Alpen Bank: Launching the Credit Card in Romania

Alpen Bank Launching the Credit neb in Romania Written outline of Case Presented to Miss Tania Hassan Presented by * Case Overview Alpen coast has to make a crucial decision whether or not they should fling the quotation notification business in Romania. The bound had to come up with a food marketplace strategy that can generate at least(prenominal) 5 million in realize inside 2 years. preceding to introduction of the character observation in the market the Bank has to go bad whether an chance exists for the discharge of the belief ride. It has to further decide how to position the card in the market, what should be the stone pit audience for the service.The bank has currently open a reward image by targeting the bountiful mark. Core trouble Whether to fling credit card if it adds 5million profit to consumer bank segment within 2 years. The Alpen Bank seems hesitant to launch the credit card ascribable to the existence of following problems * Low per-capi ta income levels. * The population seemed inexperience with the usage of credit card. Consumer spending was cash based and merchant acceptance of card payments was low. Analysis Opportunity Considering the economic and market conditions as explained in the subject, Alpen Bank should launch a credit card.It seems that Alpen Bank has an opportunity as economic environment in Romania had changed from 2006 after it joined European Union. The economy there was growing a growing trends of luxury purchasing emerged, there was also an increase give careliness of using card instead of cash and lastly different 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 thou of 35% in 2006 and about 9. 5million cards were being used in the market. Apart from certain positives there are certain problems in credit card market too.People use cards generally for withdrawing cash quite an than for buying results or services so there is less taxation driven from transactions. Even merchants are still ignorant in evaluate credit cards and prefer payments through cash Thus it shows that Alpen has an opportunity to cash on the credit card but it would require efforts in particular in marketing the card. Positioning Alpen Bank has established a premium image and reputation of serving the affluent clientele. The bank should focus on its current strength rather than penetrating into a new customer base.The affluent word form represents the top 10% of population which has about 24% of wealth. They are priced less sensitive and thus positioning 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 making 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 p roduct, it provide gain a share of market which would stick to its card. The gist class is also a potential market for the credit card.The middle class also has a huge potential especially in terms of the size ofmarket however they are more price-focused and would only welcome this new credit card ifthe interest rates are low. They also harbour amonthly income which supports them to have a credit card. Based on the attitudes of customers in other emerging economies it can be said that customers in middle-income class have a lower actual utilization rate when comparedwith affluent class. If Alpen Bank currently emphasize on Affluent 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 taxation they generate solely or combined. The final objective of the analysis is to diagnose the profit generated if Alpen Bank serves Affluen t class solely or it serves both. For this place we have analyzed the financial data provided to us in the case. train Segment Annual Income %age of Potential tantalize Holders Potential bug Holders Annual tax Total tax 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. by dint of exhibit 5 we determine the office of potential cardholder for each segment give in the above control board column 3. Through that we determine the Potential card holder. After that we regurgitate the population of each segment with that of annual tax income.After summing up the total revenue we divide once it with the population of combine three segments to put on 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 nigh affluent. node encyclopaedism for All guests Unit toll Prospect Reached ResponseRate reserve Rate Conversion Rate No. of client Total Cost Cost per Customer Direct Mail 0. 50 2500000 3% 60% 85% 38250 1250000 32. 68 exact 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 little Less Fixed Cost 5,000,000 Fixed Cost 5,750,000 Advertising disbursal 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 Breakeven is occurring in betwixt 50,000 and 100,000 customers. So now we calculate the breakeven. X in the following formulae is faux 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 same 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 get of the existing customers. By positioning the product in the affluent class the Bank is able to reach breakeven point in less issuance 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.