The company covered here is Cash America International; an American finance company traded on the New York stock exchange under the symbol CSH. (Cash America 2007) The main business of the company focuses on pawn loans directed at those the company calls the under-backed and is mainly engaged in the kind of loans that it labels as non-recourse lending to individuals. The company has more than 450 pawnshops in the US and the brand name it uses is Cash America Pawn and Superpawn. In addition, the company avails cheque cashing service through one of its subsidiaries called Mr. Payroll, while at the same time it avails short-term cash advances through most of its pawnshops as well as at all Cash America branded payday advance locations. It also has a wholly owned subsidiary called Cashland that is facilitating its cash advance business throughout the US.
The company goes back to the year 1983 when it was founded by its sole owner Jack Daugherty who claims that he always wanted to avail financial services to those that he believes were forgotten by the traditional banks and started his first pawnshop. From such a humble beginning, the company focussed on expanding by either opening new locations or acquiring existing companies. The first such company that was acquired by Cash America was Harvey and Thompson of the UK in l992, which was the largest pawnshop chain in Britain, and in l994 it was able to acquire Svensk of Sweden. In the same year, it continued its acquisition by acquiring Mr. Payroll Corporation, a well-known company in cheque cashing business based in numerous convenience stores. The acquiring spree had continued up to 2006 and the last company it acquired till date was CashNetUSA a successful Internet payday cash advancing company that operates in 27 states in the US. (Cash America, History 2007)
It did not stop there and using CashNetUSA, it has already started a very new payday advancing service in the UK even if it had sold its European interest in 2004. The new venture that has already started giving service for the UK customers through a new portal called www.quickquid.co.uk will not be operational before the end of 2007. (Yahoo Financial News 2007). Consequently, the research paper would be based on what kind of marketing strategy, external as well as internal scanning it implemented to decide to avail this particular service knowing that there are already close to 500 sources that are availing similar service throughout the UK.
The Macro Environment
The service such companies avail is not looked at with a favourable eye, an image problem all of them are fighting off. The adversaries are claiming that such companies are preying on the poor and could leave them devastated most of the time to the point where once anyone starts doing business with them, the end result will be the borrowers could be badly harmed by losing their homes or they could be forced to pay for a long time the payment coming out from their meagre earnings because of a court order. It could also damage their credit rating as lenders could find out through the lending process that they had been victims of such kind of money borrowing. One example to cite is the US military has banned such companies not to lend money to its personnel after it found out a big number of them had been victimised. There are states that have introduced legislation banning such services from their jurisdiction and one good example to cite is Georgia that does not allow any pawnbroker to operate in the state.
A better way of looking at the macro effect might be by applying the PESTLE tool for macro analysis that stands for Political, Economical, Social, Technological, Ecological if applicable and the legal aspect of the macro environment. (Armstrong and Kotler 2000) The political part had been discussed where there are adversaries that are out to ban such services because of the damage they are causing since they could spiral out of control if the customer defaults the first payment and the interest rate could surpass easily the 700% threshold. The economic aspect has to do with how much people are making, what kind of wage increase they are getting from their workplace to help them cope with inflation that makes it difficult to stretch their paycheque to cover their needs. And in this case, a stagnant wage structure, rising inflation, and the high service charges various service providers are introducing are affecting those who are low wage earners leaving them no choice other than depending on such services to bring their finances in order, and the nightmare starts when they falter. (UK Payday Loans)
Technology is making the obtaining of the advance very easy, because now it is possible to obtain the payday advance without even visiting the kiosks by simply meeting the requirements online. The end-result could be attracting more customers, which is good for the businesses that are availing the service, but the easy access to money could end up snaring many people. The other advantage that came into existence through technology is companies such as Cash America, without opening physical shops anywhere can easily become world-wide lenders, which would avail astronomical advantage for such companies with the know-how and capital, with a few setbacks, one of them being when the loans go bad.
The legal aspect is strigent because it could head both ways; it could prevent such companies from operating in certain jurisdictions, while at the same time it enables them to force the not complying customers to make good on their payment or face the consequences, which could be losing a house, a car, or other valuables that could include wage garnishing. This is so because the compounding of the interest is very fast where in the loan industry 700% interest rate is unheard of, whereas it is common with payday advance. A customer that borrowed £l00 could end up owing £2000 to £3000 over time and if the case finds its way to the court system the verdict could make the borrowers lose their household contents, cars, jewellery etc.
