Citibank: Launching the Credit Card in Asia Pacific

Management of Multinationals

Klaus Dissertori Petr Maxmilian Hajkr

Citibanks position in Asia-Pacific

- The most profitable and preeminent provider of financial services - Target segment: upper- and middleincome 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 doesnt 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

Not immediately

- Product positioning:
Middle class Upper class Credit card status high image

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
Unit Cost Prospects RR Qualify Cards Card Customers Acq Cost/Card Direct Mail Direct Sales

$
$ $ $

1.50
270,000.00 0.25 0.15

300,000.0
30,000.0 2,000,000.0 3,000,000.0

0.0
0.5 0.0 0.0

0.7
0.7 0.3 0.3

0.8
0.8 0.8 0.8

3,216
8,040 8,016 8,016

139.9
33.6 62.4 56.1

Take-Ones
Bind-Ins

Average

50.7

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

Breakeven analysis
Number of customers Average Revenue per Customer 250,000.0 162.7 500,000.0 162.7 750,000.0 162.7 1,000,000.0 162.7 1,250,000.0 162.7 1,500,000.0 162.7

COSTS
Average Direct costs per customer Average Acquisition costs per customer Total direct costs Contribution of New Customers Contribution of Existing customers Number of new customers Number of existing customers New Contribution Existing contribution Total contribution Fixed costs Profit or Loss before Advertising Advertising Cumulative profit or loss 25.0 50.7 75.7 87.0 250,000.0 21,737,500.0 21,737,500.0 35,000,000.0 13,262,500.0 1,600,000.0 14,862,500.0 19.0 50.7 69.7 93.0 143.7 250,000.0 250,000.0 23,237,500.0 35,912,500.0 59,150,000.0 50,000,000.0 9,150,000.0 1,600,000.0 7,550,000.0 13.0 50.7 63.7 99.0 149.7 250,000.0 500,000.0 24,737,500.0 74,825,000.0 99,562,500.0 75,000,000.0 24,562,500.0 1,600,000.0 22,962,500.0 7.0 50.7 57.7 105.0 155.7 250,000.0 750,000.0 26,237,500.0 116,737,500.0 142,975,000.0 100,000,000.0 42,975,000.0 1,600,000.0 41,375,000.0 7.0 50.7 57.7 105.0 155.7 250,000.0 1,000,000.0 26,237,500.0 155,650,000.0 181,887,500.0 125,000,000.0 56,887,500.0 1,600,000.0 55,287,500.0 7.0 50.7 57.7 105.0 155.7 250,000.0 1,250,000.0 26,237,500.0 194,562,500.0 220,800,000.0 150,000,000.0 70,800,000.0 1,600,000.0 69,200,000.0

Breakeven analysis
Number of customers Average Revenue per Customer COSTS Average Direct costs per customer Average Acquisition costs per customer Total direct costs Contribution of New Customers 25.00 50.70 75.70 86.95 22.00 50.70 72.70 89.95 20.50 50.70 71.20 91.45 19.00 50.70 69.70 92.95 250,000.00 162.65 375,000.00 162.65 425,642.50 162.65 500,000.00 162.65

Contribution of Existing customers

Number of new customers Number of existing customers New Contribution Existing contribution Total contribution Fixed costs Profit or Loss before Advertising Advertising Cumulative profit or loss

250,000.00 21,737,500.00 21,737,500.00 35,000,000.00 - 13,262,500.00 1,600,000.00 - 14,862,500.00 -

140.65
125,000.00 250,000.00 11,243,750.00 35,162,500.00 46,406,250.00 50,000,000.00 3,593,750.00 1,600,000.00 5,193,750.00

142.15
175,642.50 250,000.00 16,062,506.63 35,537,500.00 51,600,006.63 50,000,000.00 1,600,006.63 1,600,000.00 6.63

143.65
250,000.00 250,000.00 23,237,500.00 35,912,500.00 59,150,000.00 50,000,000.00 9,150,000.00 1,600,000.00 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!