Marketing Strategy and Planning: Credit Card Market - Research Paper Example

 Marketing strategy and planning Introduction ‘Credit’ and ‘Debit’ are the two of the most important terms in the global financial market. In simple words ‘credit’ is referred to the method in which products and services are sold to the buyers who do not have cash in hand at time of purchasing. With the advent of credit card this process has become easier than ever before. The history of credit card can be traced in the market of the early 19th century. As per Encyclopedia Britannica "the use of credit cards originated in the United States during the 1920s, when individual firms, such as oil companies and hotel chains, began issuing them to customers." (New York University, n.d.). Since then the card has influenced the transaction process as well as the relationship between the customer and the financial institutions throughout the world. Today there are two main credit card providers, MasterCard and Visa. These two providers are associated with thousands of banks throughout the world and serve the customer on their behalf. Apart from credit card they also provide debit card which has also influenced the financial transaction process over the years. The industry of the ‘cards’ both credit and debit is very much competitive in nature. Moreover the recent global financial meltdown has also affected the industry very badly. This paper includes a proper situational analysis of both debit and credit card market. This situational analysis includes both micro and macro analysis. The paper takes into account the situational context of Barclaycard and also includes an internal analysis of Barclaycard. Based on the findings of the SWOT analysis four major strategic issues that Barclaycard is facing are identified and discussed in the report. Ansoff matrix is used in this report to find out the four strategic options that the Barclaycard can adopt in future. Finally there is an overview of the current situation of Credit and Debit card market. Situational analysis of the debit and credit card market Situational analysis of any industry include the analysis of both micro and macro environment of the industry. The micro environment consists of consumers, stakeholders, competitors and suppliers. On the other hand macro environment includes the political, economic, social and technological environment (Lancaster, G. n.d.). All these environmental factors heavily influence the business of a particular product or even a company. Consumers of credit card and debit card are the common people interested in buying products and services on credit. The use of credit cards was found to be increasing at a very high rate prior to the period of recession. According to Bloomberg, in 2007 the total purchase volume on commercial and consumer credit cards was $2.11 trillion and the figure is up by almost 8.4% from the previous year (Leondis, May 22, 2009). However the situation has changed significantly after the arrival of recession. During the period of credit crunch several well known financial institutions declared bankruptcy. There was hardly any credit available in the market to be used by the people. Credit card market was also affected when Barack Obama signed the provisions of a law according to which issuers of credit cards have to give at least 21 days to the card holders to pay their monthly bills. Moreover if the card issuer wants to warn the customer, it has to do so 45 days in advance (Reuters, n.d.). All these steps were taken with the purpose of providing more facilities and flexibilities to the consumers who were already affected by unemployment and low income. New rules did give them some relief. Consumers in UK are also are suffering from low income, high inflation rate and unemployment. People are found to be dependent on their credit card even when they are purchasing daily items like petrol or food. It is found that two-third of the borrowers in the country use their credit cards for purchasing their daily essentials. Moreover recently the interest rate has increased to 18.8%. As a result consumers are expected to face a tougher situation ahead. According to Peter Harrison of Money supermarket, a credit card expert, “We are a credit card nation. The British public’s reliance on credit cards, especially for day to day living, is deeply concerning”. Critical situation in the credit card market is expected to increase the usage of debit card. If the interest rate remains as high as it is now then consumers will automatically choose debit card for the purchasing their products and services. Both credit card as well as the debit card is mainly provided by MasterCard and Visa. These two organizations market their cards to the banks as well as other financial institutions. They also provide the required infrastructure facilities to ensure safety, availability and speed of the transactions. The cards reach the consumers in the form of either credit card or debit card through the banks and financial institutions. Competitive analysis Presence of a large number of banks and financial institutions has made the credit card market intensely competitive. Companies generally compete with each other on various schemes and interest rates. It has been found that some of the credit card providers are offering an interest rate as low as possible for the entire lifetime of the card. This interest rate is even found to be less than 10% at times. For example Barclaycard is found to be offering only 6.8% for the card’s lifetime. The recent situation of credit crunch has made the market more competitive in nature. Each and every card provider is trying to get hold of as many low risk customers as possible. Low risk customers are mainly targeted because these customers are likely to pay the amount within the stipulated period and this will help the providers to remain profitable. Earlier Visa was the market leader in the credit card market, but recently MasterCard is found to have surpassed its competitor. However in the debit card market Visa is still the market leader. As far as banks are concerned Barclay and Lloyds TSB have been capturing most of card