service becomes more prevalent a household
has a credit card or TV or radio for each person - - then later more
than one per person.
Quick MBA
“Product Diffusion Curve”
http://www.quickmba.com/marketing/product/diffusion/
From the standpoint of product life cycle, the fact that transactions
continue to increase - - and do so at a double-digit rate - -
indicates that the market has yet to hit its peak, so has yet to hit
maturity. However, new options are emerging that threaten the credit
card’s dominance, including transaction services such as PayPal, which
has been popular in supporting online transactions via e-Bay and other
Internet retailers.
QuickMBA
“Product Life Cycle”
http://www.quickmba.com/marketing/product/lifecycle/
Forbes Magazine
“PayPal runs up against competition” (March 8, 2002)
http://www.forbes.com/2002/03/08/0308paypal.html
The Age
“ Low cost credit cards overtake loyalty reward schemes” (Nov. 25,
2002)
http://www.theage.com.au/articles/2002/11/24/1037697990461.html
Consumer Trends
----------------
Customers are clearly evaluating credit cards on the benefits offered
from usage. As studies already cited have indicated, it was the
introduction of travel awards programs that stemmed the use of debit
cards. For consumers evaluating the tax-free benefits of “free”
travel increased credit card market share – even if they are being
paid for by households and businesses by transaction fees and monthly
interest payments.
More recently, studies indicate strong ebbs and flows of consumer
spending using credit cards. Tighter economic conditions are spurring
use of savings over credit - - though a segment of the population may
also be using credit card loans in lieu of other borrowing.
The Sidney Morning Herald
“Shoppers use more of their own money” (Aug. 20, 2002)
http://www.smh.com.au/articles/2002/08/19/1029114078128.html
And the Sun-Herald article from January, notes that economy-minded
customers are moving away from the affinity cards to “no frills” cards
with no travel benefits, but with interest rates around 10%. Michael
Ebstein, the MWE analyst quoted by the Sun-Herald, notes that “the
market was changing and it was not a case of one size fits all.”
Perfect conditions for market segmentation!
Even a quick look at credit card offerings makes it clear that a prime
portion of the marketing effort is aimed at business people with
incomes of $50,000 annually. The banks are seeking customers spending
on company account, giving them more leverage than when family
spending alone is done on a credit card. Though there’s some cost to
the owner of the card ($35-$50 per year) for annual fees, they are
offset for the consumer in higher credit limits; insurance; and higher
rewards for the higher spending levels:
ANZ Bank
“Credit Cards”
http://www.anz.com/australia/persbnk/prdsrv/credit/overview.asp
Identification of high-level spenders has led to both “gold” and
“platinum” card levels. They are attractive to consumers due both to
prestige and high reward levels. Though “gold” cards account for only
about 15% of the Australian market, according to Ebstein of MWE
Consulting, they spend more than 25% of the dollars. For businesses,
the attraction is in identifying people with higher per capita
spending - - and then targeting them.
Opinion Leaders
-----------------
In all of the Western economies, journalists are key opinion leaders,
particularly because the rise of consumer credit has also been
accompanied by a rise in bankruptcies. It’s no different in
Australia, where each of the major daily newspapers and The Australian
Broadcast Corporation has followed spending from both industry and
consumer levels.
Among the consumer organizations concerned with credit card use has
been the Australian Consumers’ Association; the regional Consumer
Credit Legal Services in each of the states or territories; and the
Financial Services Consumer Policy Centre at the University of New
South Wales. Each of these organizations has been very visible in
discussions of consumer credit and in commenting
Review of the Code of Banking Practice
“Joint Consumer Submissions on Bankcode” (undated)
www.reviewbankcode.com/pdfs/ACAsub.pdf
Industry interests have been represented by the four national banks;
American Express and Diners Club; the Australian Bankers Association;
and the superannuation funds (which have taken the role as credit card
issuers to an estimated 4 million customers).
With the government, the strongest voice for changes in the industry
as been the Reserve Bank of Australian, which tracks industry
statistics but also has a regulatory role. The Reserve Bank is
currently active in trying to reduce credit card transaction fees,
through regulations introduced in September.
