Bachelor Thesis, 2009
72 Pages, Grade: 1,4
LIST OF FIGURES
LIST OF TABLES
LIST OF ABBREVIATIONS
1.1 Credit and consumer society
1.2.1 Consumer credit
1.2.2 POS Credit
1.3 Research objectives
2. Literature review
2.1 The history of POS credits
2.2 Usage and perception of POS credits over time
2.3 Credit and consumer society
2.3.1 The consumers‟ perspective
2.3.2 Value shifts in society
2.4 Reasons for the use of POS credits instead of a bank loan
2.4.1 Discretionary income
2.4.3 Solvency investigation
2.4.4 Psychological barriers
2.5 Social position
2.6 Consumer segmentation
2.6.1 Opaschowski‟s consumer segmentation
2.6.2 Sinus milieus
3.1 Quantitative questionnaire
3.1.1 Section A
3.1.2 Section B
3.3.2 Section C
3.2 Data collection process
3.3 The sample
3.4 Justification of the method
4. Summary of the findings
4.1 The subject of POS credits in connection with a person‟s age
4.1.1 General perception
4.1.2 Approval of positive POS characteristics
4.1.3 Approval of negative POS credit characteristics
4.1.4 Likeliness to use a POS credit in the future
4.1.5 Reasoning for not having used a POS credit to present
4.1.6 POS credit users
4.2 Attitudes on POS credits in connection with social position
4.2.1 General attitude on POS credits
4.2.2 Approval of positive POS credit characteristics among people of different social positions
4.2.3 Approval of negative POS credit characteristics among people of different social position
4.2.4 Likeliness to use a POS credit in the future
4.2.5 Reasons for not having used a POS credit to present
4.2.6 POS credit users
4.3 General credit usage
4.4 Credit cost estimation in relation to discretionary income
5. Discussion of the findings
5.1 The influence of a person‟s age on POS credit perception
5.1.2 Age in relation to the likeliness to use a POS credit in the future
5.1.3 POS credit usage within different age groups
5.2 The influence of social position
5.2.1 The influence of social position on POS credit perception
5.2.2 Social position and the likeliness of future POS credit usage
5.2.3 The relationship between social position and POS credit usage
7. Reference list
8.1 German questionnaire as presented to the sample
8.2 Translation of the questionnaire
8.3 Further results of the questionnaire
8.3.1 People‟s motives for using a POS credit in relation to age
8.3.3 Relationship between POS credit cost estimation in comparison to bank loans for the same amount of money and discretionary income
8.3.4 POS credit cost estimation in comparison to bank loans of the same amount as regards users and non-users of the credit
8.3.5 Level of satisfaction with the POS credit used
Being a traditional emergency credit for the poorer members of society for a long time, most people thought that POS credits were „unsolid‟ and thus did not use it. Nowadays, this situation has changed for a variety of reasons and several authors have undertaken research on the subject in general or from a retailer‟s perspective.
This piece of work focuses on the consumer‟s perspective of POS credits and shows that several factors, such as age, discretionary income and social position determine a person‟s perception and usage pattern of the POS credit.
In order to identify these relationships the author has undertaken primary and secondary research. The knowledge of authors who have previously written on the subject has been used to design a questionnaire that allows for a considerable analysis of the above mentioned relationships.
For primary research 100 anonymous people have been questioned in a shopping cen- tre in Heidelberg, Germany using an interview administered quantitative questionnaire.
Most of the results are in line with the findings of other authors. However, primary research shows that society as a whole still believes that a POS credit is an emergency credit and that most people‟s perception of the credit is not as favourable as it is often assumed. Moreover, specific reasons for a positive or negative perception are strongly related to a person‟s age rather than to social position.
Most of users of this financing tool seem to use it for acquiring non-necessary prestig- ious items. The estimated price of the item rises with the person‟s age and income.
Main motives for using the credit instead of a bank loan could not be identified due to the sample‟s size. However, primary research implies that using POS credits might often be subject to previous friends‟ experience.
