Examining the alleged barriers to acceptance of credit cards - Essay Example

? Examining the alleged barriers to acceptance of credit cards BY YOU YOUR SCHOOL INFO HERE HERE It has been offered that cash and carry culture characteristics and perceptions of risk in many consumer segments continue to provide barriers to credit card acceptance. Upon examination of this phenomenon, there is much more evidence that market diversity, especially psychologically and sociologically, determines the willingness to become involved with the credit card industry for personal or business use. This report examines cultures in China, the United States and Pakistan as three relevant markets in order to understand whether there is a set of universal criteria for what constitutes relevancy and reliability for using credit cards, as well as the small business owner who currently relies heavily on credit cards services out of tangible economic need. The report utilises theoretical models in consumer behaviour and the evaluation process in an attempt to align these conceptions with the real-world credit card industry. There is supplementary information on the cash and carry culture, a traditionalist mentality, in relation to evolving banking systems attempting to drive consumers into the virtual world rather than in-house branch services. Evidence provided indicated little knowledge of the cash and carry culture, and a set of diverse perceptions (usually driven by cultural characteristics) that evaluate risk as a problem with accepting credit cards. TABLE OF CONTENTS 1.0 Introduction.................................................................................................. 2.0 Examining consumer-perceived risk............................................................ 3.0 External market factors and additional behavioural components................. 4.0 Assessment of findings................................................................................. 5.0 Conclusion References LIST OF FIGURES Figure 1: Schiffman and Kanuk (2010) Perception Model................................... Figure 2: VALS 2 Consumer Characteristics Model............................................ Examining the alleged barriers to acceptance of credit cards 1.0 Introduction Laforet and Li (2005) have asserted that the traditional cash and carry banking culture and consumer perceptions of risks contribute as barriers to consumer adoption of credit cards. However, in order to understand whether this is accurate, one must examine the characteristics of the cash-carry banking culture and also investigate how consumers determine risk in this area. It is somewhat of a bold statement to contribute the aforementioned factors as being legitimate barriers to credit card acceptance. Why is this? Schmith (2008) provides statistics of the explosive growth in credit card penetration across the world. In some countries, credit card usage has outpaced total national growth (i.e. GDP) and the trend in consumer credit card usage continues to escalate significantly (Schmith 2008). There is more evidence, rather, that disruptive innovations in the market place, such as mobile payment systems, are providing a new incentive for consumers to reject credit cards in favour of more modern technologies associated with payment and banking. A disruptive innovation is one defined as a product or service capable of supplanting or transforming an established market (Christensen and Raynor 2003). Hence, evolutions in payment systems, such as electronic banking or mobile banking, are transforming available options, making switching costs very low for consumers to select alternatives to credit cards. Do, then, risk perception and cultural characteristics of the cash-carry banking culture actually serve as barriers to credit card adoption? Research indicates that there are far too many explanatory factors for why consumers might reject acceptance of credit cards that are aligned with specific market beliefs and market needs. These factors include the appropriate design of advertising communications by a marketing business, competition generated by evolving payment and banking systems, and the level of financial resources available to the consumer. This report identifies the explanatory factors for what could be contributing as barriers to credit card acceptance, taking into consideration models of marketing and consumer behaviour. 2.0 Examining consumer-perceived risk Kaynak and Ugur (1984) provide results of a study involving credit card holders in Canada and the United States designed to understand the then-current beliefs about the acceptability of credit cards. The study discovered that the majority of card holders trusted in credit cards as being a safe alternative to cash which would assist them in making impulsive purchases (Kaynak and Ugur 1984). In 1988, a similar cross-cultural study focusing on credit card attitudes was conducted using a Canadian sample. The results of this study indicated that costs were the primary concern regarding whether to adopt credit cards (Chebat, Laroche and Malette 1988). Now, these studies were conducted with only a four year disparity, however the results illustrate the consistently fluctuating consumer attitudes that make it difficult to quantify what is prompting