Citibank: Launching the Credit Card in Asia Pacific

Klaus Dissertori

Petr Maxmilian Hajkr

Management of Multinationals

Citibank’s position in Asia-Pacific

- The most profitable and preeminent provider of financial services

- Target segment: upper- and middle-income segment

- Active in 15 countries

PROs

₊ Rapid economic development

₊ Cross selling opportunities

₊ New customers, higher revenue

₊ Higher reputation

₊ Expansion

CONs − Regulations limiting the expansion of

foreign banks

− Weak local infrastructure

− Limited distribution capabilities

− Loss-making proprietary credit card businesses

− Inadequate legal infrastructure

SWOT Strengths

• Prestigious, consumer-oriented international bank

• Leader in most marketplaces

• Fast and high quality bank services

• existing customer base

• good image, wide acceptance

• High reputation

SWOT Weaknesses

• No acceptance of credit card business

• Law restrictions

• High competition

SWOT Opportunities

• Australia: developed service sector, western life

style, good banking infrastructure, desire for c. cards • Hong Kong: economic growth, rapid industrialization,

knowledge of credit cards • India: low credit card penetration, status symbol,

economic growth • Indonesia: small but rapidly growing wealthy class,

no restrictions on card ownership, high status • Malaysia: growing industrial nation

SWOT Opportunities

• Philippines: boom in economy, low credit card penetration

• Singapore: large center for international trade and services, familiarity with c. cards

• Taiwan: large trading power, high education level, less restrictions on c. card ownership

• Thailand: rapid economic growth, low competition

• Korea: n/a

SWOT Threats

• Australia: saturated market, high competition, image doesn’t matter so much

• Hong Kong: saturated market, number of credit card options

• India: cultural differences, population living in rural areas, low income level segment, regulations on foreign exchange transactions

• Indonesia: poor country, low income level, low customer base

• Malaysia: high competition, rural country, law restrictions

SWOT Threats

• Philippines: lack of banking infrastructure

• Singapore: saturated market, government regulations

• Taiwan: government control of database, regulations, high competition, no cultural acceptance

• Thailand: n/a

• Korea: heavy government regulations, strict foreign exchange measures

Where to enter first?

• Countries with high economic growth • Thailand

• Malaysia

• Indonesia

• India

• Philippines

• Taiwan

- Product positioning: • Middle class

• Upper class

• Credit card status – high image

Not immediately

Where to enter first?

• Developed, industrialized countries • Hong Kong

• Singapore

• Australia

- Product positioning • Shopping tool

• Variety of uses – multiple card approach

Which country to avoid?

• Country with strict control measures and regulations

•Korea

Alternatives to the credit card launch

Product/Market

Grid by Ansoff

Alternatives to the credit card launch

Products: • Citi-One

• Mortgage Power

• Auto loans

• Ready credit

• Citigold

• CitiPhone

• IPB

- Improve customers and partners relationships

- Acquiring new customers and partners

Alternatives to the credit card launch

Products: • Citi-One

• Mortgage Power

• Auto loans

• Ready credit

• CitiGold

• IPB

- Offering these products in new markets

Alternatives to the credit card launch

Products: - Development of new products

and services

- Cross-selling

Alternatives to the credit card launch

Products: - New products in new markets

- Technology development

- Internet and Mobile banking

Breakeven analysis

• Assumptions - Direct costs apply to both new and existing

customers - Acquisition costs only apply to new customers we add them back - Use of linear interpolation (cost, fixed costs) - We assume:

- 200working days - 10 calls/day 15 sales persons 18.000/SalesPerson/year

Breakeven analysis

- Given the high costs of Direct Mail, only the last 3 marketing methods were taken into consideration