market in UK. Macro environmental Analysis Macro environment include political situation, economic situation, social situation and finally technological situation. All these factors have great influence over the credit card market. Political Prior to the credit crunch period, governments of most of the countries were not as bothered as they are now. With the advent of global financial turmoil, economic condition of common people gradually declined. As a result their capability of repaying credit was also reduced. In this situation government has major role to play as they can force the credit providing companies to reduce the interest rate and increase the credit limit. It’s the government’s duty to ensure that there is no extra burden of tax on the consumers. UK government is found to be keeping a close eye on the situation. Kevin Brennan, the consumer minister of Government has recently said that “credit card companies now have to tell customers if they raise individual interest rates so they can, if they choose, pay off the debt at their existing rate” (Butterworth, 16 February 2010). In October, 2009, UK government put forward some entirely new proposals with the purpose of saving the consumers from unfair and unclear terms and conditions put forward by the card issuing companies. According to a BBC news publication, UK government wanted to stop card issuing companies from increasing their interest rates on the existing debts. Government also wanted to prevent the companies from increasing their spending limit of any individual without any prior notice to authority (BBC News, 27 October 2009). Card issuing companies, as a result, were in great pressure. They need to be more conscious while taking any decisions regarding the interest rate and credit limit. Economic Economic condition of the country is being badly affected by the recent global financial meltdown. Unemployment rate along with inflation rate has increased significantly. Spending capacity of common people has decreased as a result their capacity to repay credit has also declined. Moreover the recent hike in the interest rate on existing debts by the card issuing companies has made the situation tougher for the consumers. Social People in UK are found to be very dependent on their credit card and this is not a very good habit when the country is struggling to get out of the effects of recession. It has been found that people tend to use their credit cards even when they are purchasing daily products like food. Credit card issuing companies are found to be capitalizing on such tendency of people effectively. Previously companies used to extend the credit limit by a significant amount without informing the government authority. The main objective was to provide consumers more flexibility and make them more dependent on the card. Technological Technology has helped the companies to enhance the infrastructure. Security of the card also depends on the technology. These aspects of technology are more important for the card providers like Visa and MasterCard when compared to the card issuers like banks. SWOT analysis of Barclaycard Strengths Barclaycard is one of the oldest credit cards issuer not only in UK but in the entire Europe. It was launched in the year 1966. Hence it can be said that it has a huge experience in the credit card market. This is a major strength of Barclaycard. Barclay’s group which is one of the leading financial institutions in the world is the holding company of Barclaycard. As a result Barclaycard can have all kind of support in financial, technological and legal aspects Barclaycard is perhaps the most renowned brand in the credit card market of UK and such brand image is a major advantage of the company. Moreover, Barclaycard is the market leader in the card market of UK. Almost 11.7 million customers in the country rely on Barclaycard (Barclaycard, n.d.). Weaknesses Barclaycard is now a part of Visa network. Both Visa and MasterCard are offered by the Barclaycard. Barclaycard does not have its own distinct network and this is a major weakness of the company. It is true that Barclaycard is the market leader in the UK credit card market. However as far as the international card market is concerned it is far behind its competitors. It entered late in some of the developing countries like India, UAE and South Africa. As a result it has not been able to capture significant market share outside Europe. In other words it is too much dependent on the UK market. Opportunities Being the market leader, Barclaycard has the opportunity to increase its market share outside UK. Since it is an established brand in the Europe, it can improve its brand awareness in the developing economies in Asia where spending capacity of people is improving continuously. People in this part of the world can be the potential low-risk customers of Barclaycard. Threats Credit crunch has become a major threat for Barclaycard. People in the country are badly affected by high unemployment rate and inflation rate. As a result they are less likely to repay their credit within the given period. Moreover government is creating pressure on the card issuing companies which is further preventing them from increasing the interest rate. Intense competition of the industry is another major threat for Barclaycard. Each and every issuing company is coming up new innovative schemes to attract the low-risk customers. Four major issues facing Barclaycard Four major issues faced by Barclaycard can be selected from the above analysis. 1) The first major issue that Barclaycard is facing is the effects of credit crunch. This is because of the higher unemployment rate which has lowered the income of its customer. As a result customers would be less capable of repaying their credit. 2) UK government is taking several steps to make the situation favorable for the consumers. The government is trying to regulate the credit card market. It has asked the card issuing companies to inform the authority before increasing the spending limit. Moreover the government has also stopped them from increasing the interest rate. 3) Another major area that Barclaycard needs to ponder on is the opportunity to increase its market share outside the market of UK. There exists a huge market in the developing economies in Asia. Barclaycard with its already established brand image can easily capture these markets. 