Consumer Policy: Think in the case of credit cards

Credit cards, Both the United States and Japan are capitalist and consumer societies. We are workers, managers, and consumers in it, and we live in several crowns, both those who do not have a job and those who do not. In most cases it is inevitable to be a consumer. I live while consuming some kind of service or thing. Companies spend as much energy as they can to get them to buy, and work with catchy promotions, cleverly inserted online ads, and unknowingly working social media. Under such circumstances, instead of being unilaterally manipulated by the company, it is like deciding one’s position as a consumer and examining whether the products and services provided by the company suit one’s needs and one’s values. I think it’s important to have a proactive attitude. Let’s think about that today, taking the example of a credit card.

What type of “profit” is it?

The purpose of a company is to maximize profits. There are various slogans such as “Happy Customer” and “Socially Responsible”, but these are just stories that are well positioned by the company, and the ultimate goal is to make a profit if they are scrutinized.

There is no one way to make a profit for a company, but you are making a profit by providing a wide variety of services and products. For credit card companies, the revenue categories are as follows.

Interest Income: Income from interest on your balance if you don’t pay your balance every month $ 63.4 billion
Interchange income: A commission income of about 2.0% to 2.5% paid by the store to the credit card company when the customer makes a purchase. $ 42.4 billion
Cash advance fees: Fees (about 5% of the borrowed amount) when borrowing cash with a credit card $ 26.6 billion
Annual fees: Credit card annual fees $ 12.5 billion
Penalty fees: Penalty revenues such as late payments or over credit limits $ 12 billion
Enhancement income: Revenue from services that can be added to credit cards such as insurance $ 6.3 billion

Which “profit” do you belong to in this profit? If you think about it, the way you interact with your credit card may change a little. The biggest source of revenue for credit card companies is the top Interest Income. Those who see a credit card as a loan reduction in a bit of a pain in their wallet are the “profit” here. If you don’t use it systematically, you can exceed your credit card limits, delay payments, bounce checks, and withdraw cash with your credit card, which also contributes to the profits of Penalty and Cash Advance. Will be. These customers are very important to credit card companies as they make a lot of money.

On the other hand, credit cards are not considered a tool for borrowing money, and customers who pay off their charged balance every month generate a lot of Interchange Income (store fees), which is a source of revenue. In that case, the shop pays the fee and the customer does not have to pay any money. Interchange Income is also the second largest source of revenue for credit card companies, so while the customers who generate it are important, the customer’s wallet does not hurt.

What type of customer are you and what type of revenue are you? Which source of revenue do you want to be?

Which segment are you?

Companies are enthusiastic about the strategy of selling what type of product to what type of customer and how to maximize profits. Grouping according to the type of customer and thinking about strategies is also called segmentation, but we will optimize each customer segment such as product development, service provision, promotion, and retention.

As consumers, if we take this idea and think about which of these segments we want to be … we will find out how to better interact with each business. ..

For example, let’s take a look at customer segmentation for the credit card industry by a consulting firm. Customers are divided into 5 types from 1) to 5). The data is as follows.

1) Wealthy & High Satisfaction Segment

They are able to manage their household budget, use credit cards for most of their spending, and hope for rewards such as points and cash back. I hate revolving high-interest loans because my balance is paid out every month. Set automatic payment and prefer easy, easy and convenient. Boasts the highest income and asset level.

The profit that this segment brings is the above Interchange Income (commission paid by the store), and rewards are essential to attract this segment. In addition, although this segment dislikes high interest rate loans, it is meaningful to purchase high-priced products such as cars and appliances with credit cards and provide services that enable easy and automatic low interest rate revolving payments.

2) Segments chasing benefits

A group that has a certain amount of revolving credit balance and constantly repeats balance transfers to secure the lowest interest. The group has a revolving credit balance, but feels that they have a solid household budget and control over their credit liabilities, and are chasing the card benefits that are most beneficial to them. There is a high possibility of using a Co-brand card (a card with two brands such as a department store, gasoline, airline company, etc. and a credit card company) or a card that pays an annual membership fee. It is the second highest income and high income after the wealthy & high satisfaction segment above.

