• Citibank’s branch banking business conducted operations in 15 countries throughout Asia Pacific and the Middle East in 1989
• Citibank’s branch banking business was projected as a prestigious, consumer-oriented international bank and the undisputed leader in the marketplace
• Financial services were targeted to affluent upper and middle income market segment
• Citibank’s Asia Pacific branch banking business was challenged with increasing earnings from
$69.7MM to $100MM by 1990

• Increase earnings in Citibank’s Asia Pacific bank business through the launch of a credit card product
• Obstacles:
– Mixed opinion from the Asia-Pacific country managers that a successful credit card launch was possible
– Questions abound regarding Citibank’s ability to adopt mass-market positioning to acquire credit card customer and maintain its up-market positioning with its current upscale branch banking customers
– Differing customer attitudes and usage patters across the
Asia Pacific region
– High level of market uncertainty across the region with regulations, branch limitations, talent, poor infrastructure, etc.

Strengths
• Market Leader
• Branding
• Credit card considered a status symbol
• Targeted countries include booming, growing economies (Philippines, India) and affluent, Westernized countries
(Australia, Singapore), diversifying risk
• Strong economies of scale in data processing
• Hong Kong presence provides valuable data to estimate revenue impact and price credit cards accordingly
•
•
•
•
•
•
•
•
•
Weakness
Consumer attitudes and usage varies across countries
Australia & Singapore are saturated markets
Country managers are unconvinced/no buy-in.
Credit card offering adds complexity to organizational compensation structure
Cannibalization of current services
Brand dilution
Collections process is undefined
Centralized data processing costs, politics
Learning curve on demand side & cost side
Opportunities
• Penetration leader in new markets
• Target growing middle and upper class
• Portfolio allows for customization in markets
• Additional revenues from cross-selling and arbitrage
•
•
•
•
•
Threats
Fraud
Defaults
Laws and regulations
AMEX and Diner’s Club are early entrants with brand cachet
Competitors offer discounts

Acquisition Costs
Direct Mail
Direct Sales
Take One
Bind In
Unit Cost Prospects RR
1.5
300,000 0.02
Qualify Cards Card Customers Acq Cost/Card
0.67
0.8
3216 139.93
225,000 30,000 0.5
0.67
0.8
0.25
2,000,000 0.015
0.334
0.8
0.15
3,000,000 0.01
0.334
0.8
8040
8016
8016
27.99
62.38
56.14
Break Even Analysis
Scenario Target No
I
II
III
IV
Fixed Costs VC Total Costs Rev/Cust Break Even #
250,000
Acquisition Advertising Support ($25/card)
7,857,000 2,000,000 35,000,000 6,250,000 51,107,000
500,000 16,574,000 4,000,000 50,000,000 12,500,000 83,074,000
750,000 27,228,000 6,500,000 60,000,000 18,750,000 112,478,000
1,000,000 40,026,000 9,000,000 70,000,000 25,000,000 144,026,000
180
180
180
180
283,928
461,522
624,878
800,144
Break Even - Sensitivity Analysis
Scenario I
II
III
IV
120
425,892
692,283
937,317
1,200,217
Revenue Per Customer
150
340,713
180
283,928
553,827
749,853
960,173
461,522
624,878
800,144
210
243,367
395,590
535,610
685,838
240
212,946
346,142
468,658
600,108

Citibank
AMEX
Source: Demisch, McGarry, Mukhtar, Rajbansi; Feb 2008

• Build ideal mix of product attributes
• Determine customer segmentation
• Identify cannibalization & competitive response
Joining Fee
None
Low
High
Annual Fee
None
Low
High
Brand Services
Citi (Visa, MC) Card replacement
Amex
Visa/MC
Diner’s Club
Loss/misuse liability
Spending limit
Cash Advance
Incremental Revenue
Cash advance
Pre-payment
Advance ticket sales
Product warranty extension
Product/Travel insurance Local Bank Year-end summary

• Success selling auto loans through car dealers
• Greater potential with Citi cardholders
– Opportunity for cross-sell of products such as Auto Loans, Ready Credit,
Deposits, Mortgages
– Enables virtual presence in countries restricting number of foreign bank branches
• Bundle with bank services for lower combined fees
How calculate cross-sell value?
Take Hong Kong Citibank example where 6% of account holders also have Citi credit card and assume same opportunity in reverse…

