Launching the Credit Card in Asia Pacific

Mariette Lena Pia Than

Abovici Flickschuh Hochgerner 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 250,000 425,727 442,104 500,000 750,000 1M 1.25 M

Avg Rev per Customer $162.65 $162.65 $162.65 $162.65 $162.65 $162.65 $162.65

Less
Avg Direct cost/cust $25.00 $20.20 $20.20 $19.00 $13.00 $7.00 $7.00

Avg Acquisition cost/cust $51.47 $51.47 $51.47 $51.47 $51.47 $51.47 $51.47

Total Direct Costs $76.47 $71.67 $71.67 $70.47 $64.47 $58.47 $58.47
Contribution – New $86.18 $90.98 $90.98 $92.18 $98.18 $104.18 $104.18

Contribution – Existing $0.00 $142.45 $142.45 $143.65 $149.65 $155.65 $155.65

# of New Customers 250,000 175,727 221,052 250,000 250,000 250,000 250,000

# of existing customers 0 250,000 221,052 250,000 500,000 750,000 1,000,000

New Contribution 21.5 M 16.0 M 20.0 M 23.0 M 24.5 M 26.0 M 26.0 M

Existing Contribution 0M 35.6 M 31.5 M 35.9 M 74.8 M 116.7 M 155.7 M
Total Contribution 21.5 M 51.6 M 51.6 M 59.0 M 99.4 M 142.8 M 181.7 M

Fixed Cost: Infrastructure 35 M 50 M 50 M 50 M 75 M 100 M 115 M

Profit/Loss before
(13.5 M) 1.6 M 1.6 M 9.0 M 24.4 M 42.8 M 66.7 M
Advertising
Advertising 1.6 M 1.6 M 1.6 M 1.6 M 1.6 M 1.6 M 1.6 M

Cumulative Profit/Loss (15.1 M) $39 $38 7.4 M 22.8 M 41.2 M 65.1 M

[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 HK Malaysia  Launch as soon
Population 55.0 5.6 16.9
as possible
Urban Population (%) 20% 90% 38%
Urban Population 11.0 5.0 6.4 (mandatory)

Target Population (%) 25% 85% 35%

Target Population 13.8 4.8 5.9
 Thailand
 Everything’s good
Growth 10.8 % 7.3 % 8.1 %
 Hong Kong
5 year Growth 7.2 % 8.4 % 4.2 %
Inflation 3.8 % 7.4 % 2.0 %  Regional financial
5 year Inflation 2.3 % 5.5 % 1.6 % center
 Malaysia
Politics B B B
 Almost all good
Consumer Good Good Good
Competition Low High Medium [11]
 Q3: Where to Launch?
Australia Indonesia Singapore  Launch later,
Population 16.5 167.7 2.7 when the market
Urban Population (%) 85% 25% 100% condition is good
Urban Population 14.0 41.9 2.7 (optional)
Target Population (%) 80% 7% 20%
Target Population 13.2 11.7 0.5  Australia
 Stable and large
Growth 4.0 % 4.8 % 11.0 % market
5 year Growth 4.6 % 4.2 % 5.6 %  Indonesia
Inflation 7.6 % 8.0 % 1.5 %  Potential future
5 year Inflation 7.1 % 7.6 % 0.7 % market
 Singapore
Politics A C B
 Future finance
Consumer Good Good Good
center
Competition High Medium High [12]
 Q3: Where to Launch?
India Philippines Taiwan  Do not launch
Population 797.0 61.9 19.8
23% 50% 72%
(avoid)
Urban Population (%)
Urban Population 183.3 31.0 14.3

 India
Target Population (%) 5% 30% 78%
Target Population 39.9 18.6 15.3  Too undeveloped
 Philippines
Growth 9.7 % 6.8 % 7.3 %
 Too unstable
5 year Growth 6.1 % 0.5 % 9.3 %
Inflation 9.8 % 8.7 % 1.2 %  Taiwan
5 year Inflation 8.2 % 16.6 % 0.5 %
 Too soon
Politics C D A  Korea
Consumer Cash Good Cash  Too problematic
Competition Medium Low Restricted [13]
[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