76411331-Conjoint-Analysis.pdf

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Chase Sapphire Case Analysis
Chase Sapphire Case Analysis
Problems and Opportunities
JP Morgan’s Chase Sapphire has been successful in launching its reserve card and
acquiring a huge customer base. The success was evidenced by huge sales made from the sale of
the reserve card, which exceeded the bank's one-year sales goal in two weeks. The huge sales on
the new credit product and acquisition of new customers may be attributed to a big signup bonus,

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ongoing point structure, and travel credits issued by the bank. However, this success is not
sustainable in the future, and the company