A quick look at the SWOT analysis to cap up the macro environment scan could reveal that the strength of the company is it has the capital, the know-how and it could use technology to bring its cost down to enter a particular new market and after that it could change its forms. If there is a weakness there is a formidable competition and the entry requirement is not regulated, as there are many sources that are operating without getting a license. (Dmoz, Open Directory) On top of that, the default rate is very high the pretext the industry uses for charging high finances charges. On the opportunity side it is possible to start the cash advance business at any location using the Internet, except that if there is a threat the loans that will go bad would require going after them using the legal system of various jurisdictions that could end up being unmanageable or very costly. (University of Florida)
The Micro Environment
The microenvironment of Cash America is such that its main business had focussed from the outset on the international pawn broker business. In addition to that, it had branched out into payday advances after its acquisition of CashNetUSA, which led to its opening www.quickquid.co.uk in the UK. (ABC News) In that sector it is not alone as there are a big number of competitors, but the good thing about an Internet presence is there is no geographical confinement where anyone in the US that would meet the requirement could obtain the loan online. Since these loans are unsecured it might not be possible to recover them without incurring more cost for using the legal system and that will be practical when the amount gets higher that does not take a long time seen from the interest compounding that takes place. The other service it provides is a quick check cashing service for those who do not have accounts but have paycheques and to provide this service it uses small kiosks inside various business facilities. Another service it provides through Cashland that it acquired in 2003 are services such as cash advance, cheque cashing, wire transfer, selling money orders, done through 200 outlets that were availed when the acquisition took place. SuperPawn had been the company’s mainstay from its inception and with more than 42 outlets in the western US, the particular segment avails cash for those who have collateral in the form of valuable consumer goods such as jewellery, electronics, musical instruments and other valuable tools. It is a very simple way of obtaining money where the company is covered and the customers will get back their valuable goods when they make good with their payments.
In all this the company excels by giving state of the art services that could be attested by the kind of visible, well-maintained and staffed outlets it is using wherever it is operating and in that case it is not different than many of the banks that are using similar strategy to build customer confidence. The fact that it is a publicly traded company also enables it to be looked in favourable eyes since it is serving the public, where some of the customers could be stakeholders who are interacting with the company for their own benefit, while at the same time solving their financial problems. The fact that it is not a private entity that is getting rich at the expense of those who are strapped with problems could be undermined when everyone knows the public had approved its operation by being its partial owners. (Workz)
Segment, Target, Position (STP)
The general STP (Marketing IQ) as far as this particular website is concerned is the public in the UK that is expected to work and live in the UK and have to be more than l8 years of age and have a source of income, preferably to be employed gainfully. Having a good financial stand is not required, as the priority is the ability of the borrowers to pay back the loan. Even if the best source of customers are low income earners, it is always possible that anyone can have a need for quick cash, but in most cases it is not possible to turn to traditional financial establishments that all have numerous requirements that cannot be circumvented quickly as it is possible with the cash advance. Repeat customers with good standing and those who already have records on file could have the money deposited into their account within the hour. As a result, the appeal for the service might not have a limitation and a segment of the population. (Aim Bank)
Cash America had made customers its priority from its inception and at the same time if it wants to continue to do business and thrive, it had recognised that it has to generate profit. Based on this premise, there were three areas it focussed its attention on while making its scanning. (Web-Articles) The three areas were the kind of demand there is for what it is going to offer; the exact needs of the would be customers; and by satisfying their needs the profit it could make. It had found out from the outset that the demand for its new service would be lukewarm. The reason for that could be various and one of which will be the competition is going to be intense since there are close to 500 online sources alone that are doing similar business in the UK. Nevertheless, one important fact it found out was, there are only four major players in the industry even if there could a few more smaller players that are advancing their own cash. Most of the websites are working as facilitators and go-between that will lead the applicants to whom they consider will be appropriate for their needs, or to those that will pay them better commission for their service that would include Cash America since there would be such an arrangement in place. (Payday Loans UK)
The second finding was the public in the UK is not very much tuned with payday loans when compared to the US consumers, which could be attributed to the culture where people are either well paid or somehow they tend to be careful with their finances or they could frown upon such services because some of them could be downright shoddy, yet they still use payday loans. As was mentioned earlier, payday advance targets those who will find it difficult to get service at the other financial establishments, because they might have bad credit, or cannot qualify because of the amount of money they generate in a form of income, or the process of obtaining whatever is available at the other financial institutions might no be simple when compared to what takes place when someone applies to a payday advance. (McCarthy and Perreault 1984)
First of all the amount can be as low as £50 and it takes only from few hours to 24 hours in almost all cases to obtain the advance. The requirements have nothing to do with good credit rating the other financial establishments are heavily dependant upon and all borrowers need are a current account where the money will go into since all the process takes place online and a proof that they have some kind of monthly income. They should be receiving it at least for the last three months, preferably to be between £500 and £l000 and there is documentation to back it up. (Free Roller Net) Consequently, the first scan had demonstrated to the company that there is a possibility that it can make money. (News 11)
The Market Mix to be Applied
Another aspect that needs highlighting here is the strategy and the market-mix the company is going to use to start the business. (Web-Articles) Since doing business on the Internet is very much cost effective, it will not be like the brick and mortar where the company will have to worry about renting shops some place that need to be tended by employees, require stocking regularly, which by itself requires a warehouse to store goods and suppliers that will supply the goods with all the risks and uncertainties that are involved. The reason for that what the company is going to avail is a service and secondly even if it was selling a product, selling it over the Internet will save any business a sizeable amount of overhead.
