Citibank Credit Card Case Study

Presentation on theme: "Group 8 Citibank: Launching the Credit Card in Asia Pacific"— Presentation transcript:

1 Group 8 Citibank: Launching the Credit Card in Asia Pacific
Group Members:Joanna CraneKelly LeeScott McMillanLisa PearsonEd Petrone

2 $228 billion in assets in 1989Largest banking company in the United States11th in the world in bankingLeader in foreign exchange marketInternational presence growing rapidlyOffered 2 cards: Citi-One and CitiGold

3 Business Problem/Opportunity
Whether to launch Citibank credit cards in various Asian countries (10) – all, none, or someFactors to consider:Existing competition from other credit cards (American Express, Visa, Diners Club, MasterCard, local banks, international banks)Local managers’ opinions in each country; evaluation of risk

4 Business Problem/Opportunity
Factors to consider (cont.):Government regulations – who can have a card, whether one has to go through a central bank, etc.Staffing, infrastructure, distribution capabilitiesTechnologyPast experiencesPopulations, average annual income, growth rate of countries, GNPWhich countries to go into

5 Business Problem/Opportunity
If entering market, decisions to be made:Start from scratch or develop cards with a card portfolio that already existsManage by individual countries, in groups, or through one central systemMarketing tactics: direct mail (consider postal service), direct sales reps, bind-ins, take-onesFees to customers: joining & annualConsumer attitudes: needs & wants from credit card

6 Business Problem/Opportunity
Decisions to be made (cont.):Target marketFinancial benefits to offer with the cardPricing, branding, positioning, customer acquisition strategiesPremium pricing

7 Estimated Distribution of Population & Cards by Income
CountryAbove$25,000$12,500 to$6,000 to$12,500$2,000 to$6,000Below$2,000Total(in millions)Hong Kong% of pop% of cards1015255055.62.0Indonesia340290168.120Malaysia452017.380Philippines223062.240Thailand12.555.210

8 Map of Asia

9 Most Likely Scenario/Our Recommendations
We believe that it would have been wise for Citibank, in 1989, to launch credit cards in Hong Kong, Indonesia, Malaysia, Philippines, and Thailand.NOGO in Australia, India, Singapore, Taiwan, Korea.

10 Australia Already saturated market Average Australian carries 2 cards
Prestige and image of bank issuing card, no longer important10.5 million cards already existVisa & MasterCard hold 35% of the market½ the cards are issued by local banks

11 India Largely rural population (80%)
Heavily regulated foreign-exchange transactionsLocal transactions only for credit cardsLow merchant acceptanceWealth is concentrated among small portionPay on time societyLocal currency only

12 Singapore Political instability Already saturated market
500,000 cards in force2 credit cards per personNo support from country managerGovernment regulationsCardholders at least 21 years old$14,400 minimum annual income

13 Taiwan American Express holds 50% of market
Cash-oriented society; owing $ is unacceptableRefrain from using revolving creditHeavy government protectionBarrier to growthNational Credit Card Center (NCCC)

14 Korea Local regulations don’t allow revolving credit
Local currency onlyManagement problemsFinancial LossesLabor problems

15 Hong KongLocation: Eastern Asia, bordering the South China Sea and ChinaNationality: Chinese/Hong KongLanguage: Chinese (Cantonese), English; both are official

16 Hong Kong Citibank has been established since 1983
With the country’s economic growth and rapid industrializations, 5.6 million people with average annual income of $8,158, cardholders owning an average of 1.7 cards eachBy 1989, Citibank's 140,000 classic and Gold Visas held an 8.7% share of the credit card marketCharge card competed directly with American Express, which had issued 175,000 cards in Hong Kong.

17 Hong Kong Rate: Lower joining fee + Higher annual fee
Target Market: Mass Marketing strategyMarket Entry: Combination of widespread Take-One displays in more than 4,000 merchant locations and direct mailing as well as cross-selling to existing branch customersHong Kong had its own system capabilities

18 IndonesiaLocation: Southeastern Asia, archipelago between the Indian Ocean and the Pacific OceanNationality: IndonesianLanguage: Bahasa Indonesia (official, modified form of Malay), English, Dutch

19 IndonesiaIndonesia is a poor country with about 80% of the population living in rural areas and earning less than $500 per yearBecause of low income levels, many did not qualify for membershipThree local banks, American Express, and Diners Club shared the market equallyWhereas all charged a joining fee a well as an annual membership fee, the local banks priced their offerings significantly lower

20 IndonesiaRate: Keep Joining fee and Annual membership fee the same as Diners club and Master CardTarget Market: Wealthy population only, those earning $25,000+ per yearMarket Entry: Direct sales force

21 MalaysiaLocation: Southeastern Asia, peninsula bordering Thailand and northern one-third of the island of Borneo, bordering Indonesia, Brunei, and the South China SeaNationality: MalaysianLanguages: Bahasa Melayu (official), English, Chinese dialects (Cantonese, Mandarin, Hokkien, Hakka, Hainan, Foochow), Tamil, Telugu, Malayalam, Panjabi, Thai

