Cash Connection Lecture Notes - Cash Connection Economic characteristics Market size and growth rate industry is larger than most people think

Cash Connection Lecture Notes - Cash Connection Economic...

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Unformatted text preview: Cash Connection Economic characteristics: • Market size and growth rate: industry is larger than most people think • Supply-­‐Demand conditions: low startup costs causing over saturation, pushing profit margins down • Scope of competitive rivalry: growth in low income demographics • Market segmentation: payday loan’s services are individually tailored to customer demands Competition: • Banks • Other Payday Lending Companies • Five competitive forces • 22,000 payday advance locations versus 9,500 banks Driving forces: • Nonsufficient funds fees • Government regulations • Speediness of payday lending • Decline in income of the industry • Credit unions Success factors: • High need for service • Convenience • Reputation o Cash Connection and Alabama Council for Fair Lending Competitive Strategy (a broad differentiation strategy): • Providing micro loans-­‐short term cash lending • pay advances • appeals to a variety of people in the middle working class • allows for increasing customer base to increase sales • increase brand awareness through diverse market Financial performance: Net Income 2007: $1,336,617 2008: $342,689 2009: $271,961 Net worth to assets ratio: decreased from 11.41% to 10.93% Loans increased $37.43 billion Loan to share ratio decreased from 83.58% to 83.10% Business model: • the best approach to obtaining new customers is to create new locations in cities where there are no other check-­‐cashing store-­‐making it hard for customers who need quick money to go to c a competitor Customer value proposition: • Cash Connection knows that it must price fees of the loans to cover cost of labor and cost of risk • When customers need cash from a check-­‐cashing store they are not concerned with fees at point of purchase-­‐just need the money to cover what they need Ethical considerations: Unethical industry: • seen as taking advantage of the borrowers (fees, high interest rates, rollover loans) • strategy to have customers pay back only the minimum value Beneficial to society: • offer services other banking companies do no • 10% of Americans families say they would use it • Adds 155,000 jobs nationally, $2.9 billion in labor income • Areas with lots of regulations or without these programs are left in distress • Have requirements to be eligible for these loans Porter 5 forces: • Competition is the highest ranking force: many providers for this service: huge banks-­‐overdraft protection • Existence of substitute products to payday loans-­‐ 75% of population was satisfied with payday loans while 83% revealed that they felt the banks offered better overdraft services • Bargaining power of the supplier: low, payday loans firms charge a fee of $15-­‐$20 while overdrafts are still costly, makes the payday loan organizations attractive to customers • Customers bargaining power: high for high income earners that are able to acquire bank loans easier , for middle income bargaining power is lower because cannot get loans as easy • Threat of new entrants: high: low startup costs Driving Forces: • New regulations issued by the federal and state governments regarding the financial sector is the major factor affecting the business of payday loans providers • The driving forces that are currently affecting the payday lending industry: • The increasing cost of bounded checks and overdraft protection fees • the increasing cost of late bill payment penalties • Exiting of traditional financial institutions from the small denomination, small credit market • Product innovation (Direct deposit) • Decline of economy • Negative views about short-­‐term lending • Saturation of competitors • Continuing trend toward regulation of the payday advance service Key success factors: • High demand for payday loans by customers-­‐ triggers growth of the industry • Profitability-­‐led to growth of the industry • Cash Connection has key success factors of first entering the market. And it has its own service to meet consumer demand with relatively low cost. Cash Connection should continue its strategy based on these factors. Recommendations: • Reach the other 5% of the available market with lower interest rates and increased advertisement/marketing strategies • Ethical recommendations: continue to be upfront with customers, not encouraging rollover loans, and focusing on customer service • Cash Connections wants to differentiate itself from its competitors and acquire a large portion of the payday lending industry in order to avoid the negative effects from the government regulations. A strategy that increase the revenues generated by existing stores while taking customers away from competitors would provide the foundation for increasing the number of locations available for Cash Connection to do business. By repeating this cycle, Cash Connection should be able to gain an upper hand on the payday lending industry. There is low cost to • • • • switch for buyers to switch between two rival companies. The customer needs to be able to get something it cannot get from competitors. o Offer more attractive repayment solutions to repeat customers that pay on time-­‐ increases customer loyalty and also increases its reputation Partner with financial institutions: referral services from the bank for those who need a loan, but do not meet the requirements of the bank, have a payday service in the bank, allows Cash Connection to expand with minimum costs Provide incentives to encourage customer loyalty: lower interest rates at partnered banks, waived fees, cash bonuses. Partner with large lenders to become market/industry leaders ...
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  • Spring '14
  • ConwayL.Lackman
  • interest  rates, payday

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