Alpen Bank Launching The Credit Card In Romania Case Solution

1. How should Alpen position its card if it intends to launch it?

In the case of Alpen Bank, it is important to focus upon the positioning of the card before launching it would directly determine the future returns of the bank and the customer base that they would be able to target. If only the wealthiest population of Romania is taken into account, the bank faces minimum risks because this 10% of wealthy people with collective assets of 24% of the nation’s wealth is able to afford the financing related to credit card easily. The main issue would be targeting the middle class which is not only the largest segment of Romania but is also relatively “price sticky” when it comes to spending money and switching from one segment to the other. As only adults are included in the customer base for Alpen Bank, it limits the potential customer base to 18.6 million. As most of the customers would want to switch over only if they expect cost reduction and better credit facilities, the best way is to currently reduce or even completely abolish any fee associated with credit cards so as to capture the attention of people and increase the demand of credit cards of Alpen Bank. Once the performance and returns start to get steady, the bank can change their approach to further increase their returns.

2. What are the economics of the credit card business in Romania? What is the cost of acquisition of a new customer? How many customers will be needed to breakeven?

In Romania, majority of the individuals who qualify for being potential customers of credit card facilities of Alpen Bank are the middle class people who earn a monthly income of around €500. During 2000’s, the main source of the transaction was through cash and people were not willing to switch over to credit card transactions, mainly because it was still recovering from 3 year recession and the majority of the population resided in the rural areas of Romania. With rapid advancements in infrastructure and gradual acceptance of credit and debit cards, their overall figure increased by 9.5 million customers. There are different ways through which customers can be approached, and through these unit costs, the prospect customers can be reached. The total costs faced by direct mail, take one, FSIs, direct sales and branch cross-sell are €1,250,000, 200,000, 175,000, 3,000 and 50,000 respectively. Additional costs of advertisement through television and magazine along with overhead is also incurred which adds up to around €3,678,135. In order to breakeven, Alpen Bank needs to find out the number of customers that they can achieve if they want to incur €5 million which is the breakeven amount. If a company wants to incorporate new staff, computer and other costs, they would incur this amount and capture 50,000 customers. On the other hand, if the aforementioned techniques are applied, the amount does not add up to €5 million but below it and would add up customer base of 8,110,000.

3. Is breakeven achievable? In what time period?

In order to achieve the breakeven point, the Alpen Bank would be required to generate a profit of €5 million within a time frame of 2 years. Even though it is possible for the bank to achieve this target, but they have to take into account the different ways through which the customers will be targeted. The setting up of a separate section for credit card facilities would require time and effort to start providing effective results, and this may take a couple of years with slightly lower results of around 50,000 customers in two years. It may require more than two years to get good results and be able to achieve the breakeven point with better results than what they can get initially with few resources allocated for this purpose.

4. Do a cost benefit analysis of the launch. What information does this provide you?

Most of the significant costs that Alpen Bank is likely to face pertain to those related to advertisement through television. In order to perform a cost benefit analysis, it is crucial to shed some light upon the annual income brackets of the different classes of Romania to determine their demand preference. It is equally important to analyze the financial strength of Alpen Bank. Out of the customer acquisition options that are available for Alpen Bank, the lowest cost that they can face is that through Branch Cross-sell, which would allow them to spend €50,000 and bring in the same amount of customers. The expensive way is opting for advertisement through television and magazines and also through Direct mail. On the other hand, the performance of the bank has been consistently increasing over a period of three years, and net revenue had increased from €66 million to €87.5 million from 2003 to 2005. With more employees, revenues, branches and potential to attract customers, the bank is in a good position to proceed ahead with launching of credit cards.