Case Analysis for Alpen Bank

Case Analysis: Alpen Bank

The main issue that Alpen bank is facing is whether or not they should launch the credit card
business in the Romania market and which group of target audience they should select while
applying the launching strategy. Moreover, specifically to Carle, he needs to come up with a program
from which, Alpen bank can generate at least €5 million in profit within 2 years. Moreover, clarified
positioning strategy and customer segmentation is also needed to secure the success of the
program.

In the case, it seemed that Alpen had the opportunity to act since economic environment in Romania
had changed from 2006 after its entering into the EU: the economy there was developing; a growing
trends of luxury purchasing emerged; there was also an increasing likeliness of using card instead of
cash; other competitors had already taken similar strategies in the market; Alpen’s traditional
banking business had a great penetration throughout the country, etc. However, such a growth was
not enough compared with other countries of the region. Besides, to launch the credit card business
in Romania might be risky and do harm to the customer base. Then what should Alpen do?

According to the charts 4 & 5 in the appendix, regardless the target audience, launching credit card
business in Romania is profitable with the premise that if the customer base is big enough. (All the
calculations in the charts were based on revenue potential and acquisition costs.) Comparing
between the 2 options, it seemed that choosing affluent customers only would be easier to achieve
since number of the required customers of breakeven point with a ROI of 5 million is smaller than
that of choosing both middle class and affluent customers. Moreover, as customer base grew, profits
of selecting affluent customers only were bigger than those of selecting both middle class and
affluent customers because of the fact that there was significantly lower card utilization for middle-
class customers. Thus, in order to successfully launch the credit card business into Romania, Alpen
bank needs to pick its target audience which is composed of affluent customers only. However, all of
these are based on the premise that Alpen can acquire enough customers within 2 years; otherwise,
it will lose money. Nevertheless, there was a promising fact in the Romania market that those
affluent customers were more likely to at least try Alpen’s cards.

Then considering marketing strategy options, Alpen should focus more on direct sales and branch
cross-selling, since their costs per customer (relatively €3.61 and €2.92) are significant lower than
those of other 3 tools. Moreover, direct sales and branch cross-selling will work more efficiently since
they have much higher effective hit rate than the other options regardless the target audience
choices. Thus, these tools can provide a flexible space for Alpen to move on to other potential
strategies in the long-term.

Regarding the positioning strategy, Alpen should emphasize on its current strength since it is much
easier and safer for a brand to maintain its current image rather than explore a new one. Alpen has
already established the reputation for excellence in serving affluent clientele. With such reputation
and brand awareness among its target audience, Alpen seems to be more likely to make profits with
launching its credit card business into Romania market.

APPENDIX

REVENUE POTENTIAL

The process of determining revenue potential from the Alpen Bank case is based on determining
revenue potential per customer segment and then determining the overall value per customer. First,
determine the relative value of each segment. Find the number of potential cardholders by segment
and weight the value of each segment by calculating the percent of the total potential cardholders
each segment represents. (e.g. the middle class is 18.2% of the total population and 39.53% of total
potential cardholders). The Annual Revenue per Middle Class Cardholder is €60.63. Calculate the
share of total revenue potential accounted for by the Middle Class. Complete the exercise for each
segment and total to determine the average annual revenue per customer.

Romanian Market | Revenue per Cardholder |

| Romanian Market | Revenue per Cardholder |

Segment | Annual Income

€ | % of Potential Cardholders | Potential Cardholders (MM) | Interest Revenue

€ | Other Revenue

€ | Annual Revenue

€|

| (Table A) | (Exhibit 5) | (Case Text: Page 4 @ 18.6M) | (Table A) | (Table A) | (Table A) |

Middle Class | 3,000-4,500 | 18.2 | 3.39M | 37.13 | 23.50 | 60.63 |

Affluent | 4,500-6,000 | 15.0 | 2.79M | 86.63 | 36.75 | 123.38 |

Most Affluent | 6,000+ | 12.9 | 2.40M | 148.50 | 61.25 | 209.75 |

Annual Revenue per Cardholder (all customers) | €122.78 |

Annual Revenue per Cardholder (Affluent + Most Affluent) | €163.31 |

ACQUISITION COSTS

Table B provides the basic data necessary to calculate the relative strength and reach of the several
acquisition tools available to Alpen Bank to acquire credit card customers. Recreate this table to
establish the parameters for implementing marketing communication plans to acquire customers.