Total # cards
Proj. # Citi cards Yr 1
Proj. Citi card customers
Australia Hong Kong Singapore TOTAL
10.5M
2M 630K 13.1M
1M
588K
150K
88K
25K
15K
1.75M
691K
# of Citibank customers
Net Revenue from Fund
NRFF per customer (exact figure)
85K
$59M
$694.12
130K
$67M
$515.38
18K
$16M
$888.89
233K
$142M
N/A
Card holders w/ 2nd product
Incremental NRFF (cross-sell value)
35.3K
$24.5M
5.3K
$2.7M
0.9K
$784K
41.5K
$28M
Total Relative Yr 1 value for all 9 Asia markets would be
$29M
Assumes 1.7 cards per customer and 6% of card holders will purchase 2 nd Citi product as result of cross-sell efforts.
Percentage based on 6% of Hong Kong’s Citibank customers also owning Citi card.

Sample Exchange Rates
US $1 = HK $1.13
US $1 = Australian $1.33
HK $1 = Australian $1.18
Buy HK
$11.3M with US
$10M
Buy Aus
$13.334M with HK
$11.3M
Buy US
$10.025M with Aus
$13.334M
Triangular Arbitrage Example = US $25K Profit!
Across Citibank’s Asia-Pacific customer accounts =
$1.5M+ per turn.

100
10
1
Total Per Capita Urban Population
40
35
30
25
20
15
10
5
0
Estimated Distribution of Population and Cards by Income
$6K-$12.5K
$12.5K-$25K >$25K
3
2
1
0
6
5
4
Urban Population Without Credit Cards
$6K-$12.5K
$12.5K-$25K

Per Capita
Real GNP
1988 Growth Rate
1988 Inflation
Average Annual
Customer Income
Political/Economic
Risk Factors
Australia India Indonesia Malaysia Phillipines Singapore Taiwan Thailand
Weight Data Rating India Rating Data Rating Data Rating Data Rating Data Rating Data Rating Data Rating
25% 11929 5 279 1 338 1 2018 3 527 2 8817 5 4837 3 930 2
10% $196.80
5 $222.50
5 $63.40
3 $34.10
2 $32.60
2 $23.80
1 $95.80
4 $51.10
3
10% 4 2 9.7
4 4.8
2 8.1
4 6.8
3 11 5 7.3
3 10.8
5
10% 7.6
3 9.8
2 8 3 2 5 8.7
2 1.5
5 1.2
5 3.8
4
15% $60,000 5 $10,000 2 $24,000 4 $14,000 3 $10,000 2 $20,000 4 $25,000 4 $15,000 3
30% A 5 C 3 C 3 B 4 D 2 B 4 A 5 B 4
Score
PRIORITY
4.5
1
2.55
3
2.55
3
3.5
2
2.1
4
4.15
1
4.05
1
3.35
2

Years of Customer Life
Annual Discount Rate
Assumptions
Initial Purchase Price
Annual Product Inflation
Margin per Product
Retention Rate Year 1
Retention Rate Later Yrs.
Years between Purchase
5
15%
Item 1 Item 2 Item 3
$150.00 $ 60.00 $ 15.00
7%
25%
5%
15%
2%
10%
95%
80%
2
95%
80%
0.6
95%
80%
0.25
Year 1
Year 2
Year 3
Year 4
Year 5
Item 1
150.00
Value of
Purchase
Item 2
60.00
171.74
196.62
Net
Present
Value
Item 1
65.95
69.46
Item 2
11.45
Item 3
15.00
15.30
15.61
15.92
16.24
Item 3
4.13
Item 1
37.50
Profit per
Acquired
Customer
Item 2
9.00
32.63
23.91
6.33
Total NPV 81.53
Item 3
1.50
1.45
1.19
0.97
0.79
5
Customer 7
Life Years 10
15
5
$101.60
Discount Rate(%)
10 15 20
$90.57 $81.53 $74.03
$117.58 $102.12 $90.00 $80.33
$127.91 $108.88 $94.51 $83.39
$140.63 $116.01 $98.63 $85.83
Source: CLV Calculator- HBR http://hbswk.hbs.edu/archive/1436.html

