Citi Bank India Credit Cards: Strategy for Profitable Growth

Essay by xubuqing21University, Master'sA, October 2014

download word file, 17 pages 0.0

MARKETING 611

SECTION 005

CITIBANK INDIA CASE

Learning Team A5: Mohammad Al-Ali, Greta Carlson,

Patricia Ligon, Scott Schultz, Mike Xu, Max Young

Word Count: 1496

In assessing the marketing strategy of Citibank India's credit card business, Harpreet

Grewal is faced with two choices: maintain the current strategy, with its higher margins but

shrinking growth opportunities, or expand into new target segments/geographies with their

attendant challenges and uncertainties. He would likely find that a new product launch is

justified. While Citi's position in the super-affluent/affluent segment remains strong, its falling

market share combined with the growth of the emerging affluent (E.A.) and mass market

suggest a change may be worthwhile. To begin by surveying the landscape, a 5C analysis is

shown below:

 Company

o Historically an innovative leader in the industry, but currently restricts itself to

servicing the super-affluent/affluent in India's largest 8 metropolitan areas.

o A strong brand, seen as offering an aspirational product and service, can be

leveraged to drive differentiation

o Losing market share from 30% to 22% despite good performance in the existing

segment (topline doubled) over the past 5 years, need to reassess market

o Need to address "profitable growth" and "efficiency factor" besides mere

revenue growth going forward

 Customer

o Since the global financial crisis, Indian credit card users have become more

prudent, carrying less of an outstanding balance on their cards and focusing

more on value, meaning credit-loss provisions could be reduced, making lower-

segment interest fees more compelling

o Customers can be divided into "transactors" and "revolvers" - the former pay

their entire balance off every month, thus incurring no interest, while the latter

carry some balance in their account. The latter provides critical interest fees

o Consumers increasingly have multiple cards - a preferred card for primary use

focusing on convenience and service quality, and others for travel, lifestyle, and

security needs, which has implications for new product positioning

o Super-affluent/affluent consumers inclined to use cards on travel and lifestyle-

related purchases

o E.A. consumers spend on fuel and in department stores and focus on value for

money

 Context

o Population is growing by 17.7% per annum, while household disposable

personal income per capita is growing at 10.54% per annum

o Regulatory changes are underway that may reshape the industry - the Reserve

Bank of India is capping interest rates and interchange fees, as well as

introducing mandatory security features, implying volume growth could become

more critical

o Credit data has become widely available, making scoring people possible

 Collaborators

o Merchants - merchants that accept credit cards are mostly restricted to major

urban areas, and even they frequently add a 2% fee to items that are purchased

with credit cards in order to break even on interchange and association fees

o Direct sales agents (DSAs) - offer entry into untapped markets at a lower cost

than expanding branches and hiring staff, but may negatively impact branding

o Central bank - bank regulator, hostile to new branch expansions by foreign

banks compared to domestic banks

o Increasingly, credit card issuers are partnering with other companies to offer

particular rewards (e.g. Citi and National Oil Company, SBI and Indian Railways)

which differentiates the cards

 Competition

o Domestic public sector banks - have vast number of branches, particularly

strong in rural areas, which has implications regarding the competitive dynamics

of expanding into rural areas

o Domestic private sector banks - employ aggressive marketing tactics including a

"lifetime free" card that eliminates the annual fee, a critical variable to win the

business of mass market consumers

o Foreign private banks - have an aspirational image, focus on affluent segments

Having reviewed the critical facts, Grewal can proceed to a Segmentation, Targeting, and

Positioning analysis.

Segmentation

The credit card customer in India can be segmented by Citi's own classifications - super-

affluent, affluent, E.A., and mass market - or by India's Socio-Economic Classification (SEC)

scheme. Citi's classification is more useful, as it provides more granular data. From data in

Exhibits 7 and 10 as well as in the text, Grewal can produce Exhibits A1 & A2, which summarize

the breakdown of the Indian population by wealth as well as geographic location, i.e. top 8

cities, remaining urban areas, and rural areas. To simplify the analysis, Grewal can assume all

households are the same size - while this is not exactly the case, it provides a sufficient

approximation. There are roughly 85 million people in the largest 8 Indian cities, of which 6-7

million are in the super-affluent or affluent segments that are Citi's current focus. As its

shrinking market share demonstrates, however, growth of the Indian credit card industry is

passing Citi by, due in part to expansion of the two sectors Citi left behind after the financial

crisis.

Targeting

If Citi wishes to adjust its strategy, there are two sensible choices for new targets - the E.A.

and/or mass-market consumer in the top 8 cities, or the super-affluent/affluent in other

urban/rural areas within India (See Exhibit A2). The former offers a much larger potential

market (12 million new potential customers vs. 6 million currently) but does not leverage Citi's

current strengths. The latter play's to Citi's strengths, but is a smaller market (2 million) and

would require sizeable infrastructure expansion given the super-affluent/affluent's preference

for physical presence and the importance of cross-selling services. Running a contribution

analysis on each segment (Exhibit B) provides more insight. There are, of course, important

assumptions underlying this analysis, which are footnoted in Exhibit B. Key findings include:

 While the E.A. customer offers a lower unit contribution (margin) of INR 4,000 (37%)

than super-affluent's INR 13,700 (45%) or affluent's INR 9,420 (45%), it is still an

attractive opportunity

 CLV is from INR 12,000-18,000 for an E.A. consumer even assuming an industry-average

12% attrition rate and a 10% discount rate, implying that spending even the INR 5,000

high-end estimate for customer acquisition would be profitable for this segment.