Reserve Bank of Australia
Home Page
http://www.rba.gov.au/
A number of other organizations serve as information sources for
industry data, including MWE Consulting; Dun & Bradstreet; and the
Australian Bureau of Statistics. The Bureau of Statistics includes in
its economic measures one for “financial distress,” an indicator of
creditworthiness of households:
Australian Bureau of Statistics
Home Page
http://www.abs.gov.au/
2. NEED AND SEGMENTATION
--------------------------
The market has been segmented on the basis of customer types; by
merchant; and by usage. Each segmentation serves a different purpose:
CUSTOMER TYPE: programs are matched to behavior for income levels;
also for business vs. personal spending. Even businesses are
segmented between small companies and large firms; education; and
government users.
MERCHANT: each sector of the business has its own dynamics. The
relatively-concentrated airline business lends itself well to affinity
programs and data mining to track travel and spending programs. In
the retail sector, the merchants are not so concentrated and their
worries are over transaction costs and clearance of transactions more
than customer targeting. An unpenetrated segment in Australia is
spending for government services or taxes.
USAGE: important segmentation to financial managers within the credit
card companies. Are returns on investments equal when customers are
getting cash advances? What happens to profitability levels for
high-usage customers? What if those customers are liquidating
balances each month? Is the bank investing more in attracting these
customers than they are worth?
In the next section we’ll look at the four major credit card marketers
to evaluate what they’re doing in addressing consumer needs by
segment.
ANZ
===
Offerings: broad range of offerings, both Mastercard and Visa. This
program is probably best-known for using relationship marketing with
Qantas to build a 1 million customer base using the loyalty program to
provide “free” travel.” Later expanded to a similar rewards program
with Telstra for telecommunications products.
ANZ First : basic card offering
ANZ Gold : increased rewards via bank-managed “Sphere” program;
loyalty points for participating merchants
Qantas/ANZ Visa : loyalty card with airline
Telstra Visa : loyalty card with telecommunications firm
ANS Master Card: response to no frills cards, with longer
interest-free period
Target markets: consumer; professionals (higher income); travelers;
sales & marketing (heaving communications users); price-conscious
Line extensions: Bank-provided home insurance is heavily promoted in
this credit card brochure. Insurance, particularly travel insurance,
is often a line-extension for credit cards. But this one for home
insurance is done so poorly it doesn’t even look like a product line
extension.
The ANZ ad for home insurance is simply a pitch for another service,
with no indication that there are loyalty points or discounts for use
of the credit card in making the purchase:
ANZ Bank
“On the Cards” (February, 2003)
http://www.anz.com/documents/au/cc/20030211OnTheCardsClassic.pdf
Commonwealth Bank Australia (CBA)
=================================
Offerings: the CBA offerings have the standard cards; Gold cards; and
a pair of loyalty cards oriented to golfers and customers of Woolworth
stores. Two other areas in which the bank is marketing cards are to
students and in a non-profit affinity card, which provides 0.1% of
purchases to WorldVision, a charity. Product descriptions are here:
CBA
“Credit Cards”
http://www.commbank.com.au/personal/credit/credit.asp
Standard card: normal interest rate, normal 1 month+ period interest
free (from transaction date)
Standard card: low interest rate, interest accrues immediately
Gold card: premium program; higher benefits
Golf Card: loyalty program involving golfing locations
EzyCard: loyalty program with Woolworth retail outlets
WorldVision Card: affinity card with a charity
Target markets: while mirroring ANZ in its offerings to consumers and
high-income professionals, CBA is addressing them through other
purchasing outlets (a retailer and golf associations). CBA cards do
offer accrual of credits with Qantas, but the airline is not a prime
co-promoter of the credit cards. CBA adds students and 1 affinity
group to its targets.
Line extensions: travel insurance, product warranty extensions,
travelers’ cheques. Travelers’ cheques are a logical line extension
for any of the banks, representing an additional way to capture
revenues from the interest float on customers’ money.
National Australia Bank (NAB)
=============================
Offerings: a range of 6 bankcards, four of which can be used
internationally.
Target markets: standard range of basic and gold cards offered under
both the Visa and MasterCard logos, targeting consumer; professional;
business. No strong co-marketer, as in the case of ANZ and CBA.
Travel and retail loyalty programs offered but administered by a third
party.
Line extensions: Very limited. Electronic bill payer could be
considered a line extension. However, it could also be considered a
cost-reduction over cheque processing.
