Alpen Bank: Launching the Credit Card in Romania | Tan & Manasa 1

Alpen Credit Cards Position

Alpen Banks existing customers are affluent and they are desire to qualify for a credit
card. They are less sensitive to annual fees, and less likely to leverage in consumer debts. They
tend to use their credit cards with higher-average tickets as well as more substantial frequency
than the middle class customers. On the other hand, middle class customers are inclined to own
credit cards, but their card utilization is significantly low. Therefore, Alpen generates lower
revenue for the company. In conclusion, Alpen could position the companys credit card as a
premium card, which could match the affluent customers image to the premium credit cards
prestige. Thus, Alpen could gain a greater inter-charges rate than middle class customers. The
company also possesses more robust experiences dealing with this group of affluent customers
than their competitors, which provides Alpen an advantage in their premium card plan.

Cost of Acquisition
Assume Alpen has two options that pertain to acquiring credit card holder, which either
target or all customer base (middle class, affluent, and most affluent customers) or target affluent
customers base (affluent and most affluent customers). If Alpen decides to acquire all types of
customers, the company converts 91,163 customers and it costs 18.70 to bring in each new
customer annually. If Alpen decides to acquire affluent customers only, the company could
convert 58,969 customers and it would cost 18.31 to bring in every new customer annually (See
Exhibit 1 & 2). Acquiring all customer types generates a higher number of converted customers;
however, it is more economical to convert affluent customers than all customer bases.

Breakeven Analysis
Alpen will break-even in Fiscal Year 2 regardless of which customer base the company is
promoting their credit card. If Alpen targets customers in all customer base, the company would
generate 1.8M profit. On the other hand, if the company picks affluent customers base, it would
yield 5.9M profit (See Exhibit 4 and 5). Alpen could generate about 70% additional profit if
they targets only on affluent customer base over all customer base.
However, the company needs 77,911 customers from all customer bases to breakeven;
while the company needs 53,604 affluent customers to breakeven only. To put this in different
perspective, Alpen needs additional 30% of all type customers to breakeven thus, which means
Alpen needs extra resources to breakeven in the case of all customers (See Exhibit 6 and 7).

Alpen Bank: Launching the Credit Card in Romania | Tan & Manasa 2
Alpen Bank can make a net profit of 5,000,000 within the next two years if they can
achieve all customer base of 144,831 or affluent customer base of 98,702 (see Exhibit 8 & 9).
The breakeven number of customers for all classes cannot be accomplished within 2 years.
Whereas, if Alpen bank targets affluent customers only the breakeven customers can be achieved
within 2 years

Launch Credit Card?

The company should launch a premium credit card and the card is targeted for the
affluent customers. This is because the company brand name is always associated with affluent
society and the company generates higher profits in within affluent communities. This would
maintain their reputation in the market and also will help Alpen in reaching their target within 2
years. Alpen would be able to make a gross profit 17 million in three years, without considering
the increase in the market annually (See Exhibit 5). Alpen is looking forward for a greater growth
after the steady progression in the course of past three years. With the above analysis, it can be
concluded that Alpen can generate more profits than previous years.
Along with rapid economic growth and rising income, the Romanian households tend to
buy luxury import products than lower-priced domestic goods. Besides, Romania has about
8,000 ATMs and 150,000 POS terminals for card transactions. These provide Alpen credit card
holders a motive and the infrastructure to use their credit cards locally and abroad. In addition to
that due to the economic growth in the middle class households in Romania are emerging and are
becoming higher income level households in the society. At this rate Alpen would have much
more number of prospects with the same standards in place.

