Group 8 Citibank: Launching the Credit Card in Asia Pacific

1
Group 8 Citibank
Launching the Credit Card in
Asia Pacific

• Group Members
• Joanna Crane
• Kelly Lee
• Scott McMillan
• Lisa Pearson
• Ed Petrone

2

• 228 billion in assets in 1989
• Largest banking company in the United States
• 11th in the world in banking
• Leader in foreign exchange market
• International presence growing rapidly
• Offered 2 cards Citi-One and CitiGold

3
Business Problem/Opportunity

• Whether to launch Citibank credit cards in
  various Asian countries (10) all, none, or some
• Factors 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
  capabilities
• Technology
• Past experiences
• Populations, average annual income, growth rate
  of countries, GNP
• Which countries to go into

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Business Problem/Opportunity

• If entering market, decisions to be made
• Start from scratch or develop cards with a card
  portfolio that already exists
• Manage by individual countries, in groups, or
  through one central system
• Marketing tactics direct mail (consider postal
  service), direct sales reps, bind-ins, take-ones
• Fees to customers joining annual
• Consumer attitudes needs wants from credit card

6
Business Problem/Opportunity

• Decisions to be made (cont.)
• Target market
• Financial benefits to offer with the card
• Pricing, branding, positioning, customer
  acquisition strategies
• Premium pricing

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Estimated Distribution of Population Cards by
Income
Country Above 25,000 12,500 to 25,000 6,000 to 12,500 2,000 to 6,000 Below 2,000 Total (in millions)
Hong Kong of pop of cards 10 15 25 25 50 50 10 10 5 0 5.6 2.0
Indonesia of pop of cards 3 40 2 10 2 10 3 40 90 0 168 .120
Malaysia of pop of cards 5 10 10 45 20 45 45 0 20 0 17 .380
Philippines of pop of cards 3 50 5 45 22 5 30 0 40 0 62 .240
Thailand of pop of cards 5 12.5 10 12.5 10 50 20 25 55 0 55 .210
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Map of Asia
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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.

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Australia

• Already saturated market
• Average Australian carries 2 cards
• Prestige and image of bank issuing card, no
  longer important
• 10.5 million cards already exist
• Visa MasterCard hold 35 of the market
• ½ the cards are issued by local banks

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India

• Largely rural population (80)
• Heavily regulated foreign-exchange transactions
• Local transactions only for credit cards
• Low merchant acceptance
• Wealth is concentrated among small portion
• Pay on time society
• Local currency only

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Singapore

• Political instability
• Already saturated market
• 500,000 cards in force
• 2 credit cards per person
• No support from country manager
• Government regulations
• Cardholders at least 21 years old
• 14,400 minimum annual income

13
Taiwan

• American Express holds 50 of market
• Cash-oriented society owing is unacceptable
• Refrain from using revolving credit
• Heavy government protection
• Barrier to growth
• National Credit Card Center (NCCC)

14
Korea

• Local regulations dont allow revolving credit
• Local currency only
• Management problems
• Financial Losses
• Labor problems

15
Hong Kong

• Location Eastern Asia, bordering the South China
  Sea and China
• Nationality Chinese/Hong Kong
• Language Chinese (Cantonese), English both are
  official

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Hong Kong

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

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Hong Kong

• Rate Lower joining fee Higher annual fee
• Target Market Mass Marketing strategy
• Market 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 customers
• Hong Kong had its own system capabilities

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Indonesia

• Location Southeastern Asia, archipelago between
  the Indian Ocean and the Pacific Ocean
• Nationality Indonesian
• Language Bahasa Indonesia (official, modified
  form of Malay), English, Dutch

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Indonesia

• Indonesia is a poor country with about 80 of the
  population living in rural areas and earning less
  than 500 per year
• Because of low income levels, many did not
  qualify for membership
• Three local banks, American Express, and Diners
  Club shared the market equally
• Whereas all charged a joining fee a well as an
  annual membership fee, the local banks priced
  their offerings significantly lower

20
Indonesia

• Rate Keep Joining fee and Annual membership fee
  the same as Diners club and Master Card
• Target Market Wealthy population only, those
  earning 25,000 per year
• Market Entry Direct sales force

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Malaysia

• Location Southeastern Asia, peninsula bordering
  Thailand and northern one-third of the island of
  Borneo, bordering Indonesia, Brunei, and the
  South China Sea
• Nationality Malaysian
• Languages Bahasa Melayu (official), English,
  Chinese dialects (Cantonese, Mandarin, Hokkien,
  Hakka, Hainan, Foochow), Tamil, Telugu,
  Malayalam, Panjabi, Thai

22
Malaysia

• Malaysia is a growing industrial nation, and is
  worlds third-largest producer of
  semi-conductors.
• Convenience and extra credit were important
  reasons for owing credit cards
• American Express held a 15 share of market and
  extensive branch and ATM network, Malayan Banking
  Berhad with 10 share
• Local banks usually did not charge a joining fee
  for the classic card but they all charged an
  annual fee
• According to Malaysian law, only consumers with
  an annual income of 9,000 or more could own a
  credit card

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Malaysia

• Target Market Mass marketing strategy (6,000)
  Prestige
• Market Entry Take-ones, Direct Sales
• Rate Lower joining fee than American Express
  comparable annual fees

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Philippines

• Location Southeastern Asia, archipelago
• between the Philippine Sea and the South
• China Sea, east of Vietnam
• Nationality Filipino
• Languages 2 official languages
• Filipino and English

25
Philippines

• Booming recovery in late 1980s leads to more
  jobs more money in the country
• Penetration of credit cards very low
• Wide acceptance of bank, revolving credit
  facility, interest rate, repayment rate, and
  credit limit are very important
• Dont like to carry cash
• Only local transactions in the local currency

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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 rate
• Rate 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 of
• Thailand, southeast of Burma
• Nationality Thai
• Languages Thai, English, ethnic and
• Regional dialects

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Thailand

• Economy growing at average of 11.6
• from 1986-1989
• Foreign investment growing more
• there than any other country in SE Asia
• Tourism biggest form of exchange
• Not many credit card players
• AMEX and Diners Club very popular
• because of prestige

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Thailand

• Target market population earning 2,000-12,500
• Make move to the upper income group once prestige
  is gained by Citibank
• Rate Position between AMEX and Diners Club vs.
  Visa and MasterCard because of
• current status of all cards
• and to gain prestige
• Market Entry Direct mail
• and take-ones because we
• are marketing to 20 of the
• population and this will
• reach more prospects

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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)

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Targeted Pricing
Country Desired of Customers Citi-One Joining Fee Citi-One Annual Fee Citi-Gold Joining Fee Citi-Gold Annual Fee
Hong Kong 36,000 25 55 40 87
Indonesia 255,000 60 50 60 60
Malaysia 390,000 28 54 34 75
Philippines 285,000 35 50 50 60
Thailand 36,000 None 65 None 120
With an estimated distribution of 75 choosing
Citi-One and 25 choosing Citi-Gold
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Break Even Analysis

• Based 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.

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Best Case Scenario

• Citibank successfully enters credit card market
  for each targeted country.
• Builds solid infrastructure and sales force to
  support product launch
• Launch 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.

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Best Case Scenario

• Reaches 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.

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Worst Case Scenario

• Citibanks 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.

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Worst Case Scenario

• Citibank 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.

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Sources

• http//www.cia.gov/cia/publications/factbook/
• http//www.google.com/images
• http//travel.yahoo.com
• http//www.citibank.com
• Citibank Launching the Credit Card in Asia
  Pacific (A)