Alpen Bank: Launching the Credit Card in Romania

Alpen patois entering the Credit posting in Romania Written Analysis of Case Presented to Miss Tania Hassan Presented by * Case Overview Alpen patois has to make a crucial decision whether or not they should launch the character reference card personal line of credit in Romania. The bank had to come up with a market st rungy that nates gravel at least 5 million in pull in within 2 years. Prior to introduction of the credit card in the market the Bank has to analyze whether an opportunity exists for the launch of the credit card. It has to further shape how to position the card in the market, what should be the tar flap audience for the service.The bank has currently established a premium visualize by targeting the cockeyed strain. Core Problem Whether to launch credit card if it adds 5million profit to consumer bank segment within 2 years. The Alpen Bank seems hesitant to launch the credit card overdue to the existence of following problems * Low per-capita income leve ls. * The nation seemed inexperience with the usage of credit card. Consumer spending was cash ground and merchant acceptance of card payments was low. Analysis Opportunity Considering the economic and market conditions as explained in the compositors case, Alpen Bank should launch a credit card.It seems that Alpen Bank has an opportunity as economic environment in Romania had changed from 2006 later on it joined European Union. The economy thither was developing a growing trends of luxury purchasing emerged, there was also an increasing likeliness of using card instead of cash and lastly other competitors had already taken similar strategies in the market. The credit and debit card market of Romania is also seen to grow at a good pace of 35% in 2006 and about 9. 5million card were being use of goods and servicesd in the market. Apart from certain positives there are certain problems in credit card market too.People use cards generally for withdrawing cash rather than for buyi ng returns or services so there is slight revenue driven from transactions. make up merchants are still ignorant in accepting credit cards and prefer payments through cash Thus it shows that Alpen has an opportunity to cash on the credit card barely it would require efforts especially in marketing the card. Positioning Alpen Bank has established a premium image and reputation of serving the affluent clientele. The bank should decoct on its current strength rather than smashing into a new customer base.The affluent trend represents the top 10% of cosmos which has about 24% of wealth. They are priced little sensitive and thus side the card on high end would be beneficial for the bank. They are career oriented active professionals who would like to use their cards frequently for do purchases Moreover, for countries like Romania, it is seen that credit cards are somewhatstickier as compared to the developed countries. This shows that if Alpen positions its card as a high end product, it will gain a share of market which would stick to its card. The middle screen is also a potential market for the credit card.The middle class also has a commodious potential especially in terms of the size ofmarket however they are more price-focused and would alone welcome this new credit card ifthe interest rates are low. They also have amonthly income which supports them to have a credit card. Based on the attitudes of customers in other emerging economies it feces be said that customers in middle-income class have a lower actual utilization rate when comparedwith affluent class. If Alpen Bank currently emphasize on ladened class it would be safer for it rather than it focuses on middle class. As todays middle class may become affluent class of tomorrow.The decision whether to target affluent class or middle class depends on the revenue they apply solely or combined. The final objective of the analysis is to identify the profit generated if Alpen Bank serves Affl uent class solely or it serves both. For this purpose we have analyzed the financial data provided to us in the case. quarry Segment Annual Income %age of Potential Card Holders Potential Card Holders Annual revenue enhancement summarise Revenue Middle Class 3,000-4500 18. 2% 3385200 60. 63 205244676 Affluent 4500-6000 15% 2790000 123. 38 344230200 Most Affluent 6000+ 12. 9% 2399400 209. 5 503274150 Total 8574600 1052749026 Total Population Qualify for credit Card = 18. 6million Revenue Per Card Holder (all three classes) = 122. 78 Revenue Per Card Holder ( Affluent+ Most Affluent)=163. 31 In the above scenario we have first calculated the value of each segment. Given in the case is that the population of Cardholders is 18. 6 million. Through exhibit 5 we determine the percentage of potential cardholder for each segment fork over in the above table column 3. Through that we determine the Potential card holder. afterwards that we engender the population of each segment with that of annual revenue.After summing up the total revenue we divide once it with the population of combine three segments to derive Revenue Per card holder, and once with the population of Affluent + Most affluent to derive at the value of Revenue per card holder of affluent and most affluent. customer scholarship for All Customers Unit Cost Prospect Reached ResponseRate Qualification Rate Conversion Rate No. of Customer Total Cost Cost per Customer aim Mail 0. 50 2500000 3% 60% 85% 38250 1250000 32. 68 Take One 0. 10 2000000 2. 5% 30% 85% 12750 200000 15. 69 FSIs 0. 05 3500000 1. % 30% 85% 13388 175000 13. 07 Direct Sales 3000/rep 60000 25% 60% 85% 7650 3000 3. 92 Branch Cross-Sell 1 50000 50% 90% 85% 19125 50000 2. 61 91163 1710000 18. 75 No. of Customer= 2500000 * 0. 03 *0. 60* 0. 85 In case of Affluent Class the Number of Customer will be reduced by 50% for Direct Mail, Take One and FSIs so the cost per customer for Affluent class will be 18. 31 Profit Calculation All Customers 50,000 100,000 Revenue( 122. 78) 6,139,000 Revenue( 122. 78) 12,278,000 Acquisition Cost(18. 75) (937,500) Acquisition Cost(18. 5) (1,875,000) Direct Cost (20) (1,000,000) Direct Cost (17. 5) (875,000) Revenue 4,201,500 Revenue 9528000 Less Less Fixed Cost 5,000,000 Fixed Cost 5,750,000 advertize Expense 2,000,000 Advertising Expense 2,000,000 Total Profit/( Loss) (2,798,500) Total Profit/( Loss) 1,778,000 Through the above calculation of profit we can identify that makeeven is occurring in between 50,000 and 100,000 customers. So now we calculate the breakeven. X in the following formulae is off-key to be additional customers. 122. 78 ( X+ 50,000) ( 5,750,000+2,000,000) ( 50,000*17. 5 + 36. 5*X) =0 X= 28,758 Break Even = 50,000+ 28,758= 78,758 At 150,000 customers we are generating revenue of greater than 5million so to identify the no. customer at which we get 5million profit we develop the following formulae 122. 78( X+100,000)- ( 650,000+2,000,000) ( 100,000*15 + 33. 75*Y) = 5,000,000 No. Of Customer =130,574 We apply the equivalent process to the affluent class. Break Even 163. 31( X+ 50,000) ( 5,750,000 + 2,000,000) ( 50000* 17. 5 + 35. 81* X) = 0 X= 3,604 Break Even = 53,604 Revenue Analysis 163. 31 ( X+50,000) ( 6,500,000 + 2,000,000) ( 15*100,000 + 35. 81* X)= 5,000,000 X=42,820No. of Customer = 92,820 Recommendations After doing the further breakeven and revenue analysis we recommend ALPEN bank to launch credit Card. The Bank is able to generate the profit as required. The bank should Position Credit Card as a high-end premium product in the initial stages. Firstly it is easy for bank to cater the need of the existing customers. By positioning the product in the affluent class the Bank is able to reach breakeven point in less number of customers. After getting a strong foothold in the market the Bank should focus of targeting the middle class as they are affluent class of tomorrow.