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«Aims and objectives The project aims to explore UK consumers’ decisions to use payday loans, incorporating the (mis-) management of money in the ...»

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Doctoral Colloquium Submission: 2nd year PhD

Exploring UK consumers’ decisions to use payday loans, incorporating the

(mis-) management of money in the 21st Century


The research will explore consumers’ lived experience of payday loans in the context of

consumption. Existing literature around the payday loan industry is often US based and

quantitative in design. Qualitative research relating to UK consumers’ and their experiences

of payday loans in marketing literature is limited.

Aims and objectives The project aims to explore UK consumers’ decisions to use payday loans, incorporating the (mis-) management of money in the 21st Century. To achieve this, the following objectives

have been set:

Literature review

• To explore the current UK payday loans industry

• To study consumer behaviour theory in relation to:

o Consumption theory § Alternative forms of consumption § Relative to borrowing, particularly unsecured, short term o The consumer decision making process § The availability and use of personal credit and its impact on purchase decisions

• To understand behavioural finance literature in relation to:

o Financial literacy § Relative to borrowing, particularly unsecured, short term o Theory of cognitive bias § Relative to borrowing, particularly unsecured, short term Primary research

• To undertake an interpretivist phenomenological study into consumers’ lived experience of payday loans in the context of consumption.

Analysis and Evaluation

• Analyse the findings from the primary research in order to provide an understanding into contemporary spending

• Consider the primary findings in the light of the extant literature to develop and present contributions

• Discuss the implications of the study’s contributions and recommend future work Page 1 of 9 Context The economic situation and changes in spending habits The UK is in the grip of the most significant financial crisis in living memory, since the economic downturn at the end of 2008. (BBC News, 2009; Allen, 2010; Hardie & Perry, 2013). UK consumers’ have experienced lowered household incomes combined with increasing prices for everyday items, forcing them to re-examine and alter previous spending habits (Elliot, 2009; Kotler & Caslione, 2009; Pentecost & Andrews; 2009; Roubini, 2009;

Perriman, Ramsaran-Fowdar & Baguant, 2010; Voinea & Filip, 2011). It is predicted the longer the current situation continues, the more new patterns of behaviour will develop and stay with today’s consumers (Choueke, 2009; Kappler, 2009; Perriman et al., 2010; Rogers, 2011). The role of these new consumption behaviours is under explored in recent literature.

Increasing levels of personal debt Personal debt and poor money management are becoming a major aspect of contemporary consumption as consumers face the worst monetary shortages in decades (Eccles, WoodruffeBurton & Elliott, 2002; Veludo-de-Oliveria, Ikeda & Santos, 2005). This phenomenon of spiralling levels of debt could rewrite how consumers manage and spend money.

Levels of personal debt stand at an all time high as the cost of living rapidly rises. The total amount of personal debt in the UK is £1.456 trillion, with the average amount per adult standing at £29,634; approximately 122% of average earnings (Federal Managment, 2012).

This figure is higher for graduates, who are expected to leave university with debts of over £40,000 (The Guardian, 2012). The average family owes nearly £10,000 (Aviva, 2012; Read,

2012) or £55,988 including mortgages (Federal Management, 2012). Credit cards, loans and overdrafts account for the majority of debt, although credit card and loan borrowing fell slightly in the January 2012 to May 2012 period (Aviva, 2012).

Unsecured, short-term payment methods In light of these pressed times, a major considerations facing contemporary consumers’ is how they are going to pay for purchases. There are a number of unsecured, short-term options available to UK consumers’ including Unauthorised overdrafts, payday loans, home credit (doorstep loans), instalment loans and credit cards (Sharifi & Flores, 2013).

This research will focus on payday loans, as they have experienced significant growth in usage (Figure 1), and appear to be the under-researched in marketing literature.

