1. than €5 million required from the

1. than €5 million required from the

1. Should Alpen Bank launch a credit card? And how would the credit card opportunity compare to focusing on core business of banking service? Considering the economic and market conditions explained in the case as well as the cost revenue analysis, Alpen should launch a credit card. * The rapid economic growth has led to higher incomes which have increased the proportion of middle class and upper-middle class in the society. This growth has also led to an increase in disable incomes, means that people have more money to spend.

* The country has 10% households who have 24% of the wealth.These people have sufficient income and are conscious about their social image and less sensitive to prices. * Although it is still underpenetrated relative to other central and Eastern Europe, the Romanian credit card market is growing at a good pace of 35% in the prior year and has a lot more room to grow. Moreover, by 2006, Romania already had 8000 ATMs and 150,000 point-of-sale terminals for card transactions. * According to cost revenue analysis (Exhibit …), based on Net revenue impact and customer acquisition estimates, the company will be able to make about €5. million which is more than €5 million required from the head quarter to go for this project. However, all the numbers used in calculation were estimated.

I assumed that it is likely to be true but I still provide some sensitivity analysis. The agency estimated that 85% of prospects who qualified for the credit card would convert into customers. If the rate change to 75%, the profit over 2 years would slightly lower than €5 million and if the worst case, 60%, the profit would be about €2 million. (Exhibit…. ) On the other hand, there are some obstacles for launching a credit card as well. The majority of cards in circulation were debit cards and many cardholders used their cards for cash withdrawals, rather than purchases. Moreover, the actual usage rate of credit card is till low (Exhibit .

. ) * Many merchants still required cash only All these points show that Alpen Bank has an opportunity in credit card market but it requires a lot of efforts in marketing to acknowledge people about the utility and purpose of the card. It may be costly at the beginning but it will become profitable business.

Compare to its core banking business for the affluent which the company has already penetrated into the market, credit card business is still infancy in Romania but has a lot of growth potential. Some competitors has already provided credit card for their customers so that if Alpen Bank will not start soon, it may lose its potential customers to competitors. 2. How should Alpen Bank position its credit card? Alpen Bank has a reputation for excellence in serving affluent clients. However, it considers whether it should also target middle class customers for credit card launching.As far as I am concerned, Alpen Bank should position its card as a premium product because of many reasons: * The existing customers belong to the affluent class so it will be easier for the company to extend the business based on this segment of customers * This class represents top 10% of households by nearly 24% of the wealth. They were also conscious about their image and sought products or services that suit their status * They were less price sensitive about annual fees, more likely to experience low levels of consumer debt, and tend to use their cards with greater frequency.

Although, the two-year profit from targeting only affluent consumers appears to be lower than including middle-class consumers (exhibit…. ), a default risk is lower and it matches with the Alpen’s brand image. * Actually, the middle class also has a huge potential as some consumers in this class can be affluent ones in the future.

However they are more price-focused and would only welcome this new credit card if the interest rates are low. It would be harder to Alpen Bank to set the interest rates that would attract consumers but protect the company from the default risk.Furthermore, Alpen Bank’s experienced showed that actual card utilization was significantly lower for the middle-class customers. 3. Which direct marketing channel should Alpen Bank use in order to successfully enter the market? There are five different direct marketing channels that Alpen Bank considers using them: Direct mail, Take One, FSIs, Direct Sales, and Branch Cross-Sell. Each channel incurs different unit cost, number of prospects reached and response rate and qualification rate. According to exhibit ….

, Direct Mail, Take One, and FSIs, are quite expensive but they will bring a lot number of customers.If the Alpen Bank uses only Direct Sales and Branch Cross-Sell, it will not be able to get enough customers to generate at least €5 million in 2 years. Thus, the company should use all five avenues to build a customer base. In conclusion, Alpen Bank should launch a premium credit card with the full efforts by using full marketing and advertising efforts to build a customer base.

The company may also do some promotion with merchants such as temporarily low merchant discount to persuade them to accept Alpen’s credit cards.