Citibank Launching the Credit Card in Asia Pacific

Citibank: Launching the Credit Card in Asia Pacific Erica Baumann Paul Davis Nathan Hahn Rebecca Leeds Lauren Lettieri Geography of Asia Pacific Overview: The Nature Conservancy: http://nature.org/wherewework/asiapacific/ The Pacific Ocean’s Eleven  Hong Kong (1902)  Taiwan (1964)  Australia (1965)  The Philippines (1902)  Guam (1969)  Singapore (1902)  India (1902)  Malaysia (1904)  Indonesia (1918)  Thailand (1967)  Korea (1967) Overview: Citibank’s Mission Statement Citibank’s mission in the Asia Pacific region was to be the most profitable provider of a wide array of financial services to an increasingly affluent and middle-income market, and to reach the rapidly growing middle-income households in this region. Overview: Citibank in Asia Pacific 1978-1989 1981: First foreign bank to enter the local trade finance market in Taiwan 1983: Citibank enters the credit card market in Hong Kong 1989: Talwar reintroduces the idea of a credit card launch in Asia-Pacific Overview: 1978: Citibank’s Asia Pacific Consumer Bank had established its consumer business in Asia 1982: Acquired Diners Club in Thailand 1986: Begins a period of growth in Thailand and the Philippines 1989: Malaysia and Australia have saturated credit card market Keys Questions in Asia Pacific Should Citibank launch a credit card in the Asia Pacific region, and in which countries? How should the particular card launches be tailored to each specific country? Overview: Business Problems  Citibank wondered whether they could adopt a mass-market positioning to acquire enough credit card customers and still maintain its up-market positioning with the current upscale branch banking customers  Pricing the card too low would conflict with Citibank’s stated positioning however pricing it too high might mean low customer acceptance  Citibank’s management were concerned that consumers’ attitudes and credit card usage patterns differed by country SWOT Analysis: Strengths  Undisputed leader of the marketplace  Australia: customers see the credit card as an “important shopping tool”  Hong Kong: people are used to credit cards- relatively affluent population  India: strong economic development in late 80’s  Malaysia: large successful business population  Singapore: “one of the world’s largest center of traditional trade and services”  Thailand: rapidly growing nation (foreign investment) SWOT Analysis: Weaknesses  India: consumers do not like to use revolving credit  Indonesia: relatively poor country with small upper class; not many qualified for membership  Australia/Singapore: saturated market  Taiwan: before 1989, laws restricted credit card business  Taiwan: culturally not acceptable to owe people money  Korea: financial problems in credit card business coupled with stringent local restrictions SWOT Analysis: Opportunities  Australia: credit card in conjunction with their banking services  Hong Kong: want to target customers outside branch business  India: credit card penetration is low  Indonesia: upper class growing fast  Malaysia: culturally acceptable to revolve credit  Philippines: credit card penetration very low  Singapore: society prides on innovation and technology and see credit card as convenient  Taiwan: most wealthy and best educated country in region  Thailand: strong economy = consumer spending SWOT Analysis: Threats  Australia: AMEX and Diner’s Club seen as symbol of status  Malaysia: many other options to choose from in 1989 (MasterCard and Visa)  Singapore: “high-tech mecca” has attracted many multinational corporations  Taiwan: restrictive laws prohibited thus industry is in early stages  Taiwan: AMEX and Diner’s Club worldwide respected reputation  Citibank’s undifferentiated view of one marketplace Most Likely Case Scenario  Citibank will enter the market – ''Sometimes, when an economy is under the most stress, you get presented with the biggest opportunities,'' says Citigroup Vice-Chairman William R. Rhodes  Cross selling products  Market will accept new credit card penetration (except for few countries)  Targeting growing upper class market Most Likely Case Scenario Citibank’s credit cards as symbols of status Citibank’s customer base in Asia Pacific region will increase and expand Customers will use their cards for a wide variety of purchases Most Likely