Unit Cost Prospects RR Qualify Cards Card

Customers

Acq

Cost/Card

Direct Mail $ 1.50 300,000.0 0.0 0.7 0.8 3,216 139.9

Direct Sales $ 270,000.00 30,000.0 0.5 0.7 0.8 8,040 33.6

Take-Ones $ 0.25 2,000,000.0 0.0 0.3 0.8 8,016 62.4

Bind-Ins $ 0.15 3,000,000.0 0.0 0.3 0.8 8,016 56.1

Average 50.7

Breakeven analysis Number of customers 250,000.0 500,000.0 750,000.0 1,000,000.0 1,250,000.0 1,500,000.0

Average Revenue per Customer 162.7 162.7 162.7 162.7 162.7 162.7

COSTS

Average Direct costs per customer 25.0 19.0 13.0 7.0 7.0 7.0

Average Acquisition costs per customer 50.7 50.7 50.7 50.7 50.7 50.7

Total direct costs 75.7 69.7 63.7 57.7 57.7 57.7

Contribution of New Customers 87.0 93.0 99.0 105.0 105.0 105.0

Contribution of Existing customers - 143.7 149.7 155.7 155.7 155.7

Number of new customers 250,000.0 250,000.0 250,000.0 250,000.0 250,000.0 250,000.0

Number of existing customers - 250,000.0 500,000.0 750,000.0 1,000,000.0 1,250,000.0

New Contribution 21,737,500.0 23,237,500.0 24,737,500.0 26,237,500.0 26,237,500.0 26,237,500.0

Existing contribution - 35,912,500.0 74,825,000.0 116,737,500.0 155,650,000.0 194,562,500.0

Total contribution 21,737,500.0 59,150,000.0 99,562,500.0 142,975,000.0 181,887,500.0 220,800,000.0

Fixed costs 35,000,000.0 50,000,000.0 75,000,000.0 100,000,000.0 125,000,000.0 150,000,000.0

Profit or Loss before Advertising - 13,262,500.0 9,150,000.0 24,562,500.0 42,975,000.0 56,887,500.0 70,800,000.0

Advertising 1,600,000.0 1,600,000.0 1,600,000.0 1,600,000.0 1,600,000.0 1,600,000.0

Cumulative profit or loss - 14,862,500.0 7,550,000.0 22,962,500.0 41,375,000.0 55,287,500.0 69,200,000.0

Breakeven analysis Number of customers 250,000.00 375,000.00 425,642.50 500,000.00

Average Revenue per Customer 162.65 162.65 162.65 162.65

COSTS

Average Direct costs per customer 25.00 22.00 20.50 19.00

Average Acquisition costs per customer 50.70 50.70 50.70 50.70

Total direct costs 75.70 72.70 71.20 69.70

Contribution of New Customers 86.95 89.95 91.45 92.95

Contribution of Existing customers - 140.65 142.15 143.65

Number of new customers 250,000.00 125,000.00 175,642.50 250,000.00

Number of existing customers - 250,000.00 250,000.00 250,000.00

New Contribution 21,737,500.00 11,243,750.00 16,062,506.63 23,237,500.00

Existing contribution - 35,162,500.00 35,537,500.00 35,912,500.00

Total contribution 21,737,500.00 46,406,250.00 51,600,006.63 59,150,000.00

Fixed costs 35,000,000.00 50,000,000.00 50,000,000.00 50,000,000.00

Profit or Loss before Advertising - 13,262,500.00 - 3,593,750.00 1,600,006.63 9,150,000.00

Advertising 1,600,000.00 1,600,000.00 1,600,000.00 1,600,000.00

Cumulative profit or loss - 14,862,500.00 - 5,193,750.00 6.63 7,550,000.00

Breakeven analysis

• Given some estimates and assumptions

Breakeven = 425,642 customers

In order to reach the breakeven point, Citibank has to acquire 425,642 customers in two years.

Conclusion

• Consideration of the results of different analyses (SWOT, Ansoff, Breakeven analysis, NPV calculation, other financial analyses)

• Differentiation of strategies for each country

• Exploit opportunities and avoid threats

Thank you for your attention!