 Breakeven cannibalization rates are around 30% for the super-affluent and 43% for the

affluent - these seem acceptable given the product differentiation in terms of rewards

and marketing.

 From an efficiency ratio perspective, E.A. consumers in the top 8 cities will provide a

better ratio than super-affluent/affluent consumer in other regions (63% vs 73%)

The other alternative - expanding into other geographic regions - is irreversible, comes with

significant upfront investment costs, may be opposed by the RBI, all in pursuit of a small group

of customers who live in areas where merchants are far less likely to accept credit cards.

Combined with inferior quantitative metrics (see Exhibit 2), expanding to other urban and rural

affluent consumers are second-best behind the E.A. in the top 8 cities.

Positioning

Given these facts, launching a card for the E.A. in the top eight cities is an attractive

possibility. The positioning statement would read as follows:

"For the hard-working professional within and across India's largest cities, the Citi City

card offers the rewards and competitive terms previously available only to the wealthy, all

designed and supported by one of the world's foremost leaders in customer service.

Competing cards simply cannot match the array of rewards specifically tailored for the

cosmopolitan consumer; Citi's deep understanding of urban life means rewards like cash back

on fuel and electronics, and access to exclusive Indian Premier League matches for when that

hard-earned break finally arrives."

To delve deeper into these specifics using the 4P framework:

 Product - The Citi City Card series offers rewards relevant the E.A. within India's 8 largest

cities, including - depending on the choice of card - fuel, department stores,

electronics, Indian Premier League tickets, and inter-city travel

 Place - Citibank India will continue to focus on customers in the Top 8 cities. A greater

proportion of Citi's bank branches and existing direct sales force are located in these

cities and they will be able to better support a growing customer base

 Price - The cards will have an annual fee of 1,000 INR and a 36% APR, but the fee for the

first year will be waived and there will also be an initial interest-free period of 3 months

to entice customers

 Promotion - Point of sale marketing is Citi's preferred method; high precision is

necessary given the lack of economies of scale. Given the interest in the E.A.

consumers, advertising at Premier League cricket games, and within relevant stores

(department, electronics) is most likely to garner interest without requiring a vast

increase in marketing spend. Emphasizing certain locations on a weekly or monthly

basis could conserve marketing funds while still "following" consumers to their major

destinations

Conclusion

An analysis of the credit card market demonstrates that Grewal should target the E.A.

segment in the same eight cities, which offers a sizeable new market with outstanding growth

prospects. Quantitative and qualitative analysis shows the E.A. consumer to be clearly superior

to super-affluent/affluent customers outside the top 8 cities. As for simply maintaining the

current strategy, the spending growth and improved credit profile of the E.A. mean Citi has an

opportunity to participate in an expansion of wealth with strong CLVs and contributions, if it

can differentiate itself. Through targeted marketing initiatives, Citi can reach the E.A. in a way

no other bank has, and position itself for future success.

Exhibits

SOURCE: Case information

▪ 72% rural population and 28% urban

population

▪ [From Exhibit 7] % distribution by

affluent level for all

India and top 8 cities

▪ Among super affluent and affluent, 75%

cluster in top 8 cities

Top 8 Cities

Other urban

areas

Rural areas

6.74%

Super

Affluent

Affluent Emerging Affluent

Mass Total %

Key info from case Geo location

Wealth level

0.06% 0.62% 3.10% 96.22% 100%

21.26%

72%

Total %

0.052% 0.46% 1.02% 5.21%

0.17% 93.09%

EXHIBIT A1: % breakdown of the Indian population by wealth level as well as geographic location

SOURCE: Case information

▪ [From Exhibit 10] Population from top 8

cities adds up to ~85

million by 2011

▪ Use the ~85 mil to play back with %

distribution from

EXHIBIT 1A to

calculate the actual #

of population for

each sector

▪ [From case] India's overall population

surpass 1.2 billion by

2011, reconcile with

our calculation

Top 8 Cities

Other urban

areas

Rural areas

85,170

Super

Affluent

Affluent Emerging Affluent

Mass Total populationKey info from case

Geo location

Wealth level

758 7,832 39,163 1,215,579 1,263,333

268,563

909,600

Total

population

654 5,788 12,903 65,824

2,147 120,181

EXHIBIT A2: Actual number breakdown of the Indian population by wealth level and by geographic location

(Unit: ,000 population)

Citi's current mkt focus Mkt expansion option 1

Mkt expansion option 2 Irrelevant - would come

after expanding either

geography or segment

EXHIBIT B: Financial & Contribution Analysis

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EXHIBIT C: Consumer Lifetime Value, Cannibalization

T o

p

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