such radical shifts in sentiment about credit cards. Consumers in 2000, according to another study’s results, were much more concerned about the specific practices of the issuing credit card company. Eighty percent of surveyed consumers believed that interest rates were far too high with some credit cards (especially bank-generated) and there was a growing concern about privacy (Durkin 2000). This is more in-line with the sentiment provided by Laforet and Li (2005) indicating that risk could be a mitigating barrier to lack of credit card adoption, both related to costs and ensuring integrity of personal information. With all of the time-sensitive research aforementioned illustrating conflicting sentiment about credit cards, there must be factors associated with consumer experience or even changing social dynamics that continue to alter sentiment about credit card products and services. Schiffman and Kanuk (2010) provide a model that illustrates how consumers make sense of stimuli which is dependent on two factors: consumers’ previous experience with a product or brand and their own personal motives (See Figure 1). Figure 1: Schiffman and Kanuk (2010) Perception Model Figure 1 illustrates an over-lapping set of characteristics that determine how a consumer makes sense of appropriate stimuli. To understand this model, one must first comprehend inherent characteristics of the consumer. According to Louisiana Tech University (2007, p.14) “consumers are selective as to what they perceive”. They prefer messages that have pleasant connotations to their values, those that provide reassurance of a worthwhile purchase, and will actively screen out messages or other stimuli that feels threatening (Louisiana Tech University 2007). However, under this model, this is the process by which the consumer moves through the selection process and will often tune out stimuli that does not provide relevant connections to their own needs, values and motives. The process of organisation is related to the psychology of categorisation that occurs within consumer markets. Consumers take stimuli and then group it together to assist in recall and memory, a commonly understood behaviour recognised by psychologists (Morris and Maisto 2005). According to Schiffman and Kanuk (2010) consumers inherently require closure and will follow through the organisation process in this pursuit, filling in missing blocks of information in order to create their own complete picture provided through their selection processes. Therefore, it should be recognised that whether or not a consumer believes credit cards are appropriate to their needs is, based on this model, strongly associated with their psychological motives and the extent to which the consumer rejects certain messages acting as stimuli. All of the aforementioned processes lead to an interpretation process as provided by Schiffman and Kanuk’s model. In this process, stereotypes, first impressions of a brand or its marketing messages, and even individual consumer propensity to jump to conclusions impacts the interpretation process, meaning that much of this process is highly inherent and individualised (Schiffman and Kanuk 2010). Consumers are also egocentric in the interpretation process, finding more value and relevancy to stimuli stemming from physical appearances, finding more importance when stimuli is provided by individuals who bear a resemblance to their selves (Schiffman and Kanuk). This is likely why many product and service brands find more consumer interest when utilising celebrity endorsers that share the same characteristics as the target market as they are perceived as being attractive and credible which is critical for effective celebrity inclusion in an ad campaign (Pornpitakpan 2003). Having described the model and the rather self-motivated methodologies by which consumers evaluate, organise and ultimately perceive a final judgment, it illustrates the complexity in attempting to create a homogenous model of consumer behaviour related to credit card acceptance. The behavioural dynamics and values of consumers are not homogenous, which was made clear by the model provided by Schiffman and Kanuk and which was also supported by the studies from 1984, 1988 and 2000 illustrating an entirely new set of changing criteria about attitudes toward credit cards borne of evolutions in society and business practices. A study provided by Tam (2004) illustrated that consumers believe a service brand provides them higher value when the quality of the service surpasses the costs paid for the service. Again, this illustrates that certain segments have vastly different beliefs related to the viability of credit cards as a tool to enhance their lifestyles. It indicates that, for some consumers, there is a very close linkage between expenditures and perceived service quality. All of the aforementioned variables, again, make it difficult to fully understand what specific barriers (either self-imposed or market-imposed) contribute to any lack of acceptance for credit card services. Should a researcher focus on inherent psychological characteristics as suggested by consumer behaviour models or should the researcher be looking at the external market to understand why credit cards may not be widely accepted homogenously by all markets? The evidence suggests both approaches are just as viable. 