Citibank Asia-Pacific Credit Card Case

Mariette

Lena Pia Than

Abovici Flickschuh HochgernerRassadanuku

l

Launching the Credit Card in Asia Pacific

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Content

Q.0: Breakeven Analysis

Q.1: To launch or not to launch?

Q.3: Where to launch?

Q.5: Achieving $100 M without launching card

How many customers does Citibank need to breakeven on its investments?

BREAKEVEN ANALYSISQ0

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Breakeven Analysis: Assumptions

Targeting and market share between classes are same as Hong Kong (Table B)

Average revenue per customer (from Table B) = $162.65 Linear interpolation used for direct cost

$25 for 250,000 customers $7 for 1,000,000 customers Guessing the breakeven at 450,000 = $20.2

Acquisition strategy same as Singapore (Table A) Acquisition cost (from Table A) = $51.47 Direct cost applies to both new and existing customers Acquisition cost only applies to new customers Make two guesses, then take the average:

Same number of acquisition each year 250,000 in the first year, whatever left on the second year

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Number of Customers 250,000 425,727 442,104 500,000 750,000 1 M 1.25 M

Avg Rev per Customer $162.65 $162.65 $162.65 $162.65 $162.65 $162.65 $162.65

Less

Avg Direct cost/cust $25.00 $20.20 $20.20 $19.00 $13.00 $7.00 $7.00

Avg Acquisition cost/cust $51.47 $51.47 $51.47 $51.47 $51.47 $51.47 $51.47

Total Direct Costs $76.47 $71.67 $71.67 $70.47 $64.47 $58.47 $58.47

Contribution – New $86.18 $90.98 $90.98 $92.18 $98.18 $104.18 $104.18

Contribution – Existing $0.00 $142.45 $142.45 $143.65 $149.65 $155.65 $155.65

# of New Customers 250,000 175,727 221,052 250,000 250,000 250,000 250,000

# of existing customers 0 250,000 221,052 250,000 500,000 750,000 1,000,000

New Contribution 21.5 M 16.0 M 20.0 M 23.0 M 24.5 M 26.0 M 26.0 M

Existing Contribution 0 M 35.6 M 31.5 M 35.9 M 74.8 M 116.7 M 155.7 M

Total Contribution 21.5 M 51.6 M 51.6 M 59.0 M 99.4 M 142.8 M 181.7 M

Fixed Cost: Infrastructure 35 M 50 M 50 M 50 M 75 M 100 M 115 M

Profit/Loss before Advertising (13.5 M) 1.6 M 1.6 M 9.0 M 24.4 M 42.8 M 66.7 M

Advertising 1.6 M 1.6 M 1.6 M 1.6 M 1.6 M 1.6 M 1.6 M

Cumulative Profit/Loss (15.1 M) $39 $38 7.4 M 22.8 M 41.2 M 65.1 M

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Breakeven Analysis - Results The results were around 425,727 and 442,104 The average is 433,916 customers

In order to reach breakeven point,

Citibank must acquire approximately

430,000 customers in two years after launching

Should Citibank launch the card product? Why or why not? Support your decision with data (numbers).

TO LAUNCH OR NOT TO LAUNCH?Q1

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Q1: To Launch or not to Launch? From the financial perspective

Assuming that the credit card gets 250,000 new customers annually (same as the table from Breakeven analysis)

0.25 Million customers on the first year, to 1.25 Million customers on the fifth year

Use the average of five year averages of each country for inflation rate = 5.6%

Net Present Value (NPV) = $94.4 Million Internal Rate of Return (IRR) = 118%

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Q1: To Launch or not to Launch? From the marketing perspective

Many countries’ market are still underdeveloped Rapid growth in the ASEAN region High market potential Some markets are saturated or unsuitable, simply

avoid them

Citibank should launch their credit card product. The

potential is good from both financial and marketing

perspectives.

Which countries should Citibank enter first? Which countries should it avoid? Support with numbers and data.

WHERE TO LAUNCH?Q3

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Q3: Where to Launch?

Thailan

d HKMalaysi

a

Population 55.0 5.6 16.9Urban Population (%) 20% 90% 38%

Urban Population 11.0 5.0 6.4

Target Population (%) 25% 85% 35%

Target Population 13.8 4.8 5.9

Growth 10.8 % 7.3 % 8.1 %

5 year Growth 7.2 % 8.4 % 4.2 %

Inflation 3.8 % 7.4 % 2.0 %

5 year Inflation 2.3 % 5.5 % 1.6 %

Politics B B B

Consumer Good Good Good

Competition Low High Medium

Launch as soon as possible (mandatory)

Thailand Everything’s

good Hong Kong

Regional financial center

Malaysia Almost all good

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Q3: Where to Launch? Australia Indonesia Singapore





Growth 4.0 % 4.8 % 11.0 %

5 year Growth 4.6 % 4.2 % 5.6 %

Inflation 7.6 % 8.0 % 1.5 %

5 year Inflation 7.1 % 7.6 % 0.7 %

Politics A C B

Consumer Good Good Good

Competition High Medium High

Launch later, when the market condition is good (optional)

Australia Stable and large

market Indonesia

Potential future market

Singapore Future finance

center

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Q3: Where to Launch? India Philippines Taiwan





Growth 9.7 % 6.8 % 7.3 %

5 year Growth 6.1 % 0.5 % 9.3 %

Inflation 9.8 % 8.7 % 1.2 %

5 year Inflation 8.2 % 16.6 % 0.5 %

Politics C D A

Consumer Cash Good Cash

Competition Medium Low Restricted

Do not launch (avoid)

India Too

undeveloped Philippines

Too unstable Taiwan

Too soon Korea

Too problematic

If you choose not to introduce the card, what would you do to achieve the $100 million earnings target by 1990? What kind of branch banking products should the bank offer?

ACHIEVING $100 M WITHOUT CARDQ5

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Q5: Achieving $100 M without card

Current: earning before tax (EBT) $69.7 millionwith $209.0 Million net revenue from fund

Target: earning before tax (EBT) $100 millionwith $299.9 Million net revenue from fund (linear extrapolation)

Have to earn $91 million more in annual revenue

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Market Development IPB – offer in more

markets Citigold – improve

or start new locations

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Market Penetration Citigold – acquire

customers Mortgage –

acquire customers/partners

Autoloan – acquire partners

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Diversification and Product Development Technology –

Internet and Mobile Banking

Insurances Financial – New

types of loans

Presentation slides available at:http://slidesha.re/citibankcase

THANK YOU!

Citibank Asia-Pacific Credit Card Case

Education

Transcript of Citibank Asia-Pacific Credit Card Case