Alpen Bank Case Study

Case | HBS Case Collection | May 2010

Alpen Bank: Launching the Credit Card in Romania

by V. Kasturi Rangan and Sunru Yong

Abstract

In 2006, the country manager for Alpen Bank in Romania, Gregory Carle, considers whether to recommend the launch of a credit card business. The firm rejected the idea several years earlier because of poor economic conditions in Romania. However, Romania is experiencing a period of economic growth after joining the European Union and Carle believes it is time to reconsider the opportunity despite continued skepticism within the company. Carle faces several important decisions before he can present his plan to the head of International Consumer Businesses. He must decide whether to launch a credit card business in Romania, how to position the credit card, and how to acquire new customers most effectively. This case is appropriate for use in the product policy module of a general marketing course, in a new product course, or in a services management course. Students are required to complete a quantitative assignment as part of case analysis.

Keywords: Consumer credit; international business; international marketing; marketing strategy; Product positioning; Product introduction; service management; Credit Cards; Globalized Firms and Management; Product Positioning; Marketing Strategy; Service Delivery; Personal Finance; Product Launch; Banking Industry; European Union; Romania;

ASSIGNMENT COVER SHEET Student’s name ID number Unit name (Family name) Gelb, Brancatisano, Liem, Brereton 25194437; 25147862; 24849731; 25329774 Strategic Marketing Title of assignment Alpen Bank Case Report Lecturer/tutor Paul Murphy / Fiona Hare Is this an authorised group assignment? X Yes (Given names) Brigitte, Matt, Eric, Darcy Phone Unit code MKF 3131 No If this submission is a group assignment, each student must attach their own signed cover sheet to the assignment. Has any part of this assignment been previously submitted as part of another unit/course? No Tutorial/laboratory day & time Due date: 9 October 2016 Yes X Tutorial : Monday 10.00 AM Date submitted: 9 October 2016 All work must be submitted by the due date. If an extension of time to submit work is required, a Special Consideration Application (In-semester Assessment Task) must be submitted. Has an extension been approved? Yes No If yes, please give the new submission date ….…/..…./ ……. Please note that it is your responsibility to retain copies of your assessments. Intentional plagiarism or collusion amounts to cheating under Part 7 of the Monash University (Council) Regulations. Plagiarism: means taking and using another person’s ideas or manner of expressing them and passing them off as one’s own. For example, by failing to give appropriate acknowledgement. The material used can be from any source (staff, students or the internet, published or unpublished works). Collusion: means unauthorised collaboration with another person on assessable written, oral or practical work and includes paying another person to complete all or part of the work. Where there are reasonable grounds for believing that intentional plagiarism or collusion has occurred, this will be reported to the Chief Examiner, who may disallow the work concerned by prohibiting assessment or refer the matter to the Associate Dean Teaching and Learning. Student Statement:  I have read the University’s Student Academic Integrity Policy and the University’s Student Academic Integrity: Managing Plagiarism and Collusion Procedures.  I understand the consequences of engaging in plagiarism and collusion as described in Part 7 of the Monash University (Council) Regulations.  I have taken proper care of safeguarding this work and made all reasonable effort to ensure it could not be copied.  I acknowledge that the assessor of this assignment may for the purposes of assessment, reproduce the assignment and: i. provide to another member of faculty; and/or ii. submit it to a plagiarism checking service; and/or iii. submit it to a plagiarism checking service which may then retain a copy of the assignment on its database for the purpose of future plagiarism checking.  I certify that I have not plagiarised the work of others or participated in unauthorised collaboration when preparing this assignment. Signature: Brigitte Gelb; Matt Brancatisano; Eric Liem; Darcy Brereton. Date: 9 October 2016 1 Privacy Statement The information on this form is collected for the primary purpose of assessing your assignment. Other purposes of collection include recording your plagiarism and collusion declaration, attending to course and administrative matters and statistical analyses. If you choose not to complete all the questions on this form it may not be possible for Monash University to assess your assignment. You have a right to access personal information that Monash University holds about you, subject to any exceptions in relevant legislation. If you wish to seek access to your personal information or inquire about the handling of your personal information, please contact the University Privacy Officer: privacyofficer@adm.monash.edu.au Contribution Form for Group Work (MKF3131) For the group