Credit card vs Core Banking Business

The aggregate profits from 2002 to 2005 for the core bank business is 35.0 million (See:
Case Study Exhibit 1). The aggregate profits that credit card businesses can make over the years
(2008-2011) is almost 38 million (See Exhibit 5: Cumulative Profit). Therefore the credit card
industry is more profitable. The credit card businesses are more profitable over time than the
core banking industry.
Exhibit 1: Alpen Bank Cost of Acquisition - All Classes
Response
Unit
Prospect
Cost
Reached
Rate

Qualification
Rate

Conversion
Rate

Total
Cost

Co
Cu

Alpen Bank: Launching the Credit Card in Romania | Tan & Manasa 3
Direct Mail
Take One
FSIs
Direct Sales
(10 Sales Person)
Branch Cross Sales

0.50
0.10
0.05

2,500,000
2,000,000
3,500,000

3.000%
2.500%
1.500%

60.0%
30.0%
30.0%

85.0%
85.0%
85.0%

1,250,000.00
200,000.00
175,000.00

3,000.00
1.00

60,000
50,000

2.500%
50.000%

60.0%
90.0%

85.0%
85.0%

30,000.00
50,000.00

Total

1,705,000.0
0

Total
Cost

Co
Cu

Appendix:
Exhibit 2: Alpen Bank Cost of Acquisition Affluent (& Most Affluent) only
Unit
Prospect
Response Qualification
Cost
Reached
Rate
Rate
Direct Mail- Affluent
Only
0.50
1,250,000
3.000%
60.0%
Take One- Affluent Only
0.10
2,000,000
2.500%
15.0%
FSI- Affluent Only
0.05
3,500,000
1.500%
15.0%
Direct Sales
(10 Sales Person)
3,000.00
60,000
2.500%
60.0%
Branch Cross Sales
1.00
50,000
50.000%
90.0%

Conversion
Rate
85.0%
85.0%
85.0%

625,000.00
200,000.00
175,000.00

85.0%
85.0%

30,000.00
50,000.00
1,080,000.0
0

Total

Alpen Bank: Launching the Credit Card in Romania | Tan & Manasa 4

Exhibit 3: Alpen Revenue Analysis

Middle Class (MC)
Potential and Qualified (P&Q)
Cardholder
Percentage of the classes
Total P&Q Cardholder
Interest Revenue
Other Revenue
Annual Revenue

18,600,000
18.20%
3,385,200
37.13
23.50

Total P&Q Cardholder

Total Revenue of P&Q Cardholder
Revenue Per Card Holder (ALL)
Revenue Per Card Holder (A+MA)

86.63
36.75
60.63
205,244,676.0
0

Total Revenue of Classes

8,574,600
1,052,749,02
6
122.78
163.31

Affluent (A)
18,600,00
0
15.00%
2,790,000

Most Affluent (MA)

18,600,00
0
12.90%
2,399,400
148.50
61.25

123.38
344,230,200.0
0

209.75
503,274,150.0
0

Alpen Bank: Launching the Credit Card in Romania | Tan & Manasa 5

Exhibit 4: Alpen Credit Card Budget- All classes

All Classes
FY1
Number of Customer
Old Customer
*New Customer
Total Customers
Revenue Per Customer (Exhibit 3)
Variable Costs Per Customer:
** Direct Variable Cost- New & Old
Acquisition Cost- New (Exhibit 1)
Total Variable Cost- Per Old Customer
Total Variable Cost- Per New Customer
Contribution Margin- Per Customer:
Contribution Margin- Per Old Customer
Contribution Margin Per New Customer
Total Contribution Margin

FY2

FY3

FY4

0
50000
50000

50000
50000
100000

100000
50000
150000

150000
50000
200000

122.78

122.78

122.78

122.78

20.00
18.70
38.70

17.50
18.70
17.50
36.20

15.00
18.70
15.00
33.70

12.50
18.70
12.50
31.20

84.07
4,203,621.35

105.28
86.57
9,592,386.00

107.78
89.07
15,231,150.64

110.28
91.57
21,119,915.28

Fixed Costs:
Advertising Cost
2,000,000.00
2,000,000.00
2,000,000.00
*** Fixed Overhead
5,000,000.00
5,750,000.00
6,500,000.00
Net Profit
-2,796,378.65
1,842,386.00
6,731,150.64
Cumulative Profit Over Years
-2,796,378.65
-953,992.65
5,777,157.99
* Assumption: Alpen gains 50,000 credit card customer every year over four-years period
** Assumption: Direct Variable Cost decrease 2.50 per credit card holder for every increase of 50,000 customers
*** Assumption: Fixed Overhead Cost increased 750,000 for every increase of 50,000 customers