Long Run Effects of Risk on Marketing Policies
Expected
Cash Flow
Expected
Cash Flow
Discount
Rate
NPV
Calculation
NPV
Low Price
Strategy
Period 1
$10M
Period 2
$14M 15% (10)/(1+0.15)+
(14)/(1+0.15) 2
$19.27M
High Price
Strategy
$6M $4M 5% (6)/(1+0.05)+
(4)/(1+0.05) 2
$9.34M
Coordinate finance & marketing functions to select appropriate discount rate, marketing policies and resource allocations after analyzing the risks and returns from different marketing policies.
Reference: Sharan Jagpal (2008) “Fusion for Profit” pp 26

EV of Entering a Test Market in Singapore Using Real Options
Expected incremental profit from test market/(1+ discount rate)
+
Probability of low demand X Cash Flow from Yr 2 on/ discount rate
X
1/(1+ discount rate)
+
Probabaility of high demand X Cash Flow from Yr 2 on/ discount rate
X
1/(1+ discount rate)
-
Probability of introducing new product X investment/(1 + discount rate)
-
Upfront cost for setting up test markets
=
Total incremental value of expected cash flows from test market strategy
$8.5M(1+0.05)
0.5x ($0/0.05)
1/(1+0.05)
0.5 x ($100/0.05)
1/(1+0.05)
(0.5X $70M)/(1+0.05)
$20M
$907M
Conditional NPV with strategic flexibility on immediate Launch
=[Expected Profit in Yr1/(1+ Discount rate)] + (probability of withdrawing product at end of Yr X conditional NPV of cash flows from Yr 2 on) +
(probability of staying in market at end of Yr 1 X conditional NPV of cash flows from Yr 2 on) - upfront inves
=
P.S: Conditional NPV of profits=Annual CF from Yr2 on/[Discount
Rate(1+Discount Rate)]
=
=85/1.1+(0.5x0)+(0.5x90
9)-70
$462M
= 100/(0.10 x [1+0.10])
$909M
Economic Value of waiting for uncertainity to be resolved =$907M-$462M
$445M

• Risk-averse and reluctant to handle card product
• Tie compensation to product
• Compensate for long term vision
• Local currency (Jagpal, NB chapter 23)
• 4 Component Parts of Compensation
– Base wage
– Share of NPV of after tax operating cash flow
– Share of NPV of tax shield
– Share of real options of product
• Above mix changes per country and per period!

• Australia vs. India example
NPV
Operations
NPV Tax
Shield
Australia High ($59M) High
India
Low ($6 M) Low
Real
Options
Compensation
Recommendation
Low
High
25% Base Salary
37.5% NPV Operations
25% NPV Tax Shield
12.5% Real Options
50% Base Salary
12.5% NPV Operations
6.25% NPV Tax Shield
31.25% Real Options

• Australia vs. India example
Australia
NPV
Operations
NPV Tax
Shield
High (>$59M) High
Real
Options
Compensation
Recommendation withdraw 50% Base Salary
25% NPV Operations
25% NPV Tax Shield
India Low (>$6 M) Low remain 50% Base Salary
25% NPV Operations
6.25% NPV Tax Shield
18.75% Real Options

• Use a staged roll out plan introducing each of three groups at 6-9 month intervals (Australia, Singapore, Taiwan first).
• Opt for a test market initially, followed by multi-country entry.
• The presence of cost and demand dynamics must be considered when formulating pricing strategy, and Citibank may choose to learn from first movers errors.
• For uncertain marketplaces, use Real Option Valuation model.
• Build centralized data processing center before entering test market.
( Citi absorbs initial $35 MM investment)
– Establish specific credit card business independent from other business units in each country
– Charge country managers usage fee based on either computational usage, dollar usage, or user (per merchant/cardholder) & continue to charge until investment recouped
– Allow country managers to set join fee

• Features of credit card program should match the brand positioning and corporate image. Include gold features for premium clients and regular/base features for others.
• In saturated markets grow through acquisition, and use green field approach in emerging countries.
• Capitalize on cross-selling and foreign currency exchange arbitrage opportunities.
• Structure flexible country manager compensation to encourage elements of shared risk and long term focus on available marketing options.
• Compensate country managers in local currency.