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# Citibank Asia-Pacific Credit Card Case

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Citibank Asia-Pacific Credit Card Case Analysis Presentation for Asia Business Case Studies, Asia MBA, Sungkyunkwan University - November 24th, 2010

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### Citibank Asia-Pacific Credit Card Case

1. 1. Mariette Lena Pia Than Abovici Flickschuh Hochgerner Rassadanukul Launching the Credit Card in Asia Pacific
2. 2. [2] 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
3. 3. How many customers does Citibank need to breakeven on its investments? BREAKEVEN ANALYSISQ0
4. 4. [4] 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
5. 5. [5] Number of Customers 250,000 425,727 442,104 500,000 750,000 1 M 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 0 M 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 Advertising (13.5 M) 1.6 M 1.6 M 9.0 M 24.4 M 42.8 M 66.7 M 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
6. 6. [6] 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
7. 7. Should Citibank launch the card product? Why or why not? Support your decision with data (numbers). TO LAUNCH OR NOT TO LAUNCH?Q1
8. 8. [8] 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%
9. 9. [9] 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.
10. 10. Which countries should Citibank enter first? Which countries should it avoid? Support with numbers and data. WHERE TO LAUNCH?Q3
11. 11. [11] Q3: Where to Launch? Thailand HK Malaysia Population 55.0 5.6 16.9 Urban Population (%) 20% 90% 38% Urban Population 11.0 5.0 6.4 Target Population (%) 25% 85% 35% Target Population 13.8 4.8 5.9 Growth 10.8 % 7.3 % 8.1 % 5 year Growth 7.2 % 8.4 % 4.2 % Inflation 3.8 % 7.4 % 2.0 % 5 year Inflation 2.3 % 5.5 % 1.6 % Politics B B B Consumer Good Good Good Competition Low High Medium  Launch as soon as possible (mandatory)  Thailand  Everything’s good  Hong Kong  Regional financial center  Malaysia  Almost all good
12. 12. [12] Q3: Where to Launch? Australia Indonesia Singapore Population 16.5 167.7 2.7 Urban Population (%) 85% 25% 100% Urban Population 14.0 41.9 2.7 Target Population (%) 80% 7% 20% Target Population 13.2 11.7 0.5 Growth 4.0 % 4.8 % 11.0 % 5 year Growth 4.6 % 4.2 % 5.6 % Inflation 7.6 % 8.0 % 1.5 % 5 year Inflation 7.1 % 7.6 % 0.7 % Politics A C B Consumer Good Good Good Competition High Medium High  Launch later, when the market condition is good (optional)  Australia  Stable and large market  Indonesia  Potential future market  Singapore  Future finance center
13. 13. [13] Q3: Where to Launch? India Philippines Taiwan Population 797.0 61.9 19.8 Urban Population (%) 23% 50% 72% Urban Population 183.3 31.0 14.3 Target Population (%) 5% 30% 78% Target Population 39.9 18.6 15.3 Growth 9.7 % 6.8 % 7.3 % 5 year Growth 6.1 % 0.5 % 9.3 % Inflation 9.8 % 8.7 % 1.2 % 5 year Inflation 8.2 % 16.6 % 0.5 % Politics C D A Consumer Cash Good Cash Competition Medium Low Restricted  Do not launch (avoid)  India  Too undeveloped  Philippines  Too unstable  Taiwan  Too soon  Korea  Too problematic
14. 14. [14]
15. 15. 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? ACHIEVING \$100 M WITHOUT CARDQ5
16. 16. [16] 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
17. 17. [17] Q5: Achieving \$100 M without card  Market Development  IPB – offer in more markets  Citigold – improve or start new locations
18. 18. [18] Q5: Achieving \$100 M without card  Market Penetration  Citigold – acquire customers  Mortgage – acquire customers/partners  Autoloan – acquire partners
19. 19. [19] Q5: Achieving \$100 M without card  Diversification and Product Development  Technology – Internet and Mobile Banking  Insurances  Financial – New types of loans
20. 20. Presentation slides available at: http://slidesha.re/citibankcase THANK YOU!