Recent years and hard economic times have led to a boom in payday advance lending services. These services are a great option for quick cash for a few people. However, in general these companies pray on those who cannot afford their high interest rates.
The current United States economy is and has been in a slump for several years now. This added financial pressure continues to take its toll on Americans who live pay check to pay check or face adversity. Adapting to the market, payday loan companies are seeing all-time high profit margins. However, these same flourishing companies are coming under great scrutiny by many borrowers and stakeholders alike. There short term high interest loans allegedly trap borrowers into a vicious cycle of debt. What is Cash Connection’s strategy?
Cash Connection is one lending company which has received allegations of predatory lending. Their business strategy is to target low income areas, specifically where people live paycheck to paycheck. They then offer quick and easy loans with few requirements. However, they charge astronomical interest rates. Some interest rates are as high as 400 percent annually. By trapping people into this month to month cycle of interest they are able to make a profit and keep customers loyal. Which of the five generic competitive strategies discussed in Chapter 5 most closely fits the competitive approach that Cash Connection is taking? Cash Connection uses a differentiation strategy. A differentiation strategy is appropriate where the target customer segment is not price-sensitive, the market is competitive or saturated, customers have very specific needs, and the firm has unique resources and capabilities which enable it to satisfy these needs in ways that are difficult to copy (McGraw-Hill). Cash Connection does this by emphasizing customer service. They claim to have a friendly and knowledgeable staff that clearly sets them...
References: CBS. (2008, July 28). Payday Loans Scrutinized. http://www.youtube.com/watch?v=d4TqNI9rU_s
McGraw-Hill. (2011), Strategic Management, New York: McGraw-Hill Companies.
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