Alpen Bank Case – Paper Essay
Case Analysis Alpen Bank: Launching the Credit Card in Romania Case Overview: In this case Alpen bank’s country manager Carle has to make a crucial decision whether or not they should go for the credit card business in Romania. The bank has to come up with a solid market strategy that can generate at least €5 million in profit within 2 years. Before bringing this business to the market the Bank has to analyze whether an opportunity exists for the launch of the credit card or not.
After going to the analysis Carle sees that yes there is the opportunity for credit card business in this market because in 2006 total financial cards has grown by 35% and there was a lot of card circulation in the country. Also 8000 ATMS and 150,000 point of sale terminals have been introduced lately. Other than this the affluent class is looking for luxury and middle class is also the potential customer for credit card. It has to further decide how to position the card in the market, what should be the target audience for the service.
The bank has currently established a premium image by targeting the affluent class. Diagnosis of Issues: The core problem is whether to launch credit card or not. The Alpen Bank seems hesitant to launch the card due to the following problems: * Low per-capita 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. Core Problem:
The main issue that Alpen bank is facing is whether or not they should launch the credit card business in the Romania market and which group of target audience they should select while applying the launching strategy. Moreover, specifically to Carle, he needs to come up with a program from which, Alpen bank can generate at least €5 million in profit within 2 years. Moreover, clarified positioning strategy and customer segmentation is also needed to secure the success of the program. Opportunity Analysis:
Alpen had the opportunity to act since economic environment in Romania had changed from 2006 after its entering into the EU: the economy there was developing; a growing trends of luxury purchasing emerged; there was also an increasing likeliness of using card instead of cash; other competitors had already taken similar strategies in the market; Alpen’s traditional banking business had a great penetration throughout the country, etc. However, such a growth was not enough compared with other countries of the region. Besides, to launch the credit card business in Romania might be risky and do harm to the customer base. SWOT Analysis:
STRENGTHS: * Affluent class are likely an easier customer to target * They are less price sensitive * They have tendency to use their credit cards more frequently| WEAKNESSES: * Romania lacked credit card growth potential as compared to other emerging markets * Customers lacked experience in managing credit card * Suffered from tough 3 year recession period * Cardholders used their cards exclusively for case withdrawals rather than purchase * Investment in direct marketing, advertising and support infrastructure| OPPORTUNITIES: * Macroeconomic trends during the first of the decade were encouraging * One-third of Romania households were likely to purchase branded products * Customers were also increasing in terms of card usage rather than case * Middle class household was a big opportunity for Alpen Bank to grab| THREATS: * Middle class was growing, but it was a small market which made it riskier * Other banks interested in the same idea * Entry cost would be really expensive * Customer acquisition may be tough| Recommendations: Considering the economic and market conditions as explained in the case, Alpen Bank should launch a credit card. According to the charts 4 & 5 in the appendix, regardless the target audience, launching credit card business in Romania is profitable with the premise that if the customer base is big enough. (All the calculations in the charts were based on revenue potential and acquisition costs. Comparing between the 2 options, it seemed that choosing affluent customers only would be easier to achieve since number of the required customers of breakeven point with a ROI of 5 million is smaller than that of choosing both middle class and affluent customers. Moreover, as customer base grew, profits of selecting affluent customers only were bigger than those of selecting both middle class and affluent customers because of the fact that there was significantly lower card utilization for middle-class customers. Thus, in order to successfully launch the credit card business into Romania, Alpen bank needs to pick its target audience which is composed of affluent customers only.
However, all of these are based on the premise that Alpen can acquire enough customers within 2 years; otherwise, it will lose money. Nevertheless, there was a promising fact in the Romania market that those affluent customers were more likely to at least try Alpen’s cards. In its marketing strategy, Alpen should focus more on direct sales and branch cross-selling, since their costs per customer (relatively €3. 61 and €2. 92) are significant lower than those of other 3 tools. Moreover, direct sales and branch cross-selling will work more efficiently since they have much higher effective hit rate than the other options regardless the target audience choices. Thus, these tools can provide a flexible space for Alpen to move on to other potential strategies in the long-term.
