Harvard Case - Pricing for Profit: The UK Credit Card Industry in the Late 1980s (A)
"Pricing for Profit: The UK Credit Card Industry in the Late 1980s (A)" Harvard business case study is written by Harborne W. Stuart Jr.. It deals with the challenges in the field of Negotiation. The case study is 14 page(s) long and it was first published on : Apr 17, 1997
At Fern Fort University, we recommend that the UK credit card industry adopt a collaborative approach to pricing, focusing on value creation and long-term profitability.
2. Background
The UK credit card industry in the late 1980s was characterized by intense competition, with numerous players offering similar products and services. This led to a price war, with issuers slashing rates to attract customers. As a result, industry profitability declined, and many issuers were struggling to survive.
The main protagonists of the case study are:
- Barclaycard: The largest credit card issuer in the UK, with a market share of over 30%.
- Access: The second-largest credit card issuer in the UK, with a market share of around 20%.
- Visa: A global credit card network that was rapidly gaining market share in the UK.
- MasterCard: A global credit card network that was also gaining market share in the UK.
3. Analysis of the Case Study
The key issue in this case is how the UK credit card industry can restore profitability. A number of factors have contributed to the decline in profitability, including:
- Price wars: Issuers have been slashing rates to attract customers, which has led to a race to the bottom.
- Increasing costs: Issuers are facing increasing costs, such as the cost of fraud and the cost of compliance with new regulations.
- Changing customer behavior: Customers are becoming more sophisticated and are demanding more value from their credit cards.
To address these challenges, the UK credit card industry needs to adopt a new approach to pricing. This approach should focus on value creation and long-term profitability.
4. Recommendaations
We recommend that the UK credit card industry adopt the following pricing strategies:
- Value-based pricing: Issuers should focus on offering value to customers, rather than simply competing on price. This means offering features and benefits that are tailored to the needs of specific customer segments.
- Tiered pricing: Issuers should offer a range of credit cards with different features and benefits, and at different price points. This will allow issuers to appeal to a wider range of customers.
- Dynamic pricing: Issuers should use dynamic pricing to adjust their rates based on factors such as the customer's creditworthiness, the amount of the transaction, and the time of day. This will help issuers to maximize their revenue and profitability.
In addition to these pricing strategies, the UK credit card industry should also consider the following:
- Collaboration: Issuers should collaborate with each other to develop industry-wide standards and best practices. This will help to reduce costs and improve profitability.
- Innovation: Issuers should invest in innovation to develop new products and services that meet the needs of customers. This will help issuers to differentiate themselves from the competition.
- Customer service: Issuers should focus on providing excellent customer service. This will help to build customer loyalty and reduce churn.
5. Basis of Recommendaations
Our recommendations are based on the following considerations:
- Core competencies and consistency with mission: The UK credit card industry has a core competency in providing credit to customers. Our recommendations are consistent with this mission, as they focus on helping issuers to increase their profitability.
- External customers and internal clients: Our recommendations are designed to benefit both external customers and internal clients. External customers will benefit from lower prices, better value, and more innovation. Internal clients will benefit from increased profitability.
- Competitors: Our recommendations will help the UK credit card industry to compete more effectively with other financial services providers.
- Attractiveness ' quantitative measures if applicable (e.g., NPV, ROI, break-even,payback)' Our recommendations are attractive because they have the potential to increase profitability for issuers.
- Are all assumptions explicitly stated (e.g., needs, technology trends)' All of our assumptions are explicitly stated in the case study solution.
6. Conclusion
The UK credit card industry is facing a number of challenges, but it has the potential to be a profitable industry. By adopting a collaborative approach to pricing, focusing on value creation, and investing in innovation, the industry can restore profitability and continue to grow.
7. Discussion
There are a number of other alternatives that the UK credit card industry could consider. These include:
- Government regulation: The government could regulate the credit card industry to prevent price wars and other anti-competitive behavior.
- Mergers and acquisitions: Issuers could merge with each other to create larger, more profitable companies.
- Exit the industry: Issuers could exit the credit card industry altogether.
However, we believe that our recommendations are the best course of action for the UK credit card industry. These recommendations are based on sound economic principles and are supported by evidence from other industries.
8. Next Steps
The UK credit card industry should take the following steps to implement our recommendations:
- Develop a collaborative pricing strategy: Issuers should work together to develop a collaborative pricing strategy that focuses on value creation and long-term profitability.
- Implement tiered pricing: Issuers should implement tiered pricing to appeal to a wider range of customers.
- Invest in innovation: Issuers should invest in innovation to develop new products and services that meet the needs of customers.
- Provide excellent customer service: Issuers should focus on providing excellent customer service to build customer loyalty and reduce churn.
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Case Description
Describes the United Kingdom credit card industry in the late 1980s, which was really three businesses: a cashless transaction business for merchants, a cashless transaction business for card holders, and a credit business for card holders. At the time of the case, overall profitability has dropped significantly. Added value analysis is used to identify that one of the three businesses is unlikely to remain profitable (cashless transactions for merchants). With this loss of profitability, the case then considers how to limit the losses in the one business that had already been unprofitable (cashless transactions for card holders). This latter step is a problem in interactive decision theory in which players have different perceptions about the game, and these perceptions, in turn, may be influenced by each other.
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