TOOLS | Unit Cost (€) | Prospects Reached | Response Rate | Qualification Rate |

Direct Mail | 0.50 | 2,500,000 | 3.0% | 60.0% |

Take One | 0.10 | 2,000,000 | 2.5% | 30.0% |

FSIs | 0.05 | 3,500,000 | 1.5% | 30.0% |

Direct Sales | 3000/rep | 60,000 | 25.0% | 60.0% |

Branch Cross-Sell | 1.00 | 50,000 | 50.0% | 90.0% |

Having reproduced this table you can then calculate the cost of acquiring customers. The exercise
can be done for both all customers and affluent customers. In addition to the information above the
case provides a conversion rate of 85% of qualified prospects.

Customer Acquisition Costs (All Customers)

Tools | Unit cost (€) | Prospects Reached | Response Rate | Qualifying Rate | Conversion Rate |
Effective Hit Rate | # of Customers | Total Cost

(€M) | Cost per Customer (€) |

Direct Mail | 0.50 | 2,500,000 | 3.0% | 60.0% | 85% | 1.53% | 38,250 | 1.25 | 32.68 |

Take One | 0.10 | 2,000,000 | 2.5% | 30.0% | 85% | 0.64% | 12,750 | 0.2 | 15.69 |

FSIs | 0.05 | 3,500,000 | 1.5% | 30.0% | 85% | 0.38% | 13,388 | 0.18 | 13.07 |

Direct Sales | 3000/rep | 60,000 | 25.0% | 60.0% | 85% | 12.75% | 7,650 | 0.03 | 3.92 |
Br Cross-Sell | 1.00 | 50,000 | 50.0% | 90.0% | 85% | 38.25 | 19,125 | 0.05 | 2.61 |

All Channels | | 91,163 | 1.71 | 18.75 |

W/o Direct Mail | | 52,913 | 0.46 | 8.60 |

Top 3: Mail, FSIs, Cross-Sell | | 70,763 | 1.48 | 20.91 |

Customer Acquisition Costs (Affluent Customers Only)

Tools | Unit cost | Prospects Reached | Response Rate | Qualifying Rate | Conversion Rate |
Effective Hit Rate | # of Customers | Total Cost

(€M) | Cost per Customer (€) |

Direct Mail | 0.50 | 1,250,000 | 3.0% | 60.0% | 85% | 1.53% | 19,125 | 0.63 | 32.68 |

Take One | 0.10 | 2,000,000 | 2.5% | 15.0% | 85% | 0.32% | 6,375 | 0.20 | 31.37 |

FSIs | 0.05 | 3,500,000 | 1.5% | 15.0% | 85% | 0.19% | 6,694 | 0.18 | 26.14 |

Direct Sales | 3000/rep | 60,000 | 25.0% | 60.0% | 85% | 12.75% | 7,650 | 0.03 | 3.92 |

Branch Cross-Sell | 1.00 | 50,000 | 50.0% | 90.0% | 85% | 38.25 | 19,125 | 0.05 | 2.61 |

All Channels | | 58,969 | 1.08 | 18.31 |

W/o Direct Mail | | 39,844 | 0.46 | 11.42 |

Top 3: Mail, Sales, Cross-Sell | | 45,900 | 0.71 | 15.36 |

Upon completion of the work to be able to estimate revenue and acquisition costs, the process of
estimating the relative values of successfully attracting customers at various levels of market
penetration. The goal is to determine, based on revenue potential and acquisition costs, how many
customers need to be acquired to achieve objectives the objectives of breakeven and the required
ROI of €5 M.

The case adds the information regarding fixed costs. There is a cost of advertising at €2 million and
infrastructure fixed costs of €5 million for the first 50,000 customers and an additional €750,000 for
every additional 50,000 customers (changing the relevant cost range).
Variable cost additions to support customers were €20 per customer for the first 50,000 customers.
Economies of scale are calculated to drop the per customer charge by €2.50 with every additional
50,000 customers.

| Number of Customers (Middle Class + Affluent) |

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Per Customer | 50,000 | 100,000 | 150,000 | 200,000 |

Revenue | 122.78 | 122.78 | 122.78 | 122.78 |

Acquisition Cost | 18.75 | 18.75 | 18.75 | 18.75 |

Direct Cost | 20.00 | 17.50 | 15.00 | 12.50 |

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Costs: New Customer | 38.75 | 36.25 | 33.75 | 31.25 |

Costs: Existing Customer | - | 17.50 | 15.00 | 12.50 |

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Contribution: New Customer | 84.03 | 86.53 | 89.03 | 91.53 |