2,000,000.00
6,500,000.00
12,619,915.28
18,397,073.27

Alpen Bank: Launching the Credit Card in Romania | Tan & Manasa 6

Exhibit 5: Alpen Credit Card Budget- Affluent and Most Affluent only
Affluent and Most Affluent Only
FY2
FY3

FY1
Number of Customer
Old Customer
*New Customer
Total Customers
Revenue Per Customer (Exhibit 3)
Variable Costs Per Customer:
** Direct Variable Cost- New & Old
Acquisition Cost- New (Exhibit 2)
Total Variable Cost- Per Old Customer
Total Variable Cost- Per New Customer
Contribution Margin- Per Customer:
Contribution Margin- Per Old Customer
Contribution Margin Per New Customer
Total Contribution Margin

FY4

0
50000
50000

50000
50000
100000

100000
50000
150000

150000
50000
200000

163.31

163.31

163.31

163.31

20.00
18.31

17.50
18.31
17.50
35.81

15.00
18.31
15.00
33.31

12.50
18.31
12.50
30.81

145.81
127.50

13,665,712.34

148.31
130.00

150.81
132.50

21,331,438.15

29,247,163.96

38.31

125.00
6,249,986.54

Fixed Costs:
Advertising Cost
2,000,000.00
2,000,000.00
2,000,000.00
*** Fixed Overhead
5,000,000.00
5,750,000.00
6,500,000.00
Net Profit
-750,013.46
5,915,712.34
12,831,438.15
Cumulative Profit Over Years
-750,013.46
5,165,698.88
17,997,137.03
* Assumption: Alpen gains 50,000 credit card customer every year over four-years period
** Assumption: Direct Variable Cost decrease 2.50 per credit card holder for every increase of 50,000 customers
*** Assumption: Fixed Overhead Cost increased 750,000 for every increase of 50,000 customers

2,000,000.00
7,250,000.00
19,997,163.96
37,994,300.99

Alpen Bank: Launching the Credit Card in Romania | Tan & Manasa 7

Exhibit 6: Breakeven Formula- All Classes

Breakeven 0
= (Old Customer Contribution Margin * 50,000 Old Customer)
+ (New Customer Contribution Margin * X New Customer) - Total Fixed Cost
0 = (105.28 * 50,000) + (89.07X) - 7,750,000
X= 27,910.63 of New Customer
Number of Breakeven = 77,911 customer
Exhibit 7: Breakeven Formula- Affluent and Most Affluent Only
Breakeven 0
= (Old Customer Contribution Margin * 50,000 Old Customer)
+ (New Customer Contribution Margin * X New Customer) - Total Fixed Cost
0 = (145.81 * 50,000) + (127.50X) - 7,750,000
X= 3,604 of New Customer
Number of Breakeven = 53,604 customer

Exhibit 8: Breakeven Formula with 5,000,000 Accumulative Profit All Classes

Breakeven 5,000,000 Cumulative Profit
= (Old Customer Contribution Margin * 50,000 Old Customer)
+ (New Customer Contribution Margin * X New Customer) - Total Fixed Cost
5,953,992.65= (105.28 * 50,000) + (89.07X) - 7,750,000
X= 94,831 of New Customer
Number of Breakeven with 5M Profit = 144,831 customer

Exhibit 8: Breakeven Formula with 5,000,000 Accumulative Profit Affluent and Most Affluent only
Breakeven 5,000,000 Cumulative Profit
= (Old Customer Contribution Margin * 50,000 Old Customer)
+ (New Customer Contribution Margin * X New Customer) - Total Fixed Cost
5,750,013.46 = (145.81 * 50,000) + (127.50X) - 7,750,000
X= 48,702 of New Customer
Number of Breakeven with 5M Profit = 98,702 customer