Launching the Credit Card in Asia Pacific

Mariette
Abovici

Lena
Flickschuh

Pia
Hochgerner

Than
Rassadanukul

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

[2]

Q0

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

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

[4]

Number of Customers Avg Rev per Customer Less Avg Direct cost/cust Avg Acquisition cost/cust Total Direct Costs Contribution New Contribution Existing # of New Customers # of existing customers New Contribution Existing Contribution Total Contribution Fixed Cost: Infrastructure Profit/Loss before Advertising Advertising Cumulative Profit/Loss

250,000 $162.65

425,727 442,104
$162.65 $162.65

500,000 $162.65

750,000 $162.65

1M $162.65

1.25 M $162.65

$25.00 $51.47 $76.47 $86.18 $0.00 250,000 0 21.5 M 0M 21.5 M 35 M (13.5 M) 1.6 M (15.1 M)

$20.20 $51.47 $71.67 $90.98 $142.45 175,727 250,000 16.0 M 35.6 M 51.6 M 50 M 1.6 M 1.6 M

$20.20 $51.47 $71.67 $90.98 $142.45 221,052 221,052 20.0 M 31.5 M 51.6 M 50 M 1.6 M 1.6 M

$19.00 $51.47 $70.47 $92.18 $143.65 250,000 250,000 23.0 M 35.9 M 59.0 M 50 M 9.0 M 1.6 M 7.4 M

$13.00 $51.47 $64.47 $98.18 $149.65 250,000 500,000 24.5 M 74.8 M 99.4 M 75 M 24.4 M 1.6 M 22.8 M

$7.00 $51.47 $58.47 $104.18 $155.65 250,000 750,000 26.0 M 116.7 M 142.8 M 100 M 42.8 M 1.6 M 41.2 M

$7.00 $51.47 $58.47 $104.18 $155.65 250,000 1,000,000 26.0 M 155.7 M 181.7 M 115 M 66.7 M 1.6 M 65.1 M

$39

$38

[5]

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

[6]

Q1

TO LAUNCH OR NOT TO LAUNCH?

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

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%
[8]

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.
[9]

Q3

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

Q3: Where to Launch?

Thailand Population Urban Population (%) Urban Population Target Population (%) Target Population Growth 5 year Growth Inflation 5 year Inflation Politics Consumer Competition 55.0 20% 11.0 25% 13.8 10.8 % 7.2 % 3.8 % 2.3 % B Good Low HK 5.6 90% 5.0 85% 4.8 7.3 % 8.4 % 7.4 % 5.5 % B Good High Malaysia 16.9 38% 6.4 35% 5.9 8.1 % 4.2 % 2.0 % 1.6 % B Good Medium

Launch as soon as possible (mandatory) Thailand

Everythings

good

Hong Kong
Regional

financial

center

Malaysia
Almost

all good
[11]

Q3: Where to Launch?

Australia Indonesia Singapore Population Urban Population (%) Urban Population Target Population (%) Target Population Growth 5 year Growth Inflation 5 year Inflation Politics Consumer Competition 16.5 85% 14.0 80% 13.2 4.0 % 4.6 % 7.6 % 7.1 % A Good High 167.7 25% 41.9 7% 11.7 4.8 % 4.2 % 8.0 % 7.6 % C Good Medium 2.7 100% 2.7 20% 0.5 11.0 % 5.6 % 1.5 % 0.7 % B Good High [12]

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

Stable and large market Potential future market Future finance center

Indonesia

Singapore

Q3: Where to Launch?

India Population Urban Population (%) Urban Population Target Population (%) Target Population Growth 5 year Growth Inflation 5 year Inflation Politics Consumer Competition 797.0 23% 183.3 5% 39.9 9.7 % 6.1 % 9.8 % 8.2 % C Cash Medium Philippines Taiwan 61.9 50% 31.0 30% 18.6 6.8 % 0.5 % 8.7 % 16.6 % D Good Low 19.8 72% 14.3 78% 15.3 7.3 % 9.3 % 1.2 % 0.5 % A Cash Restricted

Do not launch (avoid) India

Too

undeveloped unstable soon problematic

[13]

Philippines
Too

Taiwan
Too

Korea
Too

[14]

Q5

ACHIEVING $100 M WITHOUT CARD

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?

Q5: Achieving $100 M without card

Current: earning before tax (EBT) $69.7 million with $209.0 Million net revenue from fund Target: earning before tax (EBT) $100 million with $299.9 Million net revenue from fund (linear extrapolation) Have to earn $91 million more in annual revenue

[16]

Q5: Achieving $100 M without card

Market Development
IPB

offer in more markets Citigold improve or start new locations

[17]

Q5: Achieving $100 M without card

Market Penetration
Citigold

acquire customers Mortgage acquire customers/partners Autoloan acquire partners

[18]

Q5: Achieving $100 M without card

Diversification and Product Development
Technology

Internet and Mobile Banking Insurances Financial New types of loans

[19]

THANK YOU!
Presentation slides available at: http://slidesha.re/citibankcase