Contribution: Existing Customer | - | 105.28 | 107.78 | 110.28 |

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New Customers | 50,000 | 50,000 | 50,000 | 50,000 |

Existing Customers | - | 50,000 | 100,000 | 150,000 |

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Credit Card Profitability | | | | |

New Customer | 4,201,500 | 4,326,500 | 4,451,500 | 4,576,500 |

Existing Customer | - | 5,264,000 | 10,778,000 | 16,542,000 |

Total Contribution | 4,201,500 | 9,590,500 | 15,229,500 | 21,118,500 |

Fixed Cost: Infrastructure | 5,000,000 | 5,750,000 | 6,500,000 | 7,250,000 |

Advertising Expense | 2,000,000 | 2,000,000 | 2,000,000 | 2,000,000 |

Profit (Loss) | -2,798,500 | 1,840,500 | 6,729,500 | 11,868,500 |

Cumulative Profit (Loss) | -2,798,500 | -958,000 | 5,771,500 | 17,640,000 |

Breakeven (#of customers): since profit within customer number of 100,000 is positive, which of
50,000 is negative, then the number of customers at breakeven point should fall between 50,000 to
100,000; assume X stands for the increased number of customer within that range, then the
following equation should be right: 122.78(X + 50,000) – (5,750,000 + 2,000,000) – [(50,000 x 17.50)
+ 36.25X] = 0; then X = 28,758, thus the number of customers at breakeven point should be 28,758
+ 50,000=78,758

Then when ROI = 5,000,000, since 1,840,500 < ROI < 6,729,500, then the number of customer at
this point should fall in the range between 100,000 to 150,000; then similarly assume Y stands for
the increased number of customer within that range, there is a right equation: 122.78(Y + 100,000) –
(6,500,000 + 2,000,000) – [(15 x 100,000) + 33.75Y] = 5,000,000; then Y = 30,574, thus the number
of customers at ROI of 5,000,000 should be 30,574 + 100,000 = 130,574

| Number of Customers (Affluent) |

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Per Customer | 50,000 | 100,000 | 150,000 | 200,000 |

Revenue | 163.31 | 163.31 | 163.31 | 163.31 |

Acquisition Cost | 18.31 | 18.31 | 18.31 | 18.31 |

Direct Cost | 20.00 | 17.50 | 15.00 | 12.50 |

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Costs: New Customer | 38.31 | 35.81 | 33.31 | 30.81 |

Costs: Existing Customer | - | 17.50 | 15.00 | 12.50 |

|||||

Contribution: New Customer | 125.00 | 127.50 | 130.00 | 132.50 |

Contribution: Existing Customer | - | 145.81 | 148.31 | 150.81 |

|||||

New Customers | 50,000 | 50,000 | 50,000 | 50,000 |

Existing Customers | - | 50,000 | 100,000 | 150,000 |

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Credit Card Profitability | | | | |

New Customer | 6,250,000 | 6,375,000 | 6,500,000 | 6,625,000 |

Existing Customer | - | 7,290,500 | 14,831,000 | 22,621,500 |

Total Contribution | 6,250,000 | 13,665,500 | 21,331,000 | 29,246,500 |

Fixed Cost: Infrastructure | 5,000,000 | 5,750,000 | 6,500,000 | 7,250,000 |

Advertising Expense | 2,000,000 | 2,000,000 | 2,000,000 | 2,000,000 |

Profit (Loss) | -750,000 | 5,915,500 | 12,831,000 | 19,996,500 |

Cumulative Profit (Loss) | -750,000 | 5,165,500 | 17,996,500 | 37,993,000 |

Breakeven (#of customers): similar to the condition of concluding both affluent and middle class
customers, here the number of customers at the breakeven point should between 50,000 to
100,000; assume A stands for the increased number of customers within 50,000 – 100,000, then the
tenable equation is: 163.31(A + 50,000) – (5,750,000 + 2,000,000) – [(17.50 x 50,000) + 35.81A] =
0; then A = 3,604; thus the number of customers at the breakeven point is 3,604 + 50,000 = 53,604

When ROI = 5,000,000, again, since -750,000 < ROI < 5,915,500, then number of customers here is
still in the range from 50,000 to 100,000; assume B = increased number of customers, tenable
equation: 163.31(B + 50,000) – (5,750,000 + 2,000,000) – [(17.50 x 50,000) + 35.81B] = 5,000,000;
then B = 42,820; thus number of customers at ROI of 5,000,000 is 42,820 + 50,000 = 92,820