On Brand Economic Approach To China's Credit Card Competition

The changes in the external environment make profit mode of the banking industry in the developed economies be gradually changing from the traditional mode which main source of income is to deposits and loans and other assets and liabilities operations and interest income occupies most of the revenue. Middle Business and out-table business have developed rapidly, non-interest income in the proportion of revenues increasing gradually. It changes from the public and business to the personal financial services business. But due to institutional or historical reasons, China's commercial banks current business model is basically a traditional business. And with the adjustment of national income distribution pattern, the personal wealth owned by the residents is increasing. The demand of the residents changes from ordinary deposits and loans to the personal financial services. There is a huge profit in the field of personal finance. So with the full open of the banking industry, the focus of competition in the future is personal banking business. And the integrated vector of personal banking business is a small credit card.Credit card business can bring the high level of interest income, exchange fee income and fee income for commercial banks can. And it can absorb deposits and increase loans in order to promote the table business to increase profits. Undoubtedly, the competition of individual business among the commercial banks is that in the credit card business. Especially, the traditional personal banking business such as housing loans and car loan market continues to shrink. The commercial banks transfer their competition core to the credit card business. It can be said that the development of credit card has a strategic impact on reshaping the industrial structure of China's banking industry.But as an emerging market, China's credit card market has no scale effect. The operating costs of entire industry are higher and the institutions are smaller. The threshold to enter the market is low. Hence the competition in the market is so fierce. At present there are 17 domestic issuers that form monopolistic competition market structure. And the new issuers will increase the intensity of the competition. But for domestic issuers, from 2007, China's financial and retail business have opened to the outside world. And foreign banks have entered into China to participate in the domestic market competition. After the full open of China's banking industry, the main field of competition among foreign banks and China's banks will be individual retail business that is soft rib of China's commercial banks. And credit card for the characteristics of receipts, and strong market penetration and extensive brand impact not only has become the focus of the domestic competition in the banking sector, but also has become one of the businesses of foreign banks and enterprises entering into the Chinese market. With the full open of the banking sector, the foreign banks will obtain formal issuing qualifications and enjoy equal treatment as Chinese-funded banks. That means that foreign banks and China's banks will competition in the same platform directly. The foreign banks will use its obvious advantages of products and systems development, marketing, risk control and brand resources to compete comprehensively with domestic banks.The prices of the current domestic credit card almost go to the floor. And there is no space for further price cuts. That is the results and manifestation of price controls on China's credit card. At the same time, after years of development, credit card gradually narrows the differences. Especially in the minds of consumers, it shows a high degree of homogeneity. So the credit card competition among the commercial banks is under the same price level, using the products that have almost no difference. Its direct market performance is that the utilization rate of credit card is so low and the death cards and dormant cards occupy the majority share. At the same time, the profitability of China's credit card is very low. Faced with increasingly fierce competition in China's credit card market, there is lack of theoretical and empirical analysis. At the same time under the conditions of the price regulation system in China's credit card market, the issue of how to differentiate credit card and continuously improve the performance of the market need to be studied deeply. So the dissertation has a theoretical and practical value.There are 6 parts in the dissertation. Chapter II the assumptions and concepts definitions for the Chinese credit card market on. This dissertation has three assumptions: First, the cardholder is defined as individual consumers; second, in the credit card market the supply is greater than the actual demand of consumers, so the credit card market is excess; Third, the market share is the fundamental factor to determine the competitiveness of the credit card, and consumers choice behavior determines the market share of the credit card. In order to better define the core concept of this paper that is credit card, from the development perspective of the evolution of the money and the credit card , the paper give the definition of the credit card. Then, the paper analyses the bilateral market characteristics of the supply and demand of the credit card. This is the basis of the paper.Chapters III and IV respectively analyses the card issuers' competition and consumer choice behavior. The third chapter use paradigm of the SCP to analyze the competition of China's credit card market. In order to more accurately and clearly describe the credit card market competitive situation, the paper fully uses SCP paradigm to analyze China's credit card market competition and more rigorous identifies China's credit card market structure type and more true to describe the conducts of commercial banks under price control and analyzes the market performance. On the basis of this, the paper compares China's credit card market with the United States to seek experience and enlightenment. Through the comparative analysis of SCP paradigm, the paper pointes out that under the conditions of price regulation system and a high degree of product homogeny China's credit card market should combine subjective and objective differences to improve the performance of the market.Chapter IV is the analysis of consumer choice behavior in China's credit card market. On the basis of Chapter III, this chapter firstly proposes the difficulties that consumers are faced that is how consumers to achieve maximum utility under the conditions of basically the same price and a high degree of homogeneity of the product. Then choice cost and switching cost are introduced and the paper analyzes how choice cost and switching cost have impact on consumers' choice. In order to truly describe the consumer behavior characteristics of China's credit card market, according to the survey results, the paper give cluster analysis. And on this basis, the paper builds the relevant consumer utility function.Chapter V and VI introduce brand differentiation subjective factors and respectively analyze the mechanisms between the brand and consumers choice of China's credit card market and between the brand and the competition of commercial banks. Chapter V researches the brand and consumers choice of China's credit card market. Brand credit degree is introduced into the analysis of the mechanism between the brand and choice cost. And the paper further discusses the category of credit card. On this basis, category demand density coefficient and category growth coefficient are introduced in order to further explain the impact of the dynamic changes of the external environment of credit card issuers and category growth coefficient on the market demand of credit card. And then the brand is introduced into the analysis of switching cost to initially establish a three-step selection method of consumer switching brand. Finally, the mechanism of the brand enhancing consumer welfare is discussed. In theory analysis, brands can indeed bring about the increase of consumer surplus. The root cause of the failure of the brand strategies of China's credit card market is not to properly meet the consumer's utility function.Chapter VI researches the brand and the competition of commercial banks. Brand pull power model shows that the brand building of credit card has decisive significance for commercial banks to expand credit card market share. but for China's commercial banks, is it the right time to build the brand of credit card? This paper uses the analysis method of DEA to show that the marginal revenue of the traditional elements is decreasing and the marginal revenue of the brand is increasing. So it is the right time to build the brand of credit card. How to create successful brands? Consumer demand is focused on convenience. So this paper constructs the equilibrium model and extended equilibrium model to explain that the brand value of credit card lies in increasing the whole social welfare.Chapter VII is about of the brand strategies of China's credit card. In this chapter, the brand strategies of China's credit card are proposed such as category opposition strategy, the strategy of building brand credit, the strategy of brand extension and brand joint. Category positioning is the first issue of brand building. The paper constructs the model of category opposition positioning and proposes specific strategies. And this paper proposes the strategy of building brand credit such as product strategy, promotion strategy, environment strategy. And this paper proposes the criteria for judging the success or failure of brand extension and the strategies of brand extension of credit card. Meanwhile this paper proposes the criteria for judging the success or failure of brand joint and the strategies of brand joint of credit card.To sum up, this paper uses brand economics to explain and resolve the competition issue of China's credit card market. Different from previous studies, the paper fully uses SCP paradigm to analyze the competition of China's credit card market. And this paper constructs the utility function of consumer in the credit card market in order to further enrich the bilateral market theory.