3.0 External market factors and additional behavioural components Today, there are emerging and existing technological improvements in payment systems provided by banks and other institutions that have the potential of changing consumer need for credit card services. There are now mobile devices that do not require credit cards in order to transfer e-funds, injecting a new type of convenience into the consumer market. Many banks, additionally, are seeking methods of gaining competitive advantage through differentiation, which includes development of new distribution channels, such as e-banking (Luarn and Lin 2005). These banks and other institutions often rely on promotion in the marketing function in order to gain market attention to these new differentiated services. Why is this important to understanding what motivates rejection of credit cards in many consumer markets? Wang et al. (2002) iterates that how a consumer perceives an advertisement strongly contributes to their overall perception of a particular brand. Hence, this goes back to the model provided by Schiffman and Kanuk (2010) which described the rather egocentric evaluative processes of consumers and how stimuli provided by messages (in this case promotional ads) can be tuned out by consumers based on their inherent psychological tendencies. For instance, Ducoff (1996) indicated that it is the specific medium chosen by advertisers that determines consumer attitudes. Newspapers have long since, by many markets, been considered to be reputable and credible information sources (Ducoff 1996). Hence, there is more predictable likelihood that many markets (however certainly not all) would be more inclined to believe in the relevancy of newspaper-generated information for banks and credit card companies. Larkin (1979) reinforces that many markets believe television advertisements are much less informative, therefore credit card companies (under this theory) would be better off establishing a medium that specifically fits their market characteristics if they desire more adoption of these services. However, Larkin’s research is decades old and might not be representative of consumer attitudes toward this particular medium today. Unfortunately, the research information available on this phenomenon is not widely available. Nonetheless, it is important to recognise that there are, potentially, mitigating consumer characteristics that dictate why some markets would be opposed to adoption of credit cards. Markets that are saturated with new products designed to outperform or replace credit cards available through modern technological advancements also have banks and other institutions attempting to differentiate their products and services using a variety of advertisements and other promotional strategies. So, how do consumer markets make sense of this information, organise it into meaningful pictures, and then build a final interpretive opinion about the relevancy of e-banking systems as compared to credit cards? Zhang and Chan (2009) iterate that when a brand is able to provide consumers with opportunities for self-expansion, they are more likely to be loyal and provide excellent word-of-mouth. In this particular case, self-expansion can be defined as social, personal or professional growth enhanced by a product or service brand. Under this theoretical position, should it then be said that lack of adoption or acceptance of credit cards is highly dependent on the tangible service benefits in conjunction with relevancy of advertisements in providing consumers perceptions of self-expansion? Consider a collectivist culture, one that is very “we-conscious” in which a person’s identity is strongly influenced by group membership and group opinion (Cheung et al. 2008; Hofstede, Hofstede and Minkov 2010). Providing perceptions of self-expansion would require companies (both credit card and banking services) to focus on how a brand can enhance identity formation in a collectivist content as part of promoting opportunities for self-expansive development and self-improvement. However, in an individualist society, this would theoretically be highly irrelevant and require a different set of integrated marketing communications focusing on the individual and their own inherent needs and motivations. Perhaps it is here where one can take a different view, negating consumer attitudes and the alleged egocentric methodology by which information is processed, stored and organised. Schmith (2008) defies the notion that there are acceptance problems with credit cards, indicating that credit cards are becoming a viable and widespread funding source for small business owners. In the United States, as one relevant example, small businesses make up 64 percent of all companies in the country, indicating a widespread demand as a means of sustaining or growing a small business. In this case, tangible need and not consumer sentiment dictate why credit cards are not being rejected during a period in which the global economy is facing a series of declines that make loan availability difficult whilst banks and other lenders tighten their credit criteria. Thus, this group represents some of the cash and carry banking culture that is highly reliant on their