assignment in this unit, each group need to work out and agree on the individual contribution of each group member. The marks will be allocated according to the contribution. The contribution is to be measured in percentages. For example, if your group consists of four members and you agree that each member has made equal contribution towards the project. The contribution for each member is then 100÷4=25(%). Note that the total contribution of all members should add up to 100. Each group only needs to submit one form. This is due to your instructor in class upon the completion of your group assignment. Provide the individual contribution in the table below Contribut Name ion Brigitte Gelb 25% Matt Brancatisano 25% Eric Liem 25% Darcy Brereton 25% Total 100 Signatures Brigitte Gelb 25194437 Matt Brancatisano 25147862 Eric Liem 24849731 Darcy Brereton 25329774 2 ALPEN BANK CASE REPORT Brigitte Gelb 25194437 Eric Liem 24849731 Darcy Brereton 25329774 Matt Brancatisano 25147862 Word Count: 2526 Words (Excluding Cover Sheet; Contribution Form; Table of Contents; Tables; Information Tables in Body of Report; Reference List; and Appendix). 3 ALPEN BANK CASE REPORT.................................................................................................3 Business & Industry Definition............................................................................................5 Problem/Opportunity Statement........................................................................................5 Alternate Strategies............................................................................................................5 Strategy Evaluation.............................................................................................................6 Strategy Evaluation Table..................................................................................................11 Strategy Recommendation...............................................................................................11 Strategy Implementation..................................................................................................13 Tactics.........................................................................................................................................13 Contingency Plan:.......................................................................................................................15 SWOT Analysis............................................................................................................................16 Reference List...................................................................................................................17 Appendix..........................................................................................................................19 Business & Industry Definition...........................................................................................5 Problem/Opportunity Statement.......................................................................................5 Alternate Strategies............................................................................................................5 Strategy Evaluation............................................................................................................6 Strategy Evaluation Table.................................................................................................10 Strategy Recommendation...............................................................................................11 Strategy Implementation..................................................................................................12 Tactics........................................................................................................................................13 Contingency Plan:.......................................................................................................................14 SWOT Analysis............................................................................................................................15 Reference List...................................................................................................................16 Appendix..........................................................................................................................18 4 Business & Industry Definition The banking and credit card industry in Romania in 2006. The analysis below has been conducted at the SBU and functional levels and focus on the credit card offering as a product of Alpen Bank provided throughout their Romanian branches. Problem/Opportunity Statement 1. Whether Alpen Bank should launch a credit card in the Romanian market and if so, how should it be positioned to customers 2. How will Alpen Bank reach a goal of €5 million annual profit within the Consumer Bank segment inside two years? 