The following article is a case study of Cash Connection that is a business involved in the short-term lending. Moreover, the article has tried to differentiate its services in a fast growing business that keeps changing because of many factors like saturation in the market and federal government regulations.
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Allen Franks formed Cash Connection in 1986. At that time, only a few companies were competing in the short-term cash lending. However, in the last decade there has been a lot of changes in that industry such as the increase in more than 22,000 payday advance locations across the United States, that is a higher number than the 9,500 banks throughout the country.
Although, this growth attributed mainly to the traditional existence of financial institutions from the small ones, short-term credit in the market is accounted for the bigger structure. The increased cost of bounced check and the rise in regulation of the payday advance services has had a significant influence on the financial performance of companies like Cash Connection.
Another major contributing factor to this is the fact that there has been an increase in the regulation laws by the federal government making the rules stricter. One can see below the financial performance of Cash Connection for the past three years.
|Jan – Dec 2007||Jan- Dec 2008||Jan – Dec 2009|
|Net Operating Income||1,331,171||795,237||198,893|
As seen above, there is a significant change in the net profit especially from the closing financial year 2007 to 2008, with a staggering difference of $993,928. The difference of the year 2008 in comparison with 2009 is only $70,728. However, from the profit and loss statement one can also notice an increase in the total expenses rising from the year 2007 to a total of $5,569,912 in the year 2009.
This decline, though, can be mainly accounted for the increasing number of rivalry firms in the operating industry including banks and micro loan firms. They are now realizing the attractiveness of the short term lending business thus they are differentiating through packaging more attractive offers, hence becoming more appealing to customers.
This means that they become more competitive. Although, it cannot be the only reason, since there has also been a significant decline in the country’s economy as a whole.
This shows that the industry’s growth has slowed. The number of potential growth in market size of rival companies is also an attribute of the decline in the net income. Competitiveness and rivalry in the payday loan business rises with companies competing to acquire the biggest industry share. Using the tows matrix one can use it to analyze Cash Connection both internal and external position.
|Opportunities|| || |
|Threats|| || |
As shown in the case study, Allen Franks opened several stores in Shreveport and noted that it is more profitable to open a store in the city as the first person. Therefore, he should take more advantage of this as it is an opportunity and open more stores in cities where pay loans are not recognized.
In addition, an expansion into other businesses has enabled the Cash Connection to have a competitive edge. The other services include payment of bills, prepaid phone, and serving as a money transfer agent with western union. They can take advantage of 24 million Americans by increasing their marketing strategies.
In addition, they should recognize their weaknesses that include the perception by most Americans who tend to assume that they are using people with low income and taking advantage of them because they are the main market shareholders. In addition, they tend to attract unbanked or under banked people as their potential customers since their qualifications are low this has increased the chances of having bad debts.
Strict regulations set by the federal government are the main threat. It makes it difficult to have a large profit margin. In addition, the current economic recession is an external threat resulting to an increased risk for those who extend credit and denial chance for other borrowers. Currently there are 23,586 pay loan stores. This becomes a major threat since it increases the competitiveness in the industry and saturates the market.
It is clear from the table, that Cash Connection still has a potential to grow. They can do this by recognizing their strengths and opportunities and taking advantage of them. The Cash Connection has a bigger potential in the market share and with the right strategies set in place, it could continue being a profitable franchise. It can also be improved by differentiating its products, giving more loans by relaxing their requirements.
Everyone must have a job, and a checking account, but as seen in the case study most lack the latter, thus it limits their customers. This also suggests that there is a wide market of unbanked customers. Therefore, Allen Franks should try to find a way to make his business more available to the rest thus increasing his market share.
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According to a survey, there was a customer satisfaction in the schedule of repayment, the limit they borrowed and the fact that they could refinance or renew the loan. The main agenda is to educate customers on financial products and comply with the trading rules. The company has to ensure they adhere to set ethical codes by the Alabama Counsel for Fair Lending in order to enhance customer satisfaction levels thus enhancing their loyalty.
Some of these ethics include being honest in their endeavors through informing the customers their rights and obligations. The company should try to protect the customers’ personal information.
As the federal government set the rules of trading, they must ensure they adhere to them. However, they should try to offer reasonable loans with fixed incomes. Cash Connection should try to follow these rules because in this case they would be able to compete fairly with the other rivals.
According to the SWOT analysis done, one can come up with a few recommendations that when used by Cash Connection, can increase their revenue both in the short and long term. They can try to differentiate themselves from the fast growing industry. The company managers can do this by offering an attractive repayment system especially for frequent customers thus improving customer loyalty.
It has been concluded that image of the Cash Connection is lower than the rivalries therefore; increasing their customer loyal base would improve their image and would enhance advertisement through word of mouth.
Another recommendation is that they should try to focus on the untapped market. It can be achieved by improving their marketing schemes. They should try to take advantage of such modern innovations like using emails and social media. There is an extensive growth potential in the industry.
The other recommendation is to adjust requirements to the customers. Currently they require having an employment and operating a checking account. This limits a long list of clientele. To justify this most consumers remain under banked or unbanked because of many reasons.
It is because of the banks having a high minimum balance. In addition, most view banks as unwelcoming, while others still do not see the value of banking. Therefore, by eliminating such unnecessarily requirements they will be able to gain a very large untapped consumer base in the market.
In conclusion, though it is evident that Cash Connection is currently not at their peak, there is s stillroom for improvement. By considering their main threats and weaknesses, they should be able to come up with viable solutions, which will give them a competitive edge in the market. It is imperative that they should try to reassess every limitation and get a solution that is best for them.