banking organisations which does not conflict acceptance of credit cards but would theoretically enhance adoption. In the aforementioned small business owner scenario, it does not necessarily mean that the individual would not be conducting their own selection, organisation and interpretation processes, only that the criteria for accepting or rejecting criteria would be different when working with tangible need for credit cards that has been imposed by broader macro-economic problems and lack of loan availability. This consumer segment might very well tune out perceived threatening information, such as massively high interest rates, but still pursue credit cards as a viable capital production option so long as it meets their own, self-generated criteria. When thinking of high interest rates, this could be considered a significant risk by certain price-sensitive markets, however still a necessary risk-taking effort for the cash-strapped small business owner unable to procure necessary finances to sustain the business. Now, one can consider China (a largely collectivist nation) as a means of refuting the notion that risk perception and cash and carry cultures serve as barriers to credit card acceptance. Zhao (2008) conducted a study using a sample of Chinese consumers to determine their willingness to engage in e-banking services. It was discovered that loss of face was one of the primary concerns related to the activity (Zhao 2008), a reputational problem closely associated with the collectivist mentality. In another country, reputation would likely not even be considered as a risk factor when working with credit cards or electronic banking services, as rarely in individualistic countries does the social condition manifest itself in the banking and credit sectors. Most of this information is kept strictly private. There could be, however, mitigating circumstances in the Chinese regulatory environment that exposes information that would have negative outcomes associated with collective membership; unfortunately that data is not available in traditional research format. Hence, when subjectively considering credit cards in China, this same regulatory information could be established to publicise certain financial records or perhaps even purchasing records under the communist/socialist government regime. Now, in this hypothetical case, there is an element of risk that was perceived when considering e-banking services and if this same sentiment is applied to credit cards, loss of face as a risk could be removing intention to adopt credit card services. In Pakistan, credit card growth has been very slow due to national development problems related to infrastructure, job availability, and general economic disparity between classes. A recent study using a sample of Pakistani consumers indicated the most primary reason for not accepting credit cards was an inability to make minimum payments (Ahmed, Amanullah and Hamid 2009). Another segment participating in the study that did hold credit cards indicated motives that included special incentives provided by the lenders, such as offering televisions and mobile telephone services for signing up for bank-issued credit cards (Ahmed et al. 2009). Now in this market, one that is only beginning to experience the benefits of product consumption, incentivisation strategies of the few banks operating in this unsaturated market appeal to the psychological needs of Pakistani consumers. The specific model by which the Pakistani consumer evaluates information and organises it to build a perception is largely unknown, however there is no indication that this particular segment of the international community believed in perceived risks as a barrier except for income availability which is not surprising in this slowly developing nation. Now, one can steer away from differing psycho-social characteristics that determine the likelihood of whether a consumer segment will accept credit cards and, instead, examine current banking strategies that are designed to outperform the credit card market. Schuh and Stavins (2008) illustrate that banks with very high market power will often purposely lower the quality of their in-house branch services in an effort to drive consumers to the lower-cost online banking model. Consumers that demand high quality and high customer satisfaction as the most critical set of criteria for maintaining brand loyalty would more likely select another organisation from which to get credit cards (bank-issued) that provides excellence in service and be strongly impacted psychologically by the diminishing in-house banking services. Poor service, to this segment, could easily be considered a risk and begin tuning out messages attempting to illustrate the benefits of e-banking or getting credit cards from this particular banking institution. Another segment that does not worry about tangible service, such as the technologically-sophisticated market, would likely see no problems with diminishing in-house service and view this a viable credit card-issuing organisation. There is also the concept of brand loyalty, or the level of attachment by which a consumer maintains toward a brand, that could dictate willingness to embrace credit cards. Gaining this loyalty usually involves some level of psychographic