3.3.1 Age and gender repartition
3.3.2 Social positions of the sample population
3.3.3 Discretionary income repartition among the sample
18.104.22.168 Different age groups and general opinion on POS credits
22.214.171.124 Age and approval of various positive characteristics of POS credits
126.96.36.199 Age and approval of various negative characteristics of POS credits
188.8.131.52 Age groups and their likeliness to use a POS credit in the future
184.108.40.206 Age and reasons for not having used POS credits to date
220.127.116.11 Age and usage of POS credits
18.104.22.168 Discretionary income of POS credit users and the sample as a whole
22.214.171.124 Age and discretionary income among POS credit users
126.96.36.199 Age and items bought using a POS credit
188.8.131.52 Age and POS credit usage frequency
184.108.40.206 Social position and general opinion on POS credits
220.127.116.11 Social position and approval of positive POS credit characteristics
18.104.22.168 Social position and approval of negative POS credit characteristcs
22.214.171.124 Social position and likeliness to use a POS credit in the future
126.96.36.199 Reasons for not having used a POS credit to date
188.8.131.52 Social position and usage of POS credits
184.108.40.206 Items bought and social position
220.127.116.11 Social position and POS credit usage frequency
4.3.1 Usage of other credits
18.104.22.168 Overall rank of motives for preferring a POS credit to a bank loan
Table 22.214.171.124 Characteristics of the age groups within the sample
Table 126.96.36.199 Discretionary income per month and affordable consumption standard
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I thank Dr. Matthew Kershaw, my research methods lecturer, for showing me the tools that have been necessary to accomplish my research.
Special thanks go to Mr Michael Schmitt, my supervisor, for all the help and support that he has granted to me throughout the whole process of writing this dissertation.
Moreover, I wish to thank Christoph Janssen and Stefan Linke for helping me to accomplish the interviewer-administered questionnaires.
Last, but not least, I thank Christoph, Duffy and my mother for their love and support throughout all the years of my studies and especially during the process of completing this work. Without you, I would not be where I am today.
Consumer credits are an important financing tool within modern consumer society (Bur- ton, 2007: 26), which is characterized by the change from seller to buyer markets and enhanced materialist wealth among wide parts of society (Weber in Hamm-Beckmann, 2000: 78). Those consumption credits allow for smoother consumption patterns and have often been associated with economic welfare and progress (Bertola et al., 2006: 1). Many people who do not possess enough money to purchase durables with own funding profit from credit that allows for an immediate purchase. As usage of the good occurs at a much earlier stage than it would, if savings were used for the purchase, the buyer benefits from immediate possession and consumption.
The oldest form of an organized consumer credit is the credit at the point of sale, which has been established within retail business during the 18th century (Weber, 1994: 43; Burton, 2007: 14) mainly due to the fact that many people were too poor to pay for daily expenses, such as food or household items, at once (Burton, 2007: 34). Moreover, those poorer persons of society did not have access to the formal banking system (Bur- ton, 2007: 35) and thus needed different, less bureaucratic sources of credit, i.e. corner shops, where daily (grocery) shopping was made (Burton: 2007:18). Those early POS credits have been rejected by more affluent persons, who often believed that consumer credit was „unsolid‟ or „exclusively for the poor‟ (Weber, 1994: 23).
In Germany, organized POS credits became popular, when Alex Friedländer, a well- known home textile seller, introduced them as a means of sales promotion in 1849.
While those loans had exclusively been used by the poor members of society in former centuries (Burton, 2007: 77), the situation has changed in Germany during the past thirty years. Nowadays those who take out such loans tend to be the more affluent members of society (Weber, 1994: 17f), which is due to the fact that society as a whole has undergone significant changes and thus also the motives for using POS credits and the perception of consumer credits in general have changed (Weber, 1994: 23f; Hamm-Beckmann, 2000: 105).
Although POS credits can be associated with many scientific disciplinary, such as law, history, economics, sociology and psychology, they have seldom been a subject of investigation by scientists (Burton, 2007: 31). Especially customers‟ attitudes and consumption patterns in respect to these credits have not been researched in depth (Weber, 1994: 169). Therefore, knowledge of this field is still relatively limited.
Thus, the author aims at researching POS credits from a consumer‟s perspective. In order to contain this piece of work and give the readers a broader understanding of it, it is vital to define the terms consumer credit and POS credit.
As POS credits are a sort of consumer credit, it is vital to define this term first.
Unfortunately a binding definition has not been made yet (Hamm-Beckmann, 2000: 69). Thus many definitions exist, of which the most suiting for the purpose of this work is depicted below:
“Consumer credits are all types of credit which are granted to private households and serve the purpose of financing all goods and services as well as investments of a household apart from those credits used for domestic construction. Creditors could be banks or non-banks.” (Schmidt, 1995: 1).
However, as regards this piece of work, a clear distinction between credits for con- sumption and credits for investment is made. In order to facilitate analysis and contain this work, consumption credits are regarded as credits used by private households for the purchase of goods and services of undetermined lifetime, while investment credits are regarded as credits used by private households for the purchase of proprietary and automotives.