4) The fourth major strategic issue that Barclaycard can utilize is its lead position in the UK credit card market. It is one of the oldest credit cards in the world and the oldest in UK. It has been able to maintain its leading position for a long time. Four strategic options for Barclaycard using Ansoff Matrix Ansoff Matrix provides four strategic options that can be adopted by the organization in order to improve the growth of the business. Some experts believe that the above mentioned four options are basically four growth options. The four options are market penetration, product development, market development and diversification. These options are entirely related to the product and market. In the market penetration strategy existing products are sold to the existing customers. Increasing the volume of sales in the existing market is the best way of market penetration. UK is the main market of Barclaycard. In order to penetrate its market, sales need to be increased in UK credit card market. The second option is to develop the new product. Barclaycard can modify its product by providing various offers and schemes. It has already formed partnership with Nokia to enable its customers to make purchases from their mobile. Any new products that will be launched by Barclaycard will be sold in the existing market. The third option is all about developing new markets and this can prove to be an effective one for Barclaycard. It can create new markets in the developing regions of the world. In the newly developed markets Barclaycard can sell its existing products. The fourth and last option that can be used by Barclaycard is diversification. Diversification means the organization would be selling an entirely new product line in a totally new market. This option should be the last and extreme option as high risk associated with it would be high. Considering the present market situation of Barclaycard diversification would be the worst option as it is still the dominant player in UK credit card industry. Among the above mentioned four strategic options, Barclaycard should choose the option of market development. In this strategy existing products will be sold in the new market. The marketing mix strategies regarding this option are described below. Product: According to market development strategy, the existing products that will be sold in the new market will retain its previous features. Likewise, Barclays will sell the same cards which are sold in its existing markets of Europe in the new markets also. Price: Since products will be sold in the new markets, their price should be kept low in order to attract its customers. This can be achieved by lowering the interest and increasing the spending limit than that of the other local card issuing companies. Place: Place is one of the most crucial aspects that should be taken into consideration while developing the market development strategy. For Barclays, the new market refers to the markets of the developing countries. In the present economic scenario most of the developing countries are located in Asia and South America. Promotion: Promotion is another important aspect that the company needs to capitalize prudently so as to create initial awareness and attraction. Promotion needs to be done in both electronic and print media. Online promotion is important as the number of people using internet is continuously increasing in the developing countries. Update on the credit and debit card market Various researches have revealed that the consumers are continuously shifting from ‘cash’ to ‘card’. Credit card market is a more mature market as compared to the debit card market. However growth in credit card market is found to be quite low when compared to the growth in debit card market. In fact, since 2005 number of credit card issuance has declined, whereas debit card market is continuously rising. Recent credit crunch has badly affected the plastic card industry. Banks have tightened the lending criteria. Customer confidence on financial institutions has gone down. Apart from challenges posed by credit crunch situation, the industry is highly threatened by the fraudulent activity. According to British Bankers’ Association in January, 2010, 138 million transactions took place through credit card and this figure is 29.9% lower than the figure that was in December, 2009. In December, 2009 almost 60.4 million credit cards were issued (British Bankers’ Association, March 01, 2010). In the same month almost 196 million transactions in UK took place. According to a report published by Bank of England in January 2010, lending of credit card increased by almost 0.2 billion euro (Bank of England, March 01, 2010). Another report says that by the end of March2009, total personal debt in UK was 1,495 billion Euros. Total amount, borrowed by the UK consumers through credit cards, unsecured personal loans and overdrafts was 4,850 euro per adult individual in the country (Creditaction, n.d.). 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January 10 - Credit Card Statistics, the voice of banking and financial services, [Online] Available at: http://www.bba.org.uk/bba/jsp/polopoly.jsp?d=470&a=17353 [Accessed on March 12, 2010] Bank of England, March 01, 2010, Lending to Individuals January 2010, [Online] Available at: http://www.bankofengland.co.uk/statistics/li/current/ [Accessed on March 12, 2010] Creditaction, No Date, Debt Facts and Figures - Compiled 1st May 2009, , [Online] Available at: http://www.creditaction.org.uk/assets/PDF/statistics/2009/may-2009.pdf [Accessed on March 12, 2010] Lancaster, G. No Date, Marketing and the organisation’s micro- and macro-environments, Durham Associates, [Online] Available at: http://www.da-group.co.uk/index.php?option=com_content&view=article&id=31%3Amicro-and-macro-environments&catid=2%3Amarketing-lectures&Itemid=3 [Accessed on March 12, 2010] Leondis, A. 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