NAB
“Cards comparison”
http://www.national.com.au/Personal_Finance/0,,629,00.html
Westpac
========
Offerings: Eight bankcards covering the standard range from basic to
gold; and low-interest accounts intended to compete with those offered
by superannuity programs. Loyalty program with airlines (Qanta, Air
New Zealand, Virgin Blue and Malaysia) and a separate one with Holden.
Target markets: consumer; professional; business. Also, special
programs to attract full-time students; one for potential purchasers
of Holden vehicles.
Line extensions: Insurance products; not aggressively promoted online.
Westpac Banking
“Credit Card Solutions”
http://www.westpac.com.au/internet/publish.nsf/Content/PBCCCS+Credit+card+solutions
FUTURE SEGMENTATION
----------------------
There is an attempt at several of the banks (Westpac and CBA) to build
brand loyalty and availability of products to students. CBA does a
good job explaining the basics of the credit market to students on its
website, though more information could be provided about credit
scoring and how it will effect future car and home purchases.
Clearly all of the banks are trying to go where financial transactions
are largest and trying to keep that business with loyalty programs for
travelers, in particular business travelers. So, every program offers
credits for airline travel; rental cars; and hotels. Some of the
programs also try associations with telecommunications or motorcar
companies, where major spending occurs.
Howard and Sheth’s book “The Theory of Buyer Behavior,” John Wiley &
Sons, 1969, says that consumers' brand choice fall into the following
groups:
1) brands of which the individual will not be aware. This group has no
impact on the decision.
2) brands of which the customer is aware and from which the choice
will be made.
3) within the awareness set, there will be a group of brands which
come to mind and will be considered. This is called the evoked set.
4) an inert set of brands is set of which the individual is aware, but
about which they are indifferent.
5) Inept set of brands, that the individual is aware of. The consumer
is negative about this group because of bad experience, poor
reliability, other qualities that don’t meet their needs.
Every one of the major credit card brands is trying to maximize
awareness through their co-promotion programs with non-bank vendors.
The stunning success of early airline co-marketing programs has made
it a necessary part of most credit card programs worldwide (even
though financial analysts have begun to criticize such programs as
merely increasing the cost to banks once competitive responses put all
card providers on equal footing.)
Within the programs, the banks are also working effectively to make
sure that they are positioned well and not in the “inert’ or “inept”
groups by providing a wide range of assurances to consumers:
* travel insurance for business and active travelers
* product return protection, extending to protection for online fraud
and internet purchases
* extended product warranties
The banks are also working well to make sure that they are in the
“evoked set” by co-promotion with their partners. Not just are
marketing messages conveyed each month in the credit card statement
but also in partners’ reports on the points accrued in the airline
program (and on both websites).
Has the segmentation by the banks been logical? All four of the major
firms are following the same pattern with a portfolio of products, so
it must be working for them. Patterns in consumer packaged goods
shows that products tend to marketed to specialized demographic
groups, which may prove to be the case with credit cards. Only the
close connection to profession and income makes it less likely that
credit cards become “consumer packaged” goods.
3. TARGET MARKET SELECTION
----------------------------
As noted above, Australian card marketers are all chasing the same
high-income, professional categories using products that differ only
in minor aspects. The competition raises the cost of acquiring a new
customer dramatically.
Only two of the banks are offering cards for the student marketplace,
Westpac and CBA. Neither are particularly aggressive programs on the
Internet, Westpac going as far as to limit student credit lines to
only $500. Commonwealth Bank does a better job of tying its other
banking and student loan products to its credit cards, but if Foster’s
Beer marketed as passively then we’d see all college students drinking
milk.
The opportunity in the college market is to be a first-mover,
gathering a significant share of the 516,000 students under age 30.
And if we add vocational education, we have a potential for another
650,000 students between age18-30. Making an early penetration into
this demographic group would give enormous opportunity for growth at
low cost after graduation in several ways:
1. co-marketing other bank products
2. rapid growth in consumer spending with initial employment
Australian Bureau of Statistics
Yearbook Australia 2002 - - Education and Training
http://www.abs.gov.au/Ausstats/abs%40.nsf/94713ad445ff1425ca25682000192af2/49af35fab7b0674cca2568a900154a74!OpenDocument
From a marketing standpoint, it would broaden visibility among
lecturers and professors. It could also differentiate a bank among
young people, with a hipper, more demographically-focused program. A
clever, segmented program could go farther than this, focusing on
engineers, doctors, veterinarians and other professionals with high
income potential in the coming years.
