L/O/G/O Credit Card Development Strategies for the Youth Market: The Use of Conjoint Analysis Ivan Prasetya – Ubaidillah Zuhdi –

Overviews Introduction Research Questions Methodology Analysis and Results Discussions and Implications

Introduction During the 1980s and the early 1990s, individual and organizational demand for financial services have increased substantially  Financial institutions of different types have started scanning their competitive business environment more closely and have tried to design and implement proactive marketing strategies

Introduction (cont’d) Over the last few years the college population has evolved into a class of “solid citizens,” and, with significant disposable income, they are being wooed strenuously (Abend, 1985) College students’ spending on products for the family exceed $35 billion in 1985, $40 billion in 1986, and $60 billion in 1991

Introduction (cont’d) In addition, 69 per cent of them (college students) have credit cards, 42 per cent have a department store credit card and 23 per cent have a gasoline card to help them do their shopping (Hall, 1987) 71 per cent of the people whose ages are between 18 and 25 developed their first brand loyalties as teenagers (Yankelovich, Skelly, and White; 1980)  Youth costumers are loyal costumers

Introduction (cont’d) Charge card transactions in 1989 totalled $296.9 billion, up 15 per cent from the year before (Faulkner and Gray’s; 1991) Annual College Track Survey found a 37 per cent increase in general credit card ownership for full-time undergraduates at four-year colleges between 1988 and 1990 and 90 per cent of card holding students report credit cards and bills are listed in their own names

Introduction (cont’d) Youth costumers  Important potential credit card market

Research Questions The primary objective of this study  To explore the perceptions of the college students toward the credit cards

Research Questions (cont’d) What are the factors that affect college students’ credit card choice decision? What are the relative importance of these factors in their overall credit card choice? What are the managerial implications of these behavioural patterns?

Methodology A full profile conjoint analysis  Used in the study Conjoint analysis  Decompositional method that estimates the structure of a consumer’s preference (i.e., estimates preference parameters such as part-worths, importance weights, ideal points), given his or her overall evaluations of a set of alternatives that are pre specified in terms of levels of different attributes (Green and Srinivasan, 1990)

Methodology (cont’d) There are three basic major phases in conducting a full profile conjoint study: 1.The design phase  Developing product profile for consumers to evaluate 2.The analysis phase  Estimating consumers’ utility functions 3.The simulation phase  Simulating consumer purchasing behaviour to evaluate various strategies for product positioning, pricing, and segmentation

Methodology (cont’d) Full profile studies generally use orthogonal designs which represent a good compromise solution to the problem of trade-off between the number of profiles in a design and the precision of the utility function

Methodology (cont’d) The six variables that students consider while evaluating the credit card alternatives (from literature review)

Methodology (cont’d) A fractional factorial design, using Bretton Clark Conjoint Designer, eliminated the number of cards from 486 to 18 which were considered reasonable for a subject to evaluate By using those 18 cards a research instrument was designed Subject were asked to evaluate 18 credit cards in term of “likelihood of consideration” for obtaining credit cards selected on an 11-point scale, ranging from “000” (definitely would not consider) to “100” (definitely would consider)

Analysis and Results The data for the study  Collected by personal interviews with 102 undergraduate students attending two state colleges in south Florida, and 127 undergraduate students attending a state college in south central Pennsylvania

Analysis and Results (cont’d) Profile of Respondents

Analysis and Results (cont’d) Beta Coefficients of the Factor Levels for an Individual Respondent

Analysis and Results (cont’d) The results support a comment made by a CEO: “…these people (students) are seeking for lowest fee and interest rate” (Duffy, 1990) The beta coefficient for the first level of fifth factor (9 per cent interest rate) was and the range of the level coefficients for that factor was the largest  That factor was seen more important than the other factors for that particular respondent Also, R 2 is 95.7 per cent or adjusted R 2 88 per cent  The respondent behaved linearly or a high model fit was achieved

Analysis and Results (cont’d) The summary of the group statistics for all respondents

Analysis and Results (cont’d) “The interest rate” and “the payment type” were seen to be the most important factors by the respondents  The range among the factor levels give the importance of the variable(s) They are willing to postpone their payments but do not want to take high financial responsibilities in the future

Analysis and Results (cont’d) 18 cards used in the study

Analysis and Results (cont’d) The distribution of the weights for each factor levels

Analysis and Results (cont’d) Type of payment and interest rate  The two most differentiating factors in credit card choice over and above the other factors

Analysis and Results (cont’d) From the previous results  Five hypothetical credit cards were created which were not included in the original design Simgraf-simulation program was used to test the market and to find the market shares of hypothetical credit cards for the same respondents by using conjoint function built

Analysis and Results (cont’d) The hypothetical credit cards and market shares

Analysis and Results (cont’d) If we keep all the factor levels the same for credit card number 1 but just change the type of payment from “deferred” to “all it once”  The market shared declined significantly as we indicated earlier that type of payment was one of the most differentiating factors If the credit card developers want to capture the college students’ market, they should emphasize those two factors more than the others in their strategic marketing plans

Analysis and Results (cont’d) The market shares of credit cards by sex

Analysis and Results (cont’d) The distribution of preferred weights (%) for each factor by sex

Analysis and Results (cont’d) Lower interest rates are considered more important for males than for females

Discussions and Implications College students  Significant number of freshman being admitted to college every year and with a reported $13 billion in discretionary  Enormous market for credit cards Because of this, it is not unusual for them to waive some important requirements such as previous credit histories, income requirements and parental co-signatures to attract these students

Discussions and Implications (cont’d) The study results indicate  The interest rate and the type of payment are the two most important factors for the college students If the importance of each product attributes and the trade-offs between the attribute levels are understood, managers can develop a better product and a better marketing plan to reach the college student market In developing marketing plans, credit card executives should place more importance on those attributes which are deemed the most important by the college students

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