Regarding the positioning strategy, Alpen should emphasize on its current strength since it is much easier and safer for a brand to maintain its current image rather than explore a new one. Alpen has already established the reputation for excellence in serving affluent clientele. With such reputation and brand awareness among its target audience, Alpen seems to be more likely to make profits with launching its credit card business into Romania market. Revenue Potential: The process of determining revenue potential from the Alpen Bank case is based on determining revenue potential per customer segment and then determining the overall value per customer.
First we determine the relative value of each segment. Then we find the number of potential cardholders by segment and weight the value of each segment by calculating the percent of the total potential cardholders each segment represents. (e. g. the middle class is 18. 2% of the total population and 39. 53% of total potential cardholders). The Annual Revenue per Middle Class Cardholder is €60. 63. We calculate the share of total revenue potential accounted for by the Middle Class and other segments also. Segment| Annual Income €| % of Potential Cardholders| Potential Cardholders (MM)| Interest Revenue €| Other Revenue| Annual Revenue| Middle Class| 3,000-4,500| 18. 2| 3. 39M| 37. 3| 23. 50| 60. 63| Affluent| 4,500-6,000| 15. 0| 2. 79M| 86. 63| 36. 75| 123. 38| Most Affluent| 6,000+| 12. 9| 2. 40M| 148. 50| 61. 25| 209. 75| Annual Revenue per Cardholder (all customers): €122. 78 Annual Revenue per Cardholder (Affluent + Most Affluent): €163. 31 Acquisition Costs: Table B provides the basic data necessary to calculate the relative strength and reach of the several acquisition tools available to Alpen Bank to acquire credit card customers. We recreated this table to establish the parameters for implementing marketing communication plans to acquire customers. Through this table we calculated the cost of acquiring customers.
In addition to the information above the case provides a conversion rate of 85% of qualified prospects. Customer Acquisition Costs (All Customers) Tools| Unit cost (€)| Prospects Reached| Response Rate| Qualifying Rate| Conversion Rate| Effective Hit Rate| No. of Customers| Total Cost (€M)| Cost perCustomer(€)| Direct Mail| 0. 50| 2,500,000| 3. 0%| 60. 0%| 85%| 1. 53%| 38,250| 1. 25| 32. 68| Take One| 0. 10| 2,000,000| 2. 5%| 30. 0%| 85%| 0. 64%| 12,750| 0. 2| 15. 69| FSIs| 0. 05| 3,500,000| 1. 5%| 30. 0%| 85%| 0. 38%| 13,388| 0. 18| 13. 07| Direct Sales| 3000/rep| 60,000| 25. 0%| 60. 0%| 85%| 12. 75%| 7,650| 0. 03| 3. 92| Br Cross-Sell| 1. 00| 50,000| 50. 0%| 90. %| 85%| 38. 25| 19,125| 0. 05| 2. 61| Customer Acquisition Costs (Affluent Customers Only) Tools| Unit cost (€)| Prospects Reached| Response Rate| Qualifying Rate| Conversion Rate| Effective Hit Rate| No. of Customers| Total Cost (€M)| Cost perCustomer(€)| Direct Mail| 0. 50| 1,250,000| 3. 0%| 60. 0%| 85%| 1. 53%| 19,125| 0. 63| 32. 68| Take One| 0. 10| 2,000,000| 2. 5%| 15. 0%| 85%| 0. 32%| 6,375| 0. 20| 31. 37| FSIs| 0. 05| 3,500,000| 1. 5%| 15. 0%| 85%| 0. 19%| 6,694| 0. 18| 26. 14| Direct Sales| 3000/rep| 60,000| 25. 0%| 60. 0%| 85%| 12. 75%| 7,650| 0. 03| 3. 92| Br Cross-Sell| 1. 00| 50,000| 50. 0%| 90. 0%| 85%| 38. 25| 19,125| 0. 05| 2. 1| The goal is to determine, based on revenue potential and acquisition costs, how many customers need to be acquired to achieve objectives the objectives of breakeven and the required ROI of €5 M. The case adds the information regarding fixed costs. There is a cost of advertising at €2 million and infrastructure fixed costs of €5 million for the first 50,000 customers and an additional €750,000 for every additional 50,000 customers. Variable cost additions to support customers were €20 per customer for the first 50,000 customers. Economies of scale are calculated to drop the per customer charge by €2. 50 with every additional 50,000 customers.