3. Who will be the target audience audience that will be the focus of the credit card launch and how much will it cost to generate a customer base? Evaluative criteria must relate to “whom”, “profit” and “time frame” 1. ROI (profit) (0.4) 2. Speed to implement (time frame) (0.3) 3. Customer uptake/number of customers (0.2) Alternate Strategies Strategy 1: To launch a credit card that provides incentives that targets the needs of affluent consumers and provides them with benefits unique to Alpen Bank. Strategy 2: To improve infrastructure to make ATMs and point-of-sale terminals easily available and accessibly within Romania. 5 Strategy 3: Encourage the use of the Alpen Bank credit cards by offering incentives to customers with every transaction made with their credit cards. Strategy Evaluation Strategy 1: To launch a credit card that provides incentives, targets the needs of affluent consumers and provides them with benefits unique to Alpen Bank.  The reason for entering the credit card market and targeting affluent customers is due to the fact that revenue within card payments industry is determined by card transaction volume. - Currently within Romania, the top 10% of households hold 24% of the wealth. The current trend for members of the affluent community is to purchase goods and services that enhance their image.  Given that Alpen Bank is a private institution and thus already has a premium image, they have the opportunity to launch an exclusive product into the market which will capture the interest of those who are a part of the upper echelon of society. - The card will be positioned like that of ‘platinum’ American express cards... a ‘must have’ for affluent customers.  In order to maximize revenue levels, Alpen bank need to maximize each transaction from customers. With high levels of disposable income, the affluent end of the market is a logical choice due to the fact that they will be spending more with each transaction.  This strategy provides a strong foundation for Alpen Bank to meet their revenue target of €5 million annually given that on average ‘most affluent’ customer will generate €209.75 of revenue.  Furthermore, there is potential for high levels of product growth (credit card usage) within the market. Currently, in Romania on average there are only 1.2 credit cards 6 per household. Within neighbouring countries there are up to 5.3 cards per household (Croatia). - This number has the potential to grow as high as 5 (5.3 cards per household in Croatia) however given that credit cards are still in their infancy within the Romanian market the best chance that they have of growing the above figure of 1.2 is by targeting the affluent market to ensure that card usage expands in affluent households. Number of adopters: Given that affluent consumers within the market purchase products and services that enhance their image, it is likely that consumers will be attracted to the credit card given that Alpen Bank is a private institution. Conversion rate: By targeting only affluent customers it is expected that the premium image will help to attract affluent customers from existing brands to trial the product. Usage rate: It is expected that usage rate will be high given that there will be a number of initiatives put in place by Alpen Bank to entice high levels of card usage. Customer satisfaction: Due to the fact Alpen Bank are creating a product tailored to the needs of the affluent market it is expected that customer satisfaction levels will be high. Strategy 2: Improve infrastructure to make ATMs and point-of-sale terminals easily available within Romania  Alpen Bank had previously considered launching credit cards in Romania, however poorly developed infrastructure of point-of-sale terminals was one factor that resulted in the decision being reassessed.  As of 2005 there are just 15 Alpen Bank branches across Romania, which highlights the need for better access to and availability of facilities.  With nearly 20 million inhabitants in Romania, the affluent segments make up approximately 15% of the population (3 million customers). Therefore, Alpen Bank will need to significantly increase the number of branches available to those 3 million customers.  There are 21 main cities in Romania (Romania Natural & Cultural, 2016). Alpen Bank should have a large presence in all of these, particularly their capital city Bucharest, which has nearly 2 million inhabitants. In 2006 there were 8,000 ATMs and 150,000 point-of-sale terminals. This equates to 1 ATM every 30 square kilometers (Area of Romania: 238,391 sq. km) 7 - They should introduce a major branch in each of these cities with ATMs located every 2-3 blocks in the CBD and inner city. Bucharest should have several branches scattered throughout the city and should also have ATMs available on most street corners  The success of this venture greatly relies on the number and types of merchants who will accept credit cards. These merchants would include restaurants, retailers and hotels across Romania. Merchants who have high transaction volumes would be targeted as this results in a higher “merchant’s discount” which is a percentage of the transaction that is split with the merchant. - Merchants must understand the benefits of and reasons for offering point-ofsale terminals; customers are likely to spend more and they will receive a higher “merchant's discount”.  