In countries where credit card use is more widespread than Australia,
we see widespread use of credit cards for students at tertiary
schools. In the United States by 1998, 61% of college students had at
least one credit card, close to the penetration rate for ALL adults in
Australia. U.S. credit card studies have show that one-third of the
undergraduates has 2 or more cards. In only about 22% of the cases
are credit cards being provided by parents, making a college marketing
program logical.
Is there a need? In the 1999 Georgetown study, students were using
the cards for these major uses and a significant number of those
surveyed saw a need for a credit card because of purchasing
convenience and in building a credit rating:
* 11% for tuition and fees
* 59% for books and supplies
* 63% for occasional emergencies
* 79% for personal expenses
Georgetown University School of Business
“Credit Card Marketing and the Use by College Students” (Dec. 16,
1999)
http://www.msb.edu/prog/crc/Publications%20PDF%20files/Testimony16Dec99_VAcreditcard.pdf
The risks in a program like this are credit far exceeding income.
However, in the U.S. study only 9% had outstanding balances above
$1000; only 2% had a balance higher than $2,000 (despite differences
in purchasing power and the prevalence of higher credit limits in the
U.S.)
Research on the Target Market
===============================
The risk management department at the bank would ask for two pieces of
data immediately:
1. what’s the income profile of students?
2. what are their average assets?
From a marketing standpoint, there’s a continual wave of information
that would be helpful in focusing on students, starting with their
usage patterns:
* in what categories are they spending money (either theirs or their
parents’)?
* though the U.S. data shows where money is being spent, is it the
same for Aussie students who may travel more?
* do students understand the importance of a credit card in building
future financial capabilities?
* through what media are students learning about credit cards?
* what is their awareness of products from the dominant financial
institutions?
* what's their attitude toward the 4 leading banks in an attribute
matrix?
* what is the influence of their parents’ banking practices on their
choice of financial products?
Being concentrated on the 42 higher education institutions, random
sampling of students through interviews would be a preferable way to
quickly gather information. Though Internet sampling would be
efficient and inexpensive, it may lead to a strong bias towards online
delivery of marketing messages.
4. POSITIONING
----------------
In introducing a new credit card for tertiary students, testing should
be done to see whether immediate need or future financial capabilities
test higher, as U.S. data seems to indicate that the latter is a prime
reason for acquiring a card but emergency use is high by cardholders.
In either case, there seems to be little risk of offering a card with
more “capabilities” by going to credit limits of 2-3 times higher than
the competitor Westpac.
Finding and working with a company with strong interest in current or
imminent college spending would be the next step in positioning. With
“adults” having pre-empted co-promotion with travel companies, a
leading candidate would be the automotive firms who products are or
will be candidates for purchase by students.
American data suggests that mailings (33%) on-campus promotions (16%)
are often a source of first cards. Other event-oriented promotion
(“Spring Break” campaigns) have also been successful. Tied to a
rising young entertainment figure, a program would speak specifically
to our 18-30 year old demographic group.
CBA
“Tertiary Students”
http://www.commbank.com.au/personal/youth/tertiary.asp
Westpac
“Student Visa Card”
http://www.westpac.com.au/internet/publish.nsf/Content/PBCCCSCR+Student+Visa
5. INTERNATIONAL POSITIONING
-------------------------------
I’m going to leave this section to you, in part because you may wish
to use New Zealand or another country to show how positioning would
differ. (And in part because if I don’t get this posted soon, we’ll
be late in your deadline.)
College marketing of consumer products, computers, vehicles and
financial products is fairly well-developed here in the U.S. It might
be a good market in which to participate, only because of the varied
strategies of on-campus, event (whether concerts or spring break
assemblies); sports; mail and Internet marketing campaigns.
Google search strategy:
Australia + “credit card market” + “market share”
Australia + “credit card market” + segmentation
Australia + census
U.S. + college + “credit card” + marketing
U.S. + college + “event marketing”
This is a broad question on consumer behavior and had a large number
of areas in which you can add course material, more specific market
data and even personal experience. If any of this answer is unclear,
please let me know via clarification request before rating this
answer.
Best regards,
Omnivorous-GA |