This segment captures things from the perspective of “winning or losing = whether you gain or lose” to credit card companies, and makes you feel “winning = gaining”. That is important. 0% APR Balance transfer, bonus rewards, etc., you may grab only the delicious parts and escape to other cards, so you can continue to provide the “delicious parts” by taking the opportunity to build a stable partnership. need.

3) Segments that have difficulty managing household budgets

In segments with credit card debt in excess of $ 7,000, we find it difficult to defend our budget and control spending. With little effort to find better products and services, buy cheaper, and have no hope of paying off debt, I usually feel that I am in constant debt. It has the fewest assets among the five segments.

Debt levels aren’t sustainable, but at the same time you can’t live without a credit card, and it’s as simple and easy as possible to get access to the money you need, while controlling your credit so that it doesn’t go bankrupt. I want you to provide. It brings interest, cash advances, penalties and more.

4) Segments recovering from debt

A segment that has credit card debt of just under $ 2,000, but is striving to repay it, and is striving to build a budget and rebuild its household budget. Due to his bad experience with financial institutions and financial products, he is worried that “stocks are too risky” and “bank deposits are dangerous because of the risk of bankruptcy”. I try to avoid using credit cards as much as possible, and do not respond to benefits such as 0% APR and sign-up bonuses. Prefers human interaction over online features.

Being skeptical of the credit card itself, there are no dangerous pitfalls and you need to be reassured that you can use your credit card safely. To capture this layer, it is effective to provide a tracking function that allows consumption while protecting the budget. Also, since there are fears of fees and penalties, it is effective to provide benefits such as “zero penalty for first payment delay”.

5) Anti-credit card segment

A segment that I don’t like to use the credit card itself and don’t use it. Consume 70-80% with a debit card or cash. Nevertheless, it has a credit card debt of just under $ 2,000. There are slightly more assets than the segment recovering from the debt of 4). As with the segment where it is difficult to manage the household budget in 3), we want a simple mechanism (commissions, penalties, interest).

In order to capture this segment, it is effective to present a simple and easy-to-understand repayment plan, such as how much you purchase, how much you repay each month, and how many months you will pay off.

Which segment do you want to belong to

After reading this far, some of you may think, “Oh, I’m in this segment.” If you know that this is not the one you just came up with, but “I’m this type, needless to say,” you can say that you know where you stand. Companies classify their types on their own and launch the optimal marketing offensive for each type, so if you use them unknowingly, you may end up in the hands of the other party. It’s okay if you know it and ride it, but if you don’t, you’re wasting money and you could be terribly exploited.

In the above segment 1) The wealthy & highly satisfied segment pays almost no interest, annual membership fees, penalties, etc., and by actively using credit cards, the fees paid by the store, that is, the money of people to the credit card company While making a profit, I am getting cash back and rewards such as points. 1) is a group that does not pay to credit card companies at all and receives a lot.

The segment that pursues the benefits of 2) pays a certain amount of interest, but is sensitive to benefits and rewards, so credit card companies have no choice but to offer low interest rates and bonuses, and they are getting some benefits. 2) is a layer that pays a little to a credit card company and tries to get a lot.

3) The segment where households have difficulty managing is a delicious group that can secure constant interest income for credit card companies, and although it provides a repayment planning function to continuously stimulate consumption, cash back and cash back No benefits such as bonuses are required. 3) is a group that does not receive anything from credit card companies, but instead pays a lot.

4) The segment recovering from debt, 5) The anti-credit card segment has the issue of how to get rid of anxiety and fear, and if we provide a mechanism to clear this well, 1) or 2) or 3 ) Is the layer that can be converted to one of the above and earn more profits.

It’s up to you to decide which segment you want to be in, and it’s up to you to say, “I’m me. I don’t belong to any type!” However, if you use a credit card, it is best to aim for 1) or 2) if possible. The worst thing is that you don’t have a policy and you’re at the mercy of your credit company. I feel that having a policy of what type of consumer you want to be, rather than being guided by the company, is the first premise for becoming a wise consumer.

It’s not just about credit cards, it’s about what kind of consumer you want to be, whether it’s a bank, an investment company, a cable company, Amazon, or any business. However, it seems that the attitude of using the services provided by the company and buying things with its own policy, rather than being swept away by the marketing sent from the company side, is very important in this instant consumer society of the United States. I think.

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