Especially in this case the cost involved is very low where all it is required is to start a website that has a one-time cost of developing the web pages. Once it is functional, the recurring expense could be a yearly cost of the domain name, as well as a yearly hosting service, an amount even a very small business can afford with a relative ease. Therefore, the business strategy that business will be conducted online alone has brought down the cost to the minimal and whatever will be generated should cover much more than it will be incurred in a form of expense. Because of the automated process, employees will be involved in the approval process only, which would bring the overhead down as the number of employees could go up and down according to the business volume. (Consumer Fed)
Consequently, the company was able to make external analysis based on the stand of the industry that it found to be crowded, although since the number of the major players is as low as four that itself is a signal that a company with its stature could carve a good niche for itself in the long run, the main reason it decided to take a calculated risk, because it had found out in the outset the demand could be lukewarm. This might not have anything to do with the competitors that it has extensively studied and in order to beat the competition the important lever it can use is the amount of interest or financial charge that is involved, which amounts in most cases between £l5 and £35 on the £l00. This itself tells a lot to the company since a bigger company such as Cash America that has other lucrative sources of income can easily beat the smaller players by offering a lower interest rate charge and make it up from the volume of the business it creates when what it is offering attracts a big number of customers who want to be serviced by a company with an impeccable reputation that offers a better deal from the rest of the competitors. (Narver and Slater 1990)
Its customer analysis had availed it that many people could be weary of being duped, because the smaller companies are making money on loan flipping where if the customers fail to make good with the payment at the beginning all that is required is to pay a service charge on top of what is involved and the loan could be rolled over for the next payday. What is harming the customers is not the roll over but what each company is charging that could be exorbitant as it could approach 700% when compounded. This means anyone who wants to be benefited by being fair to the customers could attract a lot of business and it is possible to make up for the low financial charges from the volume of business created, which is what Cash America is capitalising on when it enters such a saturated market. Hence, what the analysis availed it was there are more opportunities than threats. This means there are no factors that will impede, limit or restrict what the company is planning to accomplish.
Here it is possible to expound on the marketing mix method used once the introduction of the venture had been discussed. The service as it had been discussed is not something new that others are not availing in the chosen market. Everything depends on the price where anyone who is willing to charge a low finance charge could carve out a good business, because as long as the companies are reliable it is those that charge low interest rate and other finance charges that get most of the business, yet some companies might choose to charge more at times or always and Cash America is planning to adjust its charges according to the available demand. (Damodaran and Wilhelm 2005)
As far as the promotion aspect of the business is concerned, an Internet business has enough venues to use to promote its business, but the major one is to be found at a good position on the various search engines. That can be accomplished by utilising what search engine optimisation avails and www.quickquid.co.uk is using that avenue to the optimum as well as it is available on Googole’s pay per click programme, which is very cost effective and the source of many of its businesses since it started, because customers use search engines most of the time. Since the website is new for business, for the long haul it might have other plans because it can afford to do a blanket promotion about its all services by using brochures, posters and the like and put it in its more than 450 outlets so that customers will know what it is doing since it is in a position to undertake that.
The place of business for now is the World Wide Web and the targeted community is the UK, but in the future since the company was involved in the pawnbroker business when it acquired Harvey and Thompson of the UK and Svensek of Sweden, it might have a future plan of opening pawn shops that will bundle the payday advance and cheque cashing business similar to the ones that it is running in the US. The possibilities for a company such as Cash America that has a sales volume of more than $500 million a year from its operations are literally unlimited and it might be wetting its feet and make its presence be felt by using its own flagship company.
The conclusion is, even if Cash America knows the payday cash advance business is crowded, since exploring new markets is part of the company’s strategy, it has tried to give the UK market a try knowing that the demand will be lukewarm. However, since the success rate is dependant upon good service and the amount of finance charges applied if it focuses on these two aspects and decides to bring down the finance charges, it will enable it to attract many customers. Hence, the volume of business that will be created with such approach will give it a good market share and depending on its future plan it could introduce more services as it becomes a household name in the UK cash advance market.
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Damodaran, P. and W. E. Wilhelm, “A Branch-and-Price Approach for Prescribing Profitable Feature Upgrades,” International Journal of Production Research, 43 (21): 4539-4558, 2005.
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