A POS credit is a goods credit (Hamm-Beckmann, 2000: 65). The debtor receives a good and pays for it later on (Hamm-Beckmann, 2000: 65). Thus, the sales agreement is the basis for receiving the loan (Weber, 1994: 6f).This type of loan is earmarked as a particular good is handed over to the debtor (Weber, 1994: 6f). The retailer or his bank trusts that the customer will pay the money back in monthly installments later on. (Weber: 1994: 6 f; Hamm-Beckmann, 2000: 65, 72)1
A further distinction is made between the less common hire purchases and the far more common financed hire- purchases, also referred to as B-transaction or Berlin System (Müller Laube, 1973: 35). Hire purchases involve the seller of the good as sel- ler and creditor, while the latter involve a seller and the seller‟s bank as creditor (Hamm-Beckmann, 2000: 88f). However, as this piece of work focuses on POS credits from a consumer‟s perspective, a distinction between these two types is mediocre for the purpose of the research.
As mentioned above it is the author‟s intention to research POS credits as defined above from a consumer‟s perspective. More specifically the author aims at investigat- ing:
1. People‟s perception of POS credits in connection with their age and social position as defined by the Hollingshead Index of social position (ISP)
2. People‟s likeliness to use a POS credit in connection with their age and their social position
3. The actual use of POS credits among persons from different age groups and social positions in connection with their discretionary income
4. POS credit users‟ motives for using a POS credit instead of another type of credit
5. The number of persons who had sufficient savings for the purchase of an item, but nevertheless decided to use a POS credit instead of the savings
6. People‟s cost estimation as regards POS credits in comparison to bank loans for the same amount of money.
The above-mentioned research objectives indicate that primary as well as secondary research must be carried out in order to be able to answer the research questions and make a sound judgment on the findings.
Secondary research focuses on POS credit usage in the past in connection with social position, age and discretionary income. Consumer behavior theory will be applied to those issues, so that a broad understanding of internal and external factors that lead to perception and usage patterns as regards POS credits is guaranteed.
Moreover, in order to be able to fully address the research questions and meet the objectives, primary research using a quantitative questionnaire will be carried out. The questionnaire will be designed in a manner that allows for comparing the findings based on demographic factors and furthers the research already carried out by other authors, so that a more comprehensive insight on the subject will be gained.
The results of primary research will be analyzed and then compared to those of the secondary research. Furthermore, the findings will be explained in detail and put in a wider context, so that a comprehensive study of the topic of POS credits will be pro- vided.
Possibilities to undertake further research as well as implications for the practical appliance of the topic for practice will be indicated as well.
As mentioned earlier, POS credits often constituted the sole source of credit for poorer members of society who had been excluded from the traditional banking system and other sources of credit.
After World War II, POS credits lost their popularity due to social changes, population movements and redevelopment schemes (Burton, 2008: 18). As also commercial banks started to differentiate their financial products and expanded into the economy as a whole now also serving the poor, shops stopped to offer credit to the now often anonymous customers (2008: 18).
In Germany however, since the beginning of the 1980s, POS credits regained popularity again, particularly in the automotive industry (Lenz, 1994: 1). Furthermore also other businesses began to recognize the benefits of such offers (Lenz: 1994: 7). At present many large retail store chains, such as Media Markt, Real, Obi and the like offer this tool as a financing possibility to their customers (Santander, no date: online). The standard effective interest rate for those credits is currently 9,9 % p.a.2 and thus considerably higher than the effective interest rates for other small loans3.
Until the first half of the 20th century, POS credits were used to finance daily expenses (Burton, 2007: 14). POS credits often were the sole financing instrument for poorer customers as banks neglected them due to the belief that they were not profitable (Bur- ton, 2007: 35, 93).
In this respect, the use of POS credits has been seen as a necessary evil for those who could not pay for everyday expenses at once. This is also reflected in the items which had usually been bought using this type of loan. Most credits were taken out for the purchase of everyday clothing and household items (Burton, 2007: 18).
Thus people‟s perception of this type of loan was that it was exclusively used by the poor and a type of emergency credit (Weber, 1994: 23). Moreover, usage of credit and indebtness in general had been regarded as „unsolid‟, a „personal and social catastrophe‟ and a „characteristic of the poor‟ (Hamm-Beckmann, 2000: 105; Weber, 1994: 23; Schmidt, 1995: 7).