Case Scenario  Australia: More services will be offered to maximize financial management  Hong Kong: Reach customers outside business segment by cross selling  India: Increase merchant acceptance  Indonesia: Incentives and higher credit limits opportunities  Malaysia: Build up credit for future uses Most Likely Case Scenario  The Philippines: Market program geared towards gaining acceptance  Singapore: Highlight convenience’s of Citibank  Taiwan: Promote awareness of the emerging credit card industry  Thailand: Two card approach to attract all customer bases  Korea: Will not enter due to government regulations Worst Case Scenario  Established competition beats Citibank  Population too poor to qualify (Indonesia)  Government regulation and culture limits acceptance  Failure of customers to fulfill payments- large debt  Different countries not accepting of consistent multinational strategy  Rejection due to national pride and culture (Taiwan)  Saturated markets not accepting of another credit card (Singapore) Best Case Scenario  Citibank adjusts strategy for specific countries’ needs (including options)  OR All countries accept Citibank’s multinational plan  Become a penetration leader (Philippines)  Utilize Singapore for latest technology  Government law changes opens doors (Taiwan)  Take advantage of some countries’ growing economy and affluence  Make money off of late payments and interest Strategy: Market Entry Greenfield Market Development Direct marketing program – Direct mail – Take-ones – Direct sales force – Bind-ins Strategy: Pricing Low joining fee to induce more customers Higher annual fee to provide a steady recurring revenue Premium pricing for the Citigold card to attract affluent cardholders Strategy: Options $USD as standard currency for all cards Regional Card Center – Lower costs because of economies of scale – Capability to do quick work product launches in Asia Pacific Strategy: Business Segments  Non-Resident Indian Business (NRI) – Special offering for Indian customers who did not reside in India  International Personal Banking (IPB) – To service the growing group of affluent Asian clients with global financial needs Strategy: Core Products  Citi-One  Mortgage Power Auto loans  Ready Credit  Citigold  CitiPhone ATMs Go Decisions: Taiwan, India, Indonesia, Malaysia, the Philippines, Singapore and Thailand  Reasons – Countries growing along with infrastructure – Rapidly growing upper and middle class  Recommendations: – Two card approach- middle class and upscale customers targeted individually – Create status for credit card Go Decisions: Australia and Hong Kong  Reasons: – – – – Most developed Westernized nations Strong credit card and financial infrastructure On average, 2 cards per person Wide variety of usages – shopping  travel  Recommendations: – Two card approach No Go Decision: Korea  Reasons: – Regulations do not allow banks to issue cards with revolving credit – Only local currency credit cards allowed – Poor diplomatic relations – Infrastructure and legislation are not conducive to credit card usage  Recommendations: – To risky to enter the market Population Breakdown by Income: Asia Pacific Countries % of Population % of Cards # of People # of Cards Cards Per Capita Population # of Cards Above 25000 12500-25000 2% 27% 23,757,500 3,929,250 0.165 4% 35% 42,145,000 5,011,250 0.119 1,145,300,000 14,460,000 6000-12500 5% 31% 58,157,500 4,498,000 0.077 2000-6000 8% 7% 88,000,000 1,021,500 0.012 < 2000 81% 0% 933,240,000 0 0.000 Break Even: Asia Pacific Advertising Budget Overhead Direct Costs TOTAL COSTS $ 2,500,000.00 $ 61,000,000.00 $ 22,500,000.00 $ 86,000,000.00 # of Cards Average Annual Fee Average Joining Fee Revenue $ $ 900,000 56.13 39.75 $ 86,292,000.00 Population Breakdown by Income: Malaysia Malaysia % of Population % of Cards # of People # of Cards Cards Per Capita Population # of Credit Cards Above 25000 12500-25000 6000-12500 2000-6000 < 2000 5% 10% 20% 45% 20% 10% 45% 45% 0% 0% 850,000 1,700,000 3,400,000 7,650,000 3,400,000 38,000 171,000 171,000 0 0 0.045 0.101 0.050 0.000 0.000 17,000,000 380,000 Break Even: Malaysia Advertising Budget Overhead Direct Costs TOTAL # of Cards Average Annual Fee Average Joining Fee Revenue $ 2,500,000.00 $ 61,000,000.00 $ 22,500,000.00 $ 86,000,000.00 900,000 64.00 34.00 $ $ $ 88,200,000.00 ANY QUESTIONS?