During the 6-month introductory period, Alpen Bank will offer no-fee withdrawal when using their ATMs. During this period, merchants will also be offered a higher discount, providing them with an incentive to accept cards. Number of adopters: If point-of-sale terminals and ATMs are made more available and accessible, then the number of people willing to use credit cards is likely to increase because of how mainstream the service is becoming. It will encourage them to use credit cards instead of cash due to the convenience and accessibility. Conversion rate: By improving the infrastructure, Alpen Bank will be changing the way their customers use the credit cards. The more merchants accept credit cards the more likely customers are to continue using it because of how easy and widely accepted it is. Usage rate: Credit cards will be accepted in many more places by more merchants and ATMs will be available in more locations, therefore it can be expected that credit cards will be used more than cash for transactions. Customer satisfaction: Customer satisfaction should increase do to these improvements in infrastructure due to how easy and accessible it is to use credit cards. Strategy 3: Encourage the use of the Alpen Bank credit cards by offering incentives to customers with every transaction made with their credit cards.  The majority of cardholders in Romania use their cards for cash withdrawals rather than purchases. Furthermore, in the early 2000s, consumer spending was largely cashbased because Romanians lacked experience in managing credit. 8  To encourage consumers to not only own a credit card but to use it for their transactions, Alpen Bank will offer an incentive system in conjunction with the launch of their credit cards. - The incentive system will earn customers 1 point for every $1 that is spent using their Alpen Bank credit card. - These points will be earned at all retailers, restaurants, hotels etc. where Alpen Bank credit cards are accepted - These points will then be redeemable with Alpen Bank partners and will include hotels, airlines, restaurants, car rentals and health & beauty facilities.  The incentive system will provide consumers with the benefits of using the Alpen Bank credit cards and will encourage them to use it as often as possible in order to earn more points. Number of adopters: It is possible that consumers will decide to get an Alpen Bank credit card purely for the benefits of earning points, whereas they may not have if the incentive program did not exist. Therefore, it is likely that this will motivate consumers to own an Alpen Bank credit card and the number of adopters will increase. Conversion rate: Once consumers start earning enough points to begin redeeming rewards with partners of Alpen Bank, it is likely that they will continue using their credit card in order to earn more points and ultimately, redeem rewards. Usage rate: Consumers understand that the more they use their Alpen Bank credit card, the faster they will earn points. As such, it can be expected that consumers will use their credit cards wherever possible to earn more points. Customer satisfaction: It is expected that customer satisfaction will be very high. The idea behind the incentive system is that consumers are getting something for nothing. Therefore, when a consumer has been earning points for their normal spending behaviours and are able to redeem those points in a variety of ways, they will feel very satisfied. 9 Below are advantages and limitations following the proposed strategies: Strateg y Advantages 1    2    Limitations By targeting only affluent customers Alpen Bank have the opportunity to maximise revenue with each credit card transaction Huge room for growth within the credit card market as on average there is only 1 card per household By targeting only the affluent market Alpen Banks image as a private banking institution is enhanced Increases accessibility and availability of facilities for customers A greater number of Alpen Bank branches will result in a larger presence in the CBD and inner-city and subsequently may result in increased brand awareness, which in turn could lead to generating a larger customer base. ‘Merchant’s discount’ acts as an incentive for business owners to provide point-of-sale terminals, which will allow customers to use their Alpen Bank credit card for       No plan to eventually move into the middleclass segment of the market. Problematic due to the fact that the middle class are the affluent customers of tomorrow This strategy is highly dependant upon the installation of point of sales terminals in order to succeed. Cash is still the major commodity used for trade within Romania Expanding across the CBD and inner-city by building more ATMs and branches will be expensive and time consuming Merchants are so accustomed to dealing with cash-transactions that the ‘merchant’s discount’ may not be reason enough to change their habits and consequently have to learn how to work the point-of-sale terminals. The mentality of “if it aint broke, don’t fix it” The no-fee withdrawal offer running for the first 6 months after the launch will result in a loss of revenue for Alpen Bank 10 transactions. 