With the emerging competition for the credit cards industry in India, Citibank needs to realign its target market and not just consider it along with the financial objectives of the firm.
Jaydeep Mukherjee and Sanket Kawde
Harvard Business Review (W14184-PDF-ENG)
May 30, 2014
Case questions answered:
- Evaluate the performance of Citibank’s credit card business in India with respect to the industry and identify areas of concern.
- Analyze the consumers and market potential of the different segments, as developed by Citibank India.
- What were the risks associated with Citibank’s existing target market selection strategy? Would this strategy enable Citibank to meet its corporate objectives in the future?
- Alternative target market selection strategy for Citibank cards in India.
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Case answers for Citibank India Credit Cards: Strategy for Profitable Growth
1. Evaluate the performance of Citibank’s credit card business in India with respect to the industry and identify areas of concern.
The target segment for Citibank India Credit Cards is the affluent consumer, and hence it caters to a niche segment. The customers view the products as premium, and it is also a global brand.
Looking at the total revenue, the percent of fee and interest revenues has been reduced, and the revenue largely consists of interchange revenue.
The company introduced the first contactless credit card payment system, showing innovation on that front.
Excelling in its operational efficiency, Citibank has the highest spend per card, and 20% of the total share spend in the banking industry.
The use of innovative sales approaches like selling credit cards to existing customers (both direct and third-party agents) and attracting customers with gifts and vouchers.
It has managed to bring down credit losses by focusing on affluent consumers in top-tier cities.
Areas of Concern
The popularity and growth opportunity of credit cards declined with the rise of debit cards and ATMs as alternate sources of cash.
By the end of 2008, total outstanding on credit cards rose to 300 billion rupees. The default rate peaked at 17% in 2009, leading to huge losses.
Credit cards took another hit as e-money and mobile services became popular among the masses.
Consumer behavior has undergone a change as they become more and more financially aware and choose options other than credit cards as a source of money.
Citibank India Credit Cards’ target customer base is the affluent customer in top-tier cities, which is very limited and has hindered growth opportunities for the bank in other customer segments.
2. Analyze the consumers and market potential of the different segments, as developed by Citibank India.
SUPER-AFFLUENT AND AFFLUENT SEGMENTS
- Inherited wealth, self-made businessmen, a small group of salaried professionals.
- Brand awareness with higher brand loyalty.
- Tended to invest more in real estate and sophisticated financial instruments.
- Willing to pay for…