However, mass production and the change from seller to buyer markets have also changed the consumers‟ perception of credit usage (Hamm-Beckmann, 2000: 105). As most people wanted to make use of increased consumption possibilities, which needed to be financed by credits, perception of credit has changed into a more favorable direc- tion during the past decades (Weber, 1994: 24; Hamm-Beckmann, 2000: 106).
Credit is widely accepted as a part of most people‟s everyday lives and those who do not accept credit are seen as ‚atypical‟ (Burton, 2007: 30). Weber (1994: 24) points out, that a negative perception is solely shared among older people and those who grew up in a strict environment. The change in consumers‟ perception is also reflected by the terms people use nowadays when talking about credit. ‚Indebtness‟ has been replaced by the more positive sounding word ‚ credit-worthy‟ (Hamm-Beckmann, 2000: 106).
Moreover, also the items, which are bought using POS credits, have changed over time. Nowadays most people take out POS credits for the purchase of medium- and long-term durables such as electronics, furniture, lighting, and music systems (Weber, 1994: 67).
As mentioned earlier, markets are rather buyer than seller markets nowadays. The establishment of a consumer society (Burton, 2007: 26, 28) is reflected by several factors that dominate present purchase decisions.
One the one hand, the average income has been rising steadily, while on the other hand medium- and long-term durables now have shorter product life cycles (Schmidt, 1995: 6; Weber, 1994: 31). Moreover, people rather replace an item by a new one in- stead of having the broken one repaired (Hamm-Beckmann, 2000: 106). Those factors lead to an increase in the demand for durables of a higher value (Schuberth, 1988: 37), which then also reinforces the demand for credit to purchase the goods (Weber, 1994: 31; Hamm-Beckmann, 2000: 106) as not everybody is capable of purchasing goods immediately using own income or savings.
Spare time and thus consumption have considerably increased during the past years (Schmidt, 1995: 6). Media usage plays an increasingly important role, which is rein- forced by inventions and product differentiations, which lead to an increasing demand for new and for replacement goods (Schmidt: 1995: 6), which then need to be financed by credit.
Several authors argue that a value shift has occurred which lead to considerable changes in people‟s attitudes towards consumption and credit (Schmidt, 1995: 6,8 ; Weber, 1994: 30; Schuberth, 1988: 69; Epple, 1991: 447).
Germans traditionally emphasized that people must work hard in order to achieve status and purchase power, which then lead to increased consumption possibilities. Thus, items which could not be paid for at once were usually not bought until the necessary money had been saved. If that was not possible, people usually did not buy the item at all. (Schmidt, 1995: 8; Weber, 1994: 30, Epple in Szallies, Wiswede, 1991: 447, Pedwitz in Szallies, Wiswede, 1991: 267; Wiswede: 1991: 25-27)
However, over time younger people took on a different perspective and started to lead more hedonistic lives than the older generations. Their attitude towards credit and con- sumption differs from that of their parents. While the older generations emphasize that abandonment comes first and consumption later, the younger generations believe the opposite nowadays. (Schmidt, 1995: 8; Weber, 1994: 30, Epple in Szallies, Wiswede, 1991: 447, Pedwitz in Szallies, Wiswede, 1991: 267; Wiswede: 1991: 25-27)
In the late 1980s half of all Germans between the age of 18 and 39 admitted to approve of a hedonistic lifestyle and live hedonistic lives themselves, while in the group of the Germans above the age of 39 only a third approved of such a lifestyle (Epple in Szallies, Wiswede, 1991: 447).
The value shift and the more hedonistic approach to life have lead to an increase in the demand for consumer credits in general and POS credits in particular. People orient themselves towards the present and not towards the future (Wiswede in Szallies, Wis7
wede, 1991: 26), which is also reflected by credit usage and consumption patterns.
While in 1984 20% of the people between the age of 18 and 30 said that they bought fairly expensive items using POS credits, in 1989 50% of them claimed to do so (GfK Marktforschung in Weber, 1994: 24).
Weber (1994: 16-19) argues that all demographic factors have an influence on the usage of POS credits. The discretionary income plays a particularly important role. People at the lowest level of subsistence are not capable of using any credit as they cannot pay off their debt, while people with very high incomes do not need to take out loans for consumption. Thus, the vast majority of people who use POS credits have an income that represents the average German income or is slightly above or below the average. Those persons earn enough money to pay off debt in monthly installments, but cannot pay for fairly expensive items at once (Weber, 1994: 17).
Although the present discretionary income is a good indicator for the likeliness to use POS credits also other factors need to be considered.