3    Incentives will encourage customers to use their Alpen Bank credit card for transactions Alpen Bank will offer a large variety of retailers and services where points earned will be redeemable, which provides customers with flexibility and personalised tailoring when claiming their rewards Customer satisfaction and usage is expected to increase as a result of the incentive system    Alpen Bank will have to approach retailers and service providers to sign them on as partners, and come up with an agreement regarding how customers can redeem their points with them. This is likely to be time consuming and will require compromise and negotiation If a customer has a bad experience redeeming points (eg. There are too many terms and conditions for redeeming a reward or their desired retailer is not an Alpen Bank partner), they will lose the incentive to use their credit card for transactions. They may also not recommend the Alpen Bank credit cards to their friends for this reason Initially, providing the incentive system will cost Alpen Bank more money than it will be earning them Strategy Evaluation Table Criteria Number of Adopters Conversion Rate Usage Rate Customer Satisfaction Total Weight 0.3 0.25 0.25 0.2 1 Affluent Market Improve Infrastructure Customer Incentives Rating Score Rating Score Rating Score 8 2.4 7 2.1 8 2.4 6 1.5 8 2 6 1.5 7 1.75 7 1.75 6 1.5 8 1.6 6 1.2 5 1 7.25 7.05 6.4 The strategy evaluation table ranked Strategy 1 (Affluent Market Strategy) the highest. The carefully considered rankings within this table helped to inform our strategy recommendation listed below. Strategy Recommendation After evaluating the three potential strategies to launch Alpen Bank’s new credit card in Romania, a conclusion has been made to pursue strategy one, and enter the Romanian market by targeting the affluent and most affluent consumer segments. 11 The problems identified in the case, are whether Alpen Bank should launch the new credit card in Romania, if so how would the reach their profit goal of €5 million within two years and what target audience will be the focus of the credit card launch, including how much will it cost to generate a customer base. Strategy one will address all of these problems. Alpen Bank are excellent in serving ‘highly affluent’ and ‘affluent’ customers in Romania, and with great penetration in the country, existing customers will already be inclined to try the credit card, providing a great base off which to launch. In doing so, positioning it as a high end premium credit card to this segment, higher revenue percentages can be generated and a lower number of customers would need to be acquired to breakeven and profit can be accomplished much quicker, which addresses two of the problems in how the card should be positioned and assisting in reaching a €5 million profit within two years. Meeting all of the evaluation criteria, strategy one is recommended for Robert Carle in an attempt to launch a credit card into the Romanian market. The table below gives a detailed justification as to why Alpen Bank should only target the affluent segments based on calculation shown in Appendix 1 and Appendix 2. Summarised Information based on Appendix 1 & Appendix 2 (€) Acquisition Costs per customer (Sum of All Channels Total Costs Total Acquired Customers (Sum of All Marketing channels) All Segment (Middle Class + Affluent) Affluent + Most Affluent Customers Only 18.70 17.28 1,705,000 1,080,000 91,163 62,475 Acquisition Costs per customer (Sum of All Channels excluding Direct Mail) Total Costs Total Acquired Customers (Sum of All Marketing channels excluding Direct Mail) 8.60 10.50 455,000 455,000 52,913 43,350 Break Even No. of Customers to Reach 78,713 175,027 53,575 92,476 12 5 Million Based on summarised information from the table above, it would be better for Alpen Bank to only acquire and focus on affluent customers, as opposed to targeting both the affluent and middle class segments simultaneously. The total costs and qualification rates will be more effective and efficient when only acquiring the affluent segments, despite acquiring a smaller number of customers than if they were to also target the middle class segment. Furthermore, focusing purely on the affluent segments means that fewer customer acquisitions are required to reach the break-even point, which subsequently makes their profit goal of €5 million within two years achievable. Given that Alpen Bank acquires enough customers in the first year to reach their break-even, it can be assumed that they will continue to earn more revenue in the second year and consequently will meet their €5 million profit goal. This is supported by the fact that the financial card market for overall debit and credit cards grew by 35% in 2006, and approximately 9.5 million cards were being used in the market. Strategy Implementation Tactics 1. Host an event in Romania’s capital city; Bucharest at the Grand Hotel Continental, to officially launch the Alpen Bank credit cards  Invite members from the affluent and most affluent segments to attend the launch event  Members of the Zurich headquarters will attend to meet and greet their customers as well as to personally introduce them to the product  The event will gain media attention through social media, magazines, and newspapers 2. Release a premium card for the affluent and most affluent segments.  