Alpen bank in Romania has been very successful in building a profitable banking business for the wealthy client. It had over 200,000 customers in a country of 7.7 million households. owever, there is hesitation over the years in launching credit cards because of low per!capital income levels, a poorly developed infrastructure of point!of!sale terminals, and the population"s ine#perience with consumer credit. $regory %arle, Alpen bank"s country manager, believed that it is time to reconsider because credit card business would be an important important growth vehicle. vehicle. &acroeconom &acroeconomic ic in Romania Romania trend now is encouraging encouraging.. Rapid economic growth and rising incomes, particularly among the emerging middle and upper! middle class, had dramatically increased total disposable income. In this case study, %arle has to make recommendation to his boss, Richard 'schrumperlin, on whether Alpen bank should enter credit card market in Romania and define target consumers, i.e., consumers with an annual income of at least (),000 or (*,+00. e believe %arle should proceed with the proposal to launch a new credit card catered for affluent customers whose annual incomes ar e at least (*,+00. -ur recommendation is derived from both ualitative considerations of the Romanian Romanian credit card market and uantitativ uantitativee analysis analysis of possibility to generate generate (+ &illion profit within 2 years. /ased on uantitative analysis, %arle should choose option!2, i.e., launch credit card among consumers with an annual income of at least (*,+00. It shall generate the profit of (+.1 &illion in 2 years and meet profit target of (+ million see 3#hibit I4. In contrast, option! will cause loss by about (5+0,000 see 3#hibit 34. 'he profit result is obtained by calculating the e#pected yearly revenue per cardholder. 'he yearly revenue can be calculated by assuming that the proportion of new customers is the normali6ed proportion of the total population. 'his gives us yearly revenue of (1).) see 3#hibit 4 per cardholder if targeting affluent customers. 'his is higher than the e#pected revenue from including middle class customers, which is (22.78 see 3#hibit /4. Additionally, average cost of acuisition for the affluent customers turns out to be cheaper at (8.) see 3#hibit $4, compared to the
cost for obtaining middle class customers which is at (8.70 see 3#hibit %4. 'he difference in acuis acuisitio ition n cost cost can be accoun accounted ted to lower lower utili6 utili6atio ation n of direct direct mail mail marketi marketing ng for acuiring affluent customers, since the direct mail marketing is most e#pensive among the + direct marketing channels. 9astly, taking into account the fi#ed costs of infrastructure and advertising, net profit for targeting affluent customer will net us (+.1 &illion see 3#hibit I4. 'his profit could be more if %arl is more selective of the marketing channels by reducing the :irect mail and growing the /ranch %ross!;ell together with more branch openings. 'he evaluation to choose option!2 than option! or option!)4 from uantitative data is strongly supported by some ualitative analysis. rom company perspective, credit card business would be an a n important growth for company as it will generate more revenue to the bank by interchange revenue, charging annual fees, penalty fees and interest income. 'arget argeting ing affluent affluent consum consumers ers is in line line with with compan company y brand brand image image to serve serve premiu premium m custom customers. ers. Alpen /ank" /ank"ss e#isti e#isting ng custom customer er base is 200,00 200,000 0 afflue affluent nt cliente clienteles, les, thus thus to maintain the premium position in the market, Alpen /ank should introduce the premium credit card targeted for the affluent customers. 'he credit card offer would complement Alpen /ank e#isting core business to provide banking services for the wealthy customer. 'he 'he othe otherr reaso reason n that that Alpen lpen bank bank shou should ld enter enter credi creditt card card mark market et for for affl afflue uent nt customer is because the rapid economic growth and rising incomes for the first half of the decade, resulting in of them in the affluent segment. 'his translates as +.2 affluent adults but only .7 &illion credit cards are in circulation. 'his means the untapped ).+ million potential customers. 'his is a good opportunity for Alpen /ank, coupled with improving economic condition, to generate growing demand for new credit cards from the affluent segment.
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In addition to that, the merchants which accepted credit card payments were also growing as the infrastructure were rapidly developing. /y 2001, Romania had appro#imately +0,000 point!of!sale terminals for card transactions, which was positive indicator for Alpen bank to start entering the market as credit card industry was growing. %ollaboration with &aster%ard?@isa to issue the credit card ca rd would help to complement Alpen bank service for its affluent customers to make overseas transactions due to &aster%ard?@isa has a worldwide connection. rom consumer consumer perspective, perspective, previous previous study suggested suggested that there was growing growing desire to purchase lu#ury goods and import branded goods, especially the active professionals who were were cons consci ciou ouss abou aboutt thei theirr imag imagee and and soug sought ht good goodss to match match their their statu status. s. 'his 'his is an opportunity for Alpen /ank to introduce its premium credit card, especially catered for the affluent, as the preferred card with merchants of lu#ury goods. 'he credit card could also be marketed as a source of short term loan to purchase these lu#ury goods. 'he affluent segments were also less price sensitive and tended to perform payment using cards instead of cash. &oreover, the churn rate is low and consumers are less likely to switch to another credit card. rom competitor perspective, there are no direct competitors which provide service for the affluent segment only, as most of the banks are offering credit cards in tiered segments. In contrast to option!2, one of the biggest concern of option! is the utili6ation of credit card for middle class customers is relatively low. 'his coupled with the tendency of this segment to make price!driven purchases, presents a risk of underutili6ation and low tickets, resulting in lower interchange and interest revenue for the bank. &oreover, there is a risk of distraction in the Alpen bank"s brand image in e#isting affluent market by targeting the
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middle class. As such, in line with our recommendation, it is not recommended to introduce the new credit card into the middle class segment and that Alpen /ank should position its credit card offer as a premium offer for the affluent segment. -n the negative side, Alpen bank has to manage some risks associated with launching the credit card. or e#ample, the customers are ine#perience to manage the credit limit and they may fail to pay off full balance and become the
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