People‟s spending behavior is often not reflected by the current income, but by the in- come they expect to receive in the future (Epple, 1991: 69; Katona in Szallies, Wis- wede, 1991: 46). Thus, some people use POS credits for consumption of goods and services that they cannot afford with their present income, but that could be realized with the income that they expect to receive in the near future. This hypothesis is called the life income hypothesis.
Moreover, the income independent purchase power, i. e. savings, needs to be taken into consideration (Szallies, 1991: 52). Savings and presents allow for spending money on items that could not be bought with the discretionary income alone. Should such a present be expected in the future, this might lead to POS credit usage for an item as the later present could be used to pay for the loan later on.
Convenience and time saving play an increasingly important role in respect to the use of POS credits (Weber, 1994: 91; Müller-Laube, 1973: 24; Scholz, 1992: 8; Reisch, 1995: 31; Hamm-Beckmann, 2000: 92). If the customer receives a good and a loan for the good at the same time and at the same place, he is capable of saving time as he does not have to contact a bank. Moreover, banks have shorter opening hours than shops, which could lead to a considerable delay of purchase. (Weber, 1994: 91)
When taking out a POS credit, the customer‟s solvency is not always investigated as deeply as banks usually would do. This is especially true in the case of a loan that is granted by the shop itself. (Weber, 1994: 119) Customers, who fear solvency investiga- tion, thus might feel that POS credits offer a considerable advantage in comparison to bank loans.
Some people have a negative perception of banks or are afraid of going to a bank and ask for credit (Weber, 1994: 28). Moreover, many people have inhibitions to overdraw their accounts (Weber, 1994: 29).
POS credits are also capable of lowering psychological barriers that relate to spending behavior. The fact that POS credits are not paid out in cash and bound to a single purpose weakens their credit character (Lenz, 1998: 6).
The installment price, and not the overall sum, is the amount of money the debtor bears in mind when he asks for credit (Weber, 1994: 95f). Thus, price consciousness is lower than when using a bank loan, which in return reduces negative feelings.
Scholz (1992: 29) also found out that it is psychologically easier to pay off debt than to save money for the purchase of an item.
Social position or social class played an important role as to why and how credit was used in the past. Furthermore, also the availability of credit depended strongly on the social class one belonged to (Burton, 2007: 11, 24). Even today, when academic dis- cussions about credit occur, also social position is used to segment distinctive customer groups and their likeliness to use a particular credit from one another (Weber, 1994: 17f; Burton, 2007: 93).
The measurement of social class or social position is rather complex. Several systems exist. For the purpose of this dissertation the Hollingshead Index of Social Position (ISP) will be used. Education and current job position are used to measure a person‟s social standing (Hawkins et al., 2007: 144f). The level of education, weighted 4 times, and the current job position, weighted 7 times, are assigned with a score and multiplied with each other, so that the final score indicates a person‟s social position (Hawkins et al., 2007: 145).
In contrast to other measurements, this index is rather simple and allows for a separate section on the relationship between discretionary income and POS credit usage and thus offers more possibilities for detecting such relationships than a more complex in- dex.
Apart from the measurement of social position based on demographic factors, some authors take on a more marketing-oriented perspective and segment consumers in respect to their tastes and purchase motives, which to a lesser extend also mirror social position. In this respect, Sinus Sociovision and Opaschowski (1991: 116-120) created valuable tools for this piece of work.
Opaschowski (1991: 116-120) segments consumers according to their consumption motives. Those motives mirror their attitudes on life and their personality. Some consumer personalities accept credit, others do not do that.
Those who accept credit are mainly „assimilation consumers‟ and „prestige consumers‟. The „assimilation consumer‟ buys more than he can pay for to reach a higher social status. He seeks acceptance from his friends and a higher status than he has at present and thus shows a connection to the „prestige consumer‟, who consumes to show status and position. This consumption type loves to buy. The items purchased must show success. To a lesser extend also the „establishment consumer‟ might accept a POS credit. His main characteristics are lack of time, a high income and very high expectations of products and services.
The Sinus Sociovision groups Germany in milieus using age, social position and atti- tudes on life and consumption style in general. Those who are likely to use POS credits are most probably the hedonists and the consumption materialists who belong to the lower- middle class and the civil mid, who belong to the middle class (Sinus Sociovi- sion, 2007: online).
1 Also see § 242 BGB and § 433 BGB (2006)
2 See www.real.de , www.obi.de , www.mediamarkt.de
3 See Appendix 8.4
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