The credit card needs to be positioned as a premium product for those who have higher spending limits.  To encourage consumers to use their new credit cards for transactions, Alpen Bank will offer an incentive program in conjunction with the launch of their premium credit cards 13 - The incentive program will earn customers 1 point for every $1 that is spent using their Alpen Bank credit card - These points will be earned at all retailers, restaurants and hotels where Alpen Bank credit cards are accepted, as well as selected online retailers. - These points will then be redeemable with Alpen Bank partner companies including hotels, airlines, restaurants, car rentals and health & beauty facilities.  During the first 6 months post-launch, Alpen Bank will offer low interest rates on credit card repayments as well as no ATM fee when withdrawing cash. - Early adopters of the Alpen Bank credit cards will also enjoy no annual fee for the first year of use 3. Increase the number of merchants who provide point-of-sale terminals as well as the number of ATMs located around the Bucharest CBD.  The Alpen Bank credit cards will be accepted at many retailers, restaurants and hotels.  Customers will also be able to use their credit cards to make online purchases  There will be an increased number of ATM facilities and Alpen Bank branches within the CBD. 4. In preparation for Romania joining the EU in 2007, Alpen Bank can offer no withdrawal/service fees on their credit cards when travelling in countries within the EU.  When a customer uses their Alpen Bank credit card at an ATM in a country outside of Romania, but within the EU, they will not be charged any withdrawal or service fees.  This will encourage their customers to continue using their Alpen Bank credit cards for transactions as opposed to the local cash currency of the country in which they are travelling, 14 Contingency Plan: There are a number of potential key problems that need to be considered by management at Alpen Banks prior to them undertaking the proposed strategy. 1. Some merchants may be unwilling to install point-of-sale terminals. This will limit the potential growth of credit cards in Romania. 2. Economic instability could lead to another recession in Romania 3. Customers defecting to competitors within the Romanian market. Below is the proposed contingency plan, including the possible failures and contingency options to solve the foreseeable problems of Alpen Bank’s marketing strategy. The contingency plan seeks to minimise the impact of potential risks that could affect Alpen Bank (if they go ahead with the proposed strategy) whilst also providing direction as to how the business will overcome these events if they occur. Failures Merchants unwilling to have point-ofsale terminals installed. Impact Level: High Likelihood: Moderate Contingency Options · · Offer certain bonus or rewards to merchants if they agree to install point of sales terminals. Offers no additional charges by using 15 Triggers: When merchants are only willing to conduct ‘cash only’ business and are not open to expanding business to include credit card payments. credit card payment to merchants, so they do not have to stress about additional cost they might have to pay. Recession in the Romanian economy. Impact Level: High Likelihood: Moderate Triggers: If the Romanian economy is affected by the impact of severe Global Financial Crisis. · Re-targeting the customers, instead of targeting the “premium” and affluent segment, Alpen Bank can focus more on middle class segment. · Offer lower payback rates to customers to make credit card usage more attractive. Customers defect to competitors. Impact Level: High Likelihood: High Triggers: If Alpen Bank are unable to maintain high levels of customer retention and customer defect to competitors. · Set up a new division that focusing on maintaining and retaining existing Alpen Bank customers. Provide medium to long term marketing offers in the form of contract. Since, it may prevent customers to switch to other brands within certain period of time. · SWOT Analysis       Strengths Affluent customers (Implication: Provides strong loyalty, networking and a powerful but small customer base). Premium banking service (Implication: Private banking to customers with high net worth). Revenues from several streams (Implication: Deaggregation of revenue streams, reducing the risk of severe loss from one revenue source). Opportunities Rapid economic growth. Increasing per capita income in Romania. Branded imports from the EU purchases.  Weaknesses Low customer base (Implication: Although highlighting customer loyalty, this shows a high percentage of revenue coming from a select, small bunch of consumers).  Lack of positioning within the market (Implication: No Specific customer base, potential confusion of where the brand sits in the mind of consumer).  Limited understanding of the intricacies of Romanian market (Implication: Lack of exposure in regard to dealing with new consumers and behaviours).    