22 MalaysiaMalaysia is a growing industrial nation, and is world’s third-largest producer of semi-conductors.Convenience and extra credit were important reasons for owing credit cardsAmerican Express held a 15% share of market and extensive branch and ATM network, Malayan Banking Berhad with 10% shareLocal banks usually did not charge a joining fee for the classic card but they all charged an annual feeAccording to Malaysian law, only consumers with an annual income of $9,000 or more could own a credit card

23 Malaysia Target Market: Mass marketing strategy ($6,000+); Prestige
Market Entry: Take-ones, Direct SalesRate: Lower joining fee than American Express; comparable annual fees

24 Philippines Location: Southeastern Asia, archipelago
between the Philippine Sea and the SouthChina Sea, east of VietnamNationality: FilipinoLanguages: 2 official languages –Filipino and English

25 PhilippinesBooming recovery in late 1980’s leads to more jobs = more money in the countryPenetration of credit cards very lowWide acceptance of bank, revolving credit facility, interest rate, repayment rate, and credit limit are very importantDon’t like to carry cashOnly local transactions in the local currency

26 Philippines Target Market: annual income earners of $12,500+
Market Entry: Direct sales and bind-ins because marketing to 8% of the total population and need a good response rateRate: Joining fee and annual fees as high as the 4 major companies to show we are a prestigious company because we are marketing to the richer part of the economy

27 Thailand Location: Southeastern Asia, bordering
the Andaman Sea and the Gulf ofThailand, southeast of BurmaNationality: ThaiLanguages: Thai, English, ethnic andRegional dialects

28 Thailand Economy growing at average of 11.6% from 1986-1989
Foreign investment growing morethere than any other country in SE AsiaTourism biggest form of exchangeNot many credit card playersAMEX and Diners Club very popularbecause of prestige

29 Thailand Target market: population earning $2,000-$12,500
Make move to the upper income group once prestige is gained by CitibankRate: Position between AMEX and Diners Club vs. Visa and MasterCard because ofcurrent status of all cardsand to gain prestigeMarket Entry: Direct mailand take-ones because weare marketing to 20% of thepopulation and this willreach more prospects

30 Planned Costs$3.9 million: Customer acquisition costs (2 Direct Mailings, 3 Take Ones, 1 Bind-ins and a 58 person sales force)$8 million: Advertising costs for all 5 countries$35 million: Overhead costs for 250,000 cardholders (with an increase of $10-$15 million for each additional 250,000)

31 Targeted PricingCountryDesired # of CustomersCiti-OneJoining FeeAnnual FeeCiti-GoldHong Kong36,000$25$55$40$87Indonesia255,000$60$50Malaysia390,000$28$54$34$75Philippines285,000$35ThailandNone$65$120With an estimated distribution of 75% choosing Citi-One and 25% choosing Citi-Gold

32 Break Even AnalysisBased on projected costs and pricing, revenues and costs should be equal at approximately 690,000 customers.Estimated revenues and costs are both ≈ $67 million.Costs include all acquisition and advertising costs ($12 million) plus $55 million in overhead.Revenues based on targeted customer numbers and pricing for markets in Hong Kong, Indonesia and Malaysia.

33 Best Case ScenarioCitibank successfully enters credit card market for each targeted country.Builds solid infrastructure and sales force to support product launchLaunch gains support of each respective Country Manager.Acquires significant portion of the market share by offering quality service, pricing competitively and providing a high prestige product.

34 Best Case ScenarioReaches 1 million card holders, lowering overhead from $25/card to between $6 and $8/card.Further increases revenues through cross marketing other Citibank products and services to new cardholders.

35 Worst Case ScenarioCitibank’s attempt to enter the credit card market in Asia fails in each nation.Country managers resist decision to launch credit cards, and provide little support or assistance.Lack of infrastructure and a poorly trained staff lead to service problems and a decrease in total customers.

36 Worst Case ScenarioCitibank cards are perceived as low quality and prestige by the Asian market.An insufficient number of cardholders results in high overhead costs, and an overall loss.Losses hurt other core services offered by Citibank in the region.

37 Sources
Citibank: Launching the Credit Card in Asia Pacific (A)

Rivera Case Study Questions #3 1. Should Citibank launch the credit card? Why or why not? Yes Citibank should launch the credit card. The Asia-Pacific region has been experiencing substantial economic growth, rising per capita income, and steady population growth. Rising income means more demand for credit cards, an item seen as a status symbol by many, which is key if citibank were to chose to position themselves in the up-market. They already have a presence in the region just with different products meaning they can use their existing infrastructure to expand into credit cards. Also, launching the card provides citibank with new customers they can then market services like auto loans, and mortgages to, benefiting several areas of their business 2. If Citibank decides to launch the credit card, which countries should it enter first? Which countries it should avoid? The countries they should enter first are Hong Kong and Australia. Australia is very similar to modern western nations, has a high per capita income, political stability, and already has a

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