strategies and also establishment of effective customer service, or the level by which a brand is perceived to exceed customer expectations (Farris, Bendle, Pfeifer and Reibstein 2010). When this has been established and the consumer has a sense of dedication toward a brand, such as Visa, Mastercard or their bank-issued credit card brands, it is likely that there would be less tuning out of the marketing messages that are provided to the consumer from their favoured organisation. When loyalty exists, the consumer is more willing to engage in defending commentaries for negative remarks made in the social condition and is usually willing to expel more personal resources toward participating in brand communities (e.g. social media). In this case, the Halo Effect could manifest itself, significantly reducing the criteria by which a consumer measures the relevancy and importance of their favourite brand (Schiffman and Kanuk 2010). This type of consumer might not see any real risk so long as their loyal brand provides the credit card services regardless of whether they happen to be a cash and carry cultural member. 4.0 Assessment of findings There is clearly a great volume of disparity between consumer behaviour, purchase intention, and evaluation methodologies that are dependent on psychology, sociology, and tangible motives related to their purchasing demands. At the same time, statistics that have illustrated explosive growth in international adoption of credit cards tends to refute the notion that risk is acting as a barrier to their adoption and acceptance. E-banking, however, seems to have the most consumer concern about risk problems associated with privacy, costs, and a host of other worries. Does this necessarily mean that the traditional-minded cash and carry culture is creating barriers or does it mean that banks simply need to be more transparent in providing more protectionism for consumers? There is simply not enough research evidence available to concretely determine the impact of the cash and carry culture on why it is alleged that there is reduced demand for credit cards. There is a model that is very respected that involves psychographic segmentation known as the VALS 2 Framework. Figure 2 illustrates this model. Figure 2: VALS 2 Consumer Characteristics Model This model illustrates the proposed volumes of each segment and their generic tendencies that assist marketers in developing integrated communications and promotions that will fit their lifestyles or psycho-social motivations. As illustrated by Figure 2, the highest proportion are those that value group membership (more aligned with collectivist mentalities) and those maintaining high self-esteem. It was previously identified that Chinese consumers see loss of face in their involvement with credit cards to be a primary concern and, based on the VALS 2 Framework, this might be a concern with the 35 percent of the population that believe in group membership, either to show their creativity or to boost their confidence through group affiliation. Would this segment, the Belongers, consider risk associated with reputation and, if so, how would this information be evaluated and organised for one maintaining lower self-esteem or finds identity through group involvement (such as through fashion purchases)? Herein lays the complexity of attempting to understand how the cash and carry culture and perceptions of risk serve as barriers to credit card acceptance. Without understanding concretely the characteristics of markets, there seems to be far too diverse of criteria, motives and psychological programming in consumer markets (which was supported by research studies on the phenomenon provided in this report) to establish a singular framework by which to understand the level of influence of risk and how it is perceived by the cash and carry traditionalists. 5.0 Conclusion There is simply not enough supporting evidence to justify the sentiment provided by Laforet and Li (2005) illustrating that cash and carry culture characteristics and perceived risk are serving as barriers to credit card acceptance. Marketers understand the necessity of understanding what drives consumer behaviours and values when developing promotional material (such as providing Pakistani consumers with incentive products as rewards). This is aligned properly with many consumer behavioural models that illustrate the processes of selection, organisation and interpretation that involves much psycho-social influence both inherent and stemming from the external environment. Thus, particular segments that do see risk associated with involvement in credit cards, either social, economic, or perhaps privacy related would have different motives from other markets that find trust and reliability in the rather mature credit card industry. The cash and carry consumer, one that values traditionalism in the financial services industry, might be adaptable to accepting credit cards if their evaluative criteria finds an appropriate match with the messages and other related stimuli provided by marketing entities. At least theory would seem to dictate this, but again without knowing exacting market characteristics, a well-justified hypothesis would be difficult to produce. 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