Threats Low penetration of merchants accepting card payments. Consumers are not used to managing the credit cards. Competitors. 16   Potential emergence of the middle class market. 85% of prospects that qualified for the credit card can switch to customers.  Lack of positioning within the market. Reference List Alpen Capital launches its India Operations. (2016). Indiainfoline.com. Retrieved 6 October 2016, from http://www.indiainfoline.com/article/news-top-story/alpen-capital-launches-itsindia-operations-113101000363_1.html Best SBI Premium Credit Cards in India. (2014). Best Credit Cards in India. Retrieved 6 October 2016, from https://creditcardsallbank.wordpress.com/2014/07/30/best-sbi-premiumcredit-cards-in-india/ Grand Hotel Continental, Bucharest, Romania. (2016). Booking.com. Retrieved 6 October 2016, from http://www.booking.com/hotel/ro/grand-continental.en-gb.html Jager, C. (2015). Ask LH: Can I Be Charged For Using EFTPOS?. Lifehacker.com.au. Retrieved 6 October 2016, from http://www.lifehacker.com.au/2015/01/ask-lh-can-i-becharged-for-using-eftpos/ Limits For The Paparazzi? - betsy-v.com. (2013). betsy-v.com. Retrieved 6 October 2016, from http://www.betsy-v.com/limits-for-the-paparazzi/ Mondrose, P. (2015). Here Are The Cities With The Lowest And Highest ATM Fees. Business Pundit. Retrieved 6 October 2016, from http://www.businesspundit.com/here-are-the-citieswith-the-lowest-and-highest-atm-fees/ Ribakov, V. (2016). History of the European Union - Vladimir Ribakov. Vladimir Ribakov. Retrieved 6 October 2016, from http://vladimirribakov.com/history-of-the-european-union/ 17 18 Appendix Appendix 1 - Customers Acquisition Estimates ** For Direct Sales it cost 3,000 / reps and required 10 reps. ** For Direct Sales it cost 3,000 / reps and required 10 reps. ** By targeting Affluent Customers only with more premium card, it would reduce the available direct mail prospects by Half ** It is anticipated that Qualification rates would be decrease by 50% for Take Ones and FSIs if the target market is Affluent Customers only, due to more stringent credit card’s standard and these two marketing efforts could not target specifically. Appendix 2 - Breakeven Analysis No. of Customers (Middle + Affluent + Most Affluent) 50,000 100,000 150,000 200,000 Average Revenue Acquisition Cost Direct Variable Cost Total Cost per customer Profit from per Customer 122,78 18.7 20 38.7 84.08 122,78 18.7 17.5 36.2 86.58 122,78 18.7 15 33.7 89.08 122,78 18.7 12.5 31.2 91.58 4,204,000 8,658,000 13,362,000 18,316,000 Fixed Cost: Infrastructure Advertising 5,000,000 2,000,000 (Less) Expenses 5,750,000 2,000,000 6,500,000 2,000,000 7,250,000 2,000,000 Net Profit (Loss) -2,796,000 908,000 4,862,000 9,066,000 Gross Profit per Customer Thus, we can calculate the breakeven number. Since, profit within customer number of 100,000 Is positive, which of 50,000 is negative, then the number of customers at breakeven point should fall in between 50K – 100K. Assume X stands for the increased number of additional customer within that range, then the equation will be as follow: 122.78 (X + 50,000) – (5,750,000 + 2,000,000) – [(50,000*17.5) + 36.2X] = 0. Where X = 28,713. Hence, it would be 50,000 + 28,713 = 78,713 Then, the targeted ROI is 5,000,000, and since 4,862,000 < ROI < 9,066,000 then the number of customer at this point should fall in the range between 150,000 to 200,000. Then assume Y stands for the additional increased number of customers within that range, with the following equation: 122.78 (Y + 150,000) – (7,250,000 + 2,000,000) – [(150,000*12.5) + 31.2Y] = 5,000,000. Where Y = 25,027. Hence, number of customers at ROI 5,000,000 should be 150,000 + 25,027 = 175,027 No. of Customers (Affluent + Most Affluent) 50,000 100,000 150,000 200,000 Average Revenue Acquisition Cost Direct Variable Cost Total Cost per customer Profit from per Customer 163.31 17.28 20 37.28 126.02 163.31 17.28 17.5 34.78 128.53 163.31 17.28 15 32.28 131.03 163.31 17.28 12.5 29.78 133.53 6,301,000 12,853,000 19,654,500 26,706,000 Fixed Cost: Infrastructure Advertising 5,000,000 2,000,000 (Less) Expenses 5,750,000 2,000,000 6,500,000 2,000,000 7,250,000 2,000,000 Net Profit (Loss) -699,000 5,103,000 11,154,500 17,456,000 Gross Profit per Customer Thus, we can calculate the breakeven number. Since, profit within customer number of 100,000 Is positive, which of 50,000 is negative, then the number of customers at breakeven point should fall in between 50K – 100K. Assume X stands for the increased number of additional customer within that range, then the equation will be as follow: 163.31 (X + 50,000) – (5,750,000 + 2,000,000) – [(50,000*17.5) + 34.78X] = 0. Where, X = 3,575. Hence, it would be 50,000 + 3,575 = 53,575 Then, the targeted ROI is 5,000,000, and since -699,000 < ROI < 5,103,000 then the number of customer at this point should fall in the range between 50,000 to 100,000. Then assume Y stands for the additional increased number of customers within that range, with the following equation: 163.31 (Y + 50,000) – (5,750,000 + 2,000,000) – [(50,000*17,5) + 34.78Y] = 5,000,000. Where Y = 42,476. Hence, number of customers at ROI 5,000,000 should be 50,000 + 42,476 = 92,476

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