Case Study on "Marketing Function Audit Citibank Credit Card Launch"

Case Study 8 pages (2585 words) Sources: 0

[EXCERPT] . . . .

Citibank's current business in most of the Asia Pacific region (other than Hong Kong) is limited to a small amount of branch banking due to limits on foreign bank market penetration in most countries. In most countries, Citibank issues auto loans and home mortgages to its retail banking customers. The retail banking customers are in general limited to middle- and upper-class customers in the major cities in which their branches are located (Kuala Lumpur, Jakarta, Bangkok, etc.). In Hong Kong, Citibank runs a more sophisticated business as it has been allowed to develop out its branch banking business. As a result, Citibank Hong Kong has built a credit card business in addition to offering a wider range of retail banking services. This contrasts with the domestic U.S. market where Citibank is one of the country's largest banks. This large U.S. presence means that Citibank is one of the world's largest banks, with a considerable asset base from which to build its international operations. Citibank's only major back office operations that can support credit cards are located in Hong Kong. The company could, however, set up a back office operation for much of the region, in particular if located in a multilingual city like KL or Singapore where the customer service function can serve clients across the region in Bahasa, Teowchow and English.

2. The current situation for Citibank highlights a number of errors that the company has made to date in the region, as well as a number of strengths as well. One of the most glaring errors is with respect to organizational structure. Citibank's Asia Pacific operations are generally small on a nation-by-nation basis, consisting of only a handful of branches. The structure of the organization to this point has given significant autonomy to the country managers. This strategy was adopted out of necessity given the tight regulations that govern the banking industry and the degree to which these regulations vary across each country. However, such an organizational structure does not easily support region-wide initiatives such as the credit card rollout that will be proposed by Talwar. While some managers are enthusiastic, others are resistant. Gaining consensus is not impossible, but that managers who are in charge of a tiny portion of the firm's assets feel they can block regional initiatives that may inconvenience them speaks to a culture that has allowed these managers a heightened sense of self-importance. Some of the claims made by country managers -- such as the claim that it is impossible to focus both branch banking and credit businesses simultaneously (refuted in every market where it has been attempted) illustrate how unready some of these managers are for this power. Country managers may have been given too much power within their countries under the current organizational structure.

It could be argued, however, that given the different regulatory environments and differences in consumer cultures in these different countries, that a coordinated product launch across the entire region is an unrealistic assumption in itself. The cultural and linguistic differences between the countries may be understated by Citibank management. For example, Australia is a clear outlier in the region both culturally and in terms of its economic development. While many nations are Chinese, there are significant cultural, historical and linguistic differences between the Chinese in Taiwan, Singapore and Hong Kong for example. India, given its size and dramatic cultural differences from the other nations, could also be considered to be an outlier.

There have also been some errors with respect to some of the assumptions in the credit card marketing strategy. The assumptions surrounding the direct sales estimates seem to make little sense. A sales representative should not spend all day working and only call ten people. Moreover, if 50% of calls are prospects and 2/3 of those are qualified, with 80% becoming customers, that means that 26.8% of all candidates contacted are going to be customers. Given the lack of quality marketing contact lists and the lack of credit service infrastructure, such a high figure seems unrealistic.

Another assumption that should be evaluated is that of the potential total market. At present, the Hong Kong market indicates that 6% of customers have a Citibank credit card, meaning that the potential total market for the remainder of Asia Pacific (ex -- Australia and Hong Kong) is 12,180 cards, based on 6% of customers adopting the card. If even we assume that 102 is a typo and the number of total cardholders in Hong Kong is actually 102,000, based on the ratio of cardholders to account holders that still gives a potential market of 159,000 cards throughout the rest of the region. Even that figure seems high given that the Singapore market is saturated and many of the other markets have neither the wealth nor the high degree of urbanization of Hong Kong.

In this study, Citibank is also not focused on the future. When undertaking a major new business initiative, the future is more important than the present. While Citigroup has presented data based on the present, it is ignoring the simple fact that this initiative should not be designed with profit this year or next in mind, but on building a lasting, sustainable business. For example, the idea that the Singapore market is saturated ignores the potential for market growth as a nation whose wealth will attract talent from around the region. Many countries in the region have high birth rates which, when combined with high rates of economic development, will result in exponentially high increases in the size of the middle class. It is absurd that some managers lament not having first-mover advantages in Singapore while other managers are afraid to move first in other countries -- obviously moving first has risks but so does ceding first mover advantage.

The current strategy of focusing on high-value customers is driven by the banking infrastructure in the region. There is no means to check consumers' credit, and foreign banks are limited as to the scope of their branch banking operations. Yet, Citibank is not a high-end bank in its home market. That there are some managers who feel that Citibank is a high end bank rather than a mass market bank means that there have been some communication issues at the corporate level. Managers need to understand what the corporate strategy is, and from there they will be in a better position to understand how the business-level strategies support this.

An error by omission in the assumptions is that of currency risk. It is stated that Citibank will be more or less unable to grow its retail branch banking business in most of these countries. Thus, if it pursues local currency cards, it will take on considerable foreign exchange rate exposure. While this may be acceptable for Australia, Singapore and Hong Kong, the negative impacts of exchange rate risk are going to be considerable for the other currencies, given that they are in general as unstable as the economies that underlie them. Many nations are graded as being C. Or D-level unstable and even among those that are considered stable there is uncertainty about exchange rate stability. Citibank needs to consider that even if they implement the perfect market entry stability, exchange rate risk could jeopardize long-term profitability. The company needs to consider either offering only cards in hard currencies (HKD, SGD, AUD, GBP, USD) or finding ways to build operating hedges through improving dramatically the amount of local currency deposits in order to defend against exchange rate risk.

Overall, Citigroup has operated well in Asia with its defined strategy. It has maximized its allotted number of branches and as a result has been able to build a small business from which to build relationships. At its core, however, Citibank is a mass market consumer bank, not a niche bank. It is also a major player in the credit card business. At this point, in the late 1980s, Citibank is at a crossroads with respect to its position in the Asia Pacific market. It needs to determine if it is going to remain as a niche player in the industry or if it is going to pursue a mass market strategy to the best of its ability. Rana Talwar needs to set a credit card strategy in line with this choice of strategic direction. This may involve making some bold decisions, and risky ones as well.

3. It is recommended that Citibank first analyze the issue of optimal organizational structure. Before the company embarks on any major undertaking, it needs to understand if its current organizational structure is conducive to the types of strategies it intends to implement in the Asia Pacific region. The role of the country managers needs to be evaluated, but so does the concept of pan-regional management and the interconnectedness of country and regional management. If the optimal organizational structure is in place, the following recommendations can be followed.

The first of these is to evaluate the opportunities in each nation. The readiness… READ MORE

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