–  –  –

Page 2 of 9 Payday loans Payday lending has been an established form of lending in the US, but is a relatively new product to the UK (Lawrence & Elliehausen, 2007; Burton, 2010). A payday loan is an unsecured form of credit that allows an individual to borrow up to £1000, on average £300, for a short period of time, typically the borrowers next payday (Burton, 2010; Conway, 2012;

Sharifi & Flores, 2013). They are a less expensive alternative to unauthorised overdrafts and can be available almost immediately if required. In the UK, payday loans are available in physical store locations and online. Payday lenders are often represented as predatory towards vulnerable consumers in national media (Hawkes, 2013; Hughes, 2013). This is usually due to the product being easily accessible to people who may have a poor credit rating, and/or have been refused credit from other sources, having a four-figure plus APR rate, being risky to the borrower, in terms of being able to be ‘rolled over’ multiple times, and use of over-simplified marketing campaigns that gloss over the dangers of not being able to repay.

Burton (2010) ascertained that the profile of UK payday loan consumers’ is significantly different to that of borrowers in the US. UK borrowers tend to be under 35, single, without children, whereas US borrowers tend to be older with young families. This indicated a need for more UK based research into payday loan borrowers.

Theoretical background The research will draw upon two literature bases; Consumer Culture Theory (CCT, Arnould & Thompson, 2005), particularly that of consumption theory and the consumer decision making process, and Behavioural Finance, predominantly around financial literacy and borrowing, and the theory of cognitive biases.

Consumption theory From a marketing perspective, the study will draw upon the theory of consumption, and its various forms, including compensatory consumption, conspicuous consumption, addictive consumption, utilitarian/hedonic consumption, retail therapy, mood management, identity and consumption or self-gift giving, for example (Kollat, Engel & Blackwell, 1970; Rook, 1987;

Belk, 1988; Woodruffe, 1997; Shankar & Fitchett, 2002; Woodruffe-Burton, Eccles & Elliot, 2002; Woodruffe-Burton & Elliott, 2005; Eccles, 2009; Atalay & Meloy, 2011).

Consumer decision making theory The typical consumer decision-making process is derived from the Engel-Kollat-Blackwell (EKB) Model, first presented in 1968. At over 40 years old, this conceptual framework is accepted as the standard for consumer behaviour, with minor differences between authors, such as terminology, the validity of splitting stages or the inclusion of post-purchase as a final stage (Kollat et al., 1970; Duncan, 2005; Darley, Blankson & Luethge, 2010; Lin, Li & You, 2012).

Criticisms of the model include ‘over’ simplification, reliance upon the consumer rationale, the lack of a feedback loop and that the stages are never considered in isolation (Rice, 1997;

Beckman, as cited in Soloman, Bamossy, Askegaard & Hogg, 2010; Kurtz & Boone, 2012).

This study is proposed to investigate the decision making process in light of the EKB framework. The intention is to build new theory around the existing model, but not use the model to drive the study design. Within the context of the current climate, several questions regarding consumer decision making theory can be considered; do higher levels of debt Page 3 of 9 change the model? How will this affect actual purchase behaviour? (Eccles et al., 2002, Tirado, 2013), Where does consumer reflection regarding affordability or payment means fit?

Financial Literacy and borrowing Levels of financial literacy are often discussed in economic theory. It has been suggested that that consumers with higher levels of financial literacy are more likely to have lower levels of borrowing debt (Gathergood, 2011; Huston, 2012). There are several factors influencing financial literacy, e.g. gender, social class, location and education. For instance; it is thought that consumers with higher levels of education are more likely to have ‘…extended decision processes than those with lower levels of education. This observation may be attributed to greater cognitive ability and efficiency in search’ (Lawrence & Elliehausen, 2007, p.308).

Theory of cognitive bias and borrowing A cognitive bias infers to the way in which people think and make judgements based on aspects such as predisposition, personality, moral systems and experience, that may, or may not be rational. Cognitive psychology is one of the main building blocks behind the paradigm of behavioural finance (Ritter, 2003). Existing literature within this area, particularly cognitive biases and payday borrowing is limited, and predominantly quantitative in approach (Banks, O’Dea & Oldfield, 2010; Bertrand & Morse, 2011).

