Group 8 Citibank: Launching the Credit Card in Asia Pacific

1. Group 8Citibank: 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

5. 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

7. Estimated Distribution of Population & Cards by Income

8. Map of Asia

9. 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.

10. 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

11. 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

12. 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 don’t 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

16. 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.

17. 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

18. 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

19. 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

21. 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 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

23. 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

24. 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 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

26. 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

28. 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

29. 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

30. 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)

31. Targeted Pricing With an estimated distribution of 75% choosing Citi-One and 25% choosing Citi-Gold

32. 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.

33. 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.

34. 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.

35. 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.

36. 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.

37. 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)