Group 8 Citibank: Launching the Credit Card

in Asia Pacific

Group Members:Joanna CraneKelly LeeScott McMillanLisa PearsonEd Petrone

• $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

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

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

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

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

Estimated Distribution of Population & Cards by Income

CountryAbove

$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

1015

2525

5050

1010

50

5.62.0

Indonesia% of pop

% of cards3

402

102

103

40900

168.120

Malaysia% of pop

% of cards5

101045

2045

450

200

17.380

Philippines% of pop

% of cards3

505

45225

300

400

62.240

Thailand% of pop

% of cards5

12.510

12.51050

2025

550

55.210

Map of Asia

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.

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

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

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

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)

Korea

• Local regulations don’t allow revolving credit

• Local currency only• Management problems• Financial Losses• Labor problems

Hong Kong

• Location: Eastern Asia, bordering the South China Sea and China

• Nationality: Chinese/Hong Kong

• Language: Chinese (Cantonese), English; both are official

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 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.

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

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

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

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

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

Malaysia• Malaysia 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 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

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

Philippines• Location: Southeastern Asia, archipelago

between the Philippine Sea and the SouthChina Sea, east of Vietnam

• Nationality: Filipino

• Languages: 2 official languages – Filipino and English

Philippines• Booming recovery in late 1980’s 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

• Don’t like to carry cash

• Only local transactions in the local currency

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

Thailand• Location: Southeastern Asia, bordering

the Andaman Sea and the Gulf of Thailand, southeast of Burma

• Nationality: Thai

• Languages: Thai, English, ethnic andRegional dialects

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

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 ofcurrent 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

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)

Targeted PricingCountry Desired # of

CustomersCiti-One

Joining FeeCiti-One

Annual FeeCiti-Gold

Joining FeeCiti-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

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.

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.

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.

Worst Case Scenario

• Citibank’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.

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.

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)