Chase Sapphire Case Study

Class assignment on Chase Sapphire as a business.

1. Chase Sapphire:
Reserve Card Analysis
Andrew Marsha Mulia –AMM567
MGMT581-30

2. Chase Sapphire: Reserve Card
What value does the Chase Sapphire Reserve card deliver to customers?
Strong rewards, premium travel redemptions and exceptional customer service
3x points/ dollar on travel and dining
1.5 points-to-dollar redemption rate
$300annual travelcredit
Chase Experiences Platform
100,000-point sign-on bonus (worth $1,500)/50,000-point sign-on bonus (worth $750)
Heavier card to signal prestige
How is it differentiated from customers?
Chase Sapphire Amex Platinum Citi Prestige
Young and Successful
Experience Focused
Travel Focused
Modern and Contemporary
Not my “Father’s Credit Card”
Well-established/ Prestigious
“Member since” -long history of
banking and having wealth
Cream of the moneyed crop
“Card members” –exclusive club
Business travelers
Global citizen
Program flexibility

3. Chase Sapphire: Reserve Card
What does the CLV analysis show regarding the card?
Based on existing parameters under the 100,000-point introductory program Chase
will need a customer mix of 26% Transactors, 47% Revolvers and 27% Churners to
achieve a CLV of at least 0.
$1,408 in revenue is the breakeven point for all customer segmentation to achieve a
CLV of at least 0 under the 100,000-point program. Chase needs to achieve this from
an increased combination of Annual Card Fee, Interchange Fee Revenue on Spend
and Interest Revenue on Unpaid Balance.
Transactorsneedtobecharged an additional $718 to breakeven
Churnersneedtobechargedanadditional$898 to breakeven
What value does the card bring to the company?
Double digit CAGR for new accounts with sales growing at an even faster rate.
AccesstoGrowing young emerging affluent, affluent and high net worth (HNW)
individuals that has a relatively high spending ability and the reliability to repay loans.
Abilitytocross-sell JP Morgan products to new Chase Sapphire Reserve customers.
FurthersegmentsChaseSapphirePreferredcustomersthatwould otherwise have not
been captured. Encouraging them to spend more to justify $355 increase in fees.

4. 100,000-Point Offer and Post-Promotion
How do you evaluate the 100,000-point introductory offer?
Was this a good investment for Chase? Why or why not?
Yes, this was a good investment for Chase as all categories willhave a positive NPV by
Year 6 with the 100,000-point offerandYear4whenreducedto50,000points. Chase
will also have acquired a selective group of Affluent/ HNW individuals to its portfolio.
All Chase Sapphire Reserve customers are going to receive a bill with a $450
annual fee. Is there enough value in the product to persuade them to renew?
Yes, only if the customer spends the above annually to at least accrue $75 worth of
points. This is because the customer will have already received $300 in annual travel
credit and $75 worth of points from the introductory offer divided over 20 years.
Offered Points Transactors Revolvers Churners
Gross Margins (Y0) –Assuming Card Activation
100,000 -$1,185 $455 -$1365
50,000 -$435 $1205 -$615
CLV/ Annual Spend Needed to Breakeven
100,000 -$375.02/ $95,000 $481.71/ $12,128 -$469.05/ $95,000
50,000 $187.48/ $45,000 $1,044.21/ $5,745 $93.45/ $45,000
Airfare and Hotel Dining Entertainment Everyday Spend
3x points per dollar spent3x points per dollar spent1x points per dollar spent1x point per dollar spent
$1,190.48 $1,190.48 $3,571.43 $3,571.43

5. Chase Sapphire: Card Product Line
What do you think of the current product line structure (i.e.multiple products,
different price points etc)?
Thecurrentproduct line structure captures the different market segments very well.
Especially considering that Chase also has its Ink (small business owners), Freedom (cash-
back) and Slate (build-credit) lines for its general consumers.
Who is the target market for each product? Is there anything missing in the portfolio?
There are no missing segment in the portfolio as current product line structure serves the
market and additional segmentation will only result in cannibalization between products.
How would you manage marketing investment in the three products?
ChasecurrentlypreventsindividualfromowningmultipleSapphireproducts and instead
encourage individuals to upgrade. This creates a distinct tiered system that builds loyalty as
individuals have an accompanying Chase product while they build their career and wealth.
Which product would you support? Why?
Chase Sapphire –as it caters to a larger market that are more likely to carry revolving debt.
Sapphire Preferred Reserve
Emerging affluent segment
that will likely be affluent
within five to ten years.
Affluent segment that has
$100K to $500K in assets.
Wealthy segment that has
$500K to $1M in assets.

6. Chase Sapphire: Future and Onwards
What lessons would you draw from the Chase Sapphire Reserve launch for
building a brand that is popular with millennials?
Transparency–Millennials are educated and technology savvy. Showing them the
value that they receive from your product and being on the same “side” will help
them get on board and they will in turn become strong advocates of your brand.
Exceptionalism–Millennials like to stand out and be different. Paradoxicallythey
alsowanttofeelliketheybelong to an exclusive club. Creatingproductsthatmakes
themfeeldifferent but part of an exclusive tribe that is very selective works best.
Story telling –Millennials are obsessed with a good story. Creating a narrative
regarding travel or experience that they can associate your product with is important.
Which aspects of the product strategy are sustainable over time?
Exclusivity:
Can be sustainable as long asChase creates a sense of curated experience.
Maintainselectiveapprovalprocessthatfocusedonbuildinga strong community.
Transparency:
Can be sustainable byworkingwithTPGorKeyOpinion Leaders to flesh out and showcase
the Chase Sapphire product value add.

7. Recommendation & Risks
Risks
Model doesn’t consider the additional $300 annual travel credit as an expense.
Model assumes a churn rate of 25% which can be higher or lower depending on
competition response and economic conditions of the market.
Appetite for debt/ annual spend will dependoneconomic conditions. During
economic down turns (pandemic/ recession) people prefer to save than spend.
Recommendation & Insights
Reducing Introductory Offer Points to 50,000 provides Chase with a positive CLV
across all segments. However, Chase’s CLV will still be lower than Amex for its most
profitable segment due to Amex having a higher annual fee and interchange fee for
their closed loop system. Chase should increase their annual fees to match Amex
as their benefits and redemption value per points are better than Amex.
Consumers are not very likely to spend $95,000 annually given that the median
annual household income of the prosperous and content are only $85,000. Chase
should instead focus on reducing expense byreducing its redemption value points
rate from 1.5x to 1.25xcloser to Citi Prestige but higher than Amex.
Chase should reject applicants that have applied for new credit cards recently to
reduce the number of churners and improve its profitable consumer base.