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. However, 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 populations inexperience with consumer credit. Gregory Carle, Alpen banks country

manager, believed that it is time to reconsider because credit card business would be an

important growth vehicle. Macroeconomic in Romania trend now is 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, Carle has

to make recommendation to his boss, Richard Tschrumperlin, 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 3,000 or 4,500. We believe Carle should proceed with the

proposal to launch a new credit card catered for affluent customers whose annual incomes are

at least 4,500. Our recommendation is derived from both qualitative considerations of the

Romanian credit card market and quantitative analysis of possibility to generate 5 Million

profit within 2 years.

Based on quantitative analysis, Carle should choose option-2, i.e., launch credit card

among consumers with an annual income of at least 4,500. It shall generate the profit of

5.16 Million in 2 years and meet profit target of 5 million (see Exhibit I). In contrast,

option-1 will cause loss by about 950,000 (see Exhibit E). The profit result is obtained by

calculating the expected yearly revenue per cardholder. The yearly revenue can be calculated

by assuming that the proportion of new customers is the normalized proportion of the total

population. This gives us yearly revenue of 163.31 (see Exhibit F) per cardholder if

targeting affluent customers. This is higher than the expected revenue from including middle

class customers, which is 122.78 (see Exhibit B). Additionally, average cost of acquisition

for the affluent customers turns out to be cheaper at 18.31 (see Exhibit G), compared to the
cost for obtaining middle class customers which is at 18.70 (see Exhibit C). The difference

in acquisition cost can be accounted to lower utilization of direct mail marketing for

acquiring affluent customers, since the direct mail marketing is most expensive among the 5

direct marketing channels. Lastly, taking into account the fixed costs of infrastructure and

advertising, net profit for targeting affluent customer will net us 5.16 Million (see Exhibit I).

This profit could be more if Carl is more selective of the marketing channels by reducing the

Direct mail and growing the Branch Cross-Sell together with more branch openings.

The evaluation to choose option-2 (than option-1 or option-3) from quantitative data

is strongly supported by some qualitative analysis. From company perspective, credit card

business would be an important growth for company as it will generate more revenue to the

bank by interchange revenue, charging annual fees, penalty fees and interest income.

Targeting affluent consumers is in line with company brand image to serve premium

customers. Alpen Banks existing customer base is 200,000 affluent clienteles, thus to

maintain the premium position in the market, Alpen Bank should introduce the premium

credit card targeted for the affluent customers. The credit card offer would complement Alpen

Bank existing core business to provide banking services for the wealthy customer.

The other reason that Alpen bank should enter credit card market for affluent

customer is because the rapid economic growth and rising incomes for the first half of the

decade, resulting in dramatically increased purchasing power of the middle-upper class

people. The Credit card market in Romania is still under penetrated. There are 18.6 Million

adults with 27.9% of them in the affluent segment. This translates as 5.2 affluent adults but

only 1.7 Million credit cards are in circulation. This means the untapped 3.5 million potential

customers. This is a good opportunity for Alpen Bank, 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. By 2006, Romania had approximately

150,000 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. Collaboration with

MasterCard/Visa to issue the credit card would help to complement Alpen bank service for its

affluent customers to make overseas transactions due to MasterCard/Visa has a worldwide

connection.

From consumer perspective, previous study suggested that there was growing desire

to purchase luxury goods and import branded goods, especially the active professionals who

were conscious about their image and sought goods to match their status. This is an

opportunity for Alpen Bank to introduce its premium credit card, especially catered for the

affluent, as the preferred card with merchants of luxury goods. The credit card could also be

marketed as a source of short term loan to purchase these luxury goods. The affluent

segments were also less price sensitive and tended to perform payment using cards instead of

cash. Moreover, the churn rate is low and consumers are less likely to switch to another credit

card.

From 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-1 is the utilization of

credit card for middle class customers is relatively low. This coupled with the tendency of

this segment to make price-driven purchases, presents a risk of underutilization and low

tickets, resulting in lower interchange and interest revenue for the bank. Moreover, there is a

risk of distraction in the Alpen banks brand image in existing 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 Bank should position its

credit card offer as a premium offer for the affluent segment.

On the negative side, Alpen bank has to manage some risks associated with launching

the credit card. For example, the customers are inexperience to manage the credit limit and

they may fail to pay off full balance and become the resolver customers who use the credit

card limit for refinancing. The benefit from the resolver has to be managed against the risk

of default, especially during the economic down turn in the future.

In conclusion, option-2 is the most favorable option compare to option-1 and option-

3, from quantitative and qualitative analysis. Alpen bank should enter Romanian credit card

market, targeting affluent customers segment whose annual incomes are at least 4,500 in

order to achieve the goal to generate 5 Million profit within 2 years.

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