Methodology The approach to theory will be abductive (Timmermans & Tavory, 2012). This approach enables the researcher to move between the theory to the findings, adjusting their stance and understanding as the project develops. Abduction also suggests that researchers must acknowledge that their position in society influences the research, so that the researcher is aware that they are only able to partially access the field being studied, for example, the way in which the respondents interact with them (Timmermans & Tavory, 2012).

Interviews Data will be obtained through existential-phenomenological interviews as prescribed by Thompson, Locander and Pollio, (1989). These are a type of depth interview. This format is often used by consumer research investigating lived experience (Eccles, 2009; Stevens & Maclaran, 2005; Woodruffe-Burton & Elliott, 2005; Woodruffe-Burton & Wakenshaw, 2011). Existential-phenomenology aims to describe an individual’s experience as it is ‘lived’.

“The goal of a phenomenological interview is to attain a first-person description of some specified domain of experience.” (Thompson et al., 1989, pp. 138) The free-flowing style of existential-phenomenological interviews allows respondents to use their own words to narrate their experiences, attaching their own meaning to the situation, and their narrative is provide at the level of their life-world (Thompson et al., 1989; WoodruffeBurton & Elliott, 2005).

The aim is to yield a conversation around how a respondent makes sense of their experiences, rather than the interview becoming a question and answer session (Thompson et al., 1989).

This means using descriptive, open-ended questions to ensure an unconstrained dialogue.

Belk, Fischer & Kozinets (2013, p.37 - 40) suggest six guidelines for depth interviews;

1. Funnel questions in a sequence from general to specific

2. Do not ask why Page 4 of 9

3. Do not ask yes/no questions

4. Use probes judiciously and strategically to elicit elaboration without interrupting the flow of an answer that is going well on its own

5. Try to circle back to earlier topics for greater depth and as a lead-in to missing areas of the discussion

6. Be willing to explore tangential topics that the interviewee brings up, but use good judgement about when to guide the interview back on topic.

Data is currently being collected. The aim is to talk to 8 – 12 UK-based consumers who have taken at least 1 payday loan in the last 2 years. The discussion will be recorded digitally; thus far the iPhone record function has been the easiest method.

Analysis methods A characteristic of interpretive research is that the research design will evolve as the research progresses. Consumer research utilises many types of analysis, including story telling (Hopkinson & Hogarth-Scott, 2001; Shankar, Elliott & Fitchett, 2009), narrative identity (Woodruffe-Burton & Elliott, 2005), thematic analysis (Motion, Leitch & Brodie, 2001;

Barney, Griffiths & Banfield, 2011), and hermeneutics (Thompson & Hirschman, 1995).

At this stage, it is anticipated that the transcripts will be analysed using Interpretive Phenomenological Analysis (IPA, Smith, 1996). This appears to be a refined version of the existential-phenomenological analysis method described by Thompson et al., (1989), incorporating the feminist scholarship element of rejecting the idea of ‘bracketing’, and ensuring the researcher is aware and encouraged to consider their bias and position on the research. Mauthner & Doucet’s 1998) Voice Centred Relational Method also has appeal as a more structured method, so if results of IPA are lacking, this method may be considered.

Contribution proposal

This research will make a new contribution in the following ways:

1. Explore the lived experience of the UK payday loan customer in the context of contemporary consumption

2. Exploring the underdeveloped area of how credit (mis)management influences the consumer decision making process, within the context of lived experience. This responds to a call by Eccles et al., (2002) for further research which identifies how credit and debt management influences what prospective consumers’ consider important when making a purchase

3. Previous consumer behaviour studies have been researched in the context of ‘…more than 15 years of uninterrupted prosperity” (Flatters & Willmott, 2009), suggesting there is potential to contribute to discovering how the contemporary economic situation influence consumer decision making

4. Answers a call from Piacentini & Hamilton (2013) for more explorations of ‘bottom of the pyramid’ consumers facing poverty in developed countries.

5. Valuable customer insights are likely to be highlighted, which will be of benefit in marketing practice, particularly around strategy formation. It is intended that the results will also be of benefit to consumer policy makers, giving them valuable information as to how to best serve consumers.

Page 5 of 9 References Allen, P. (2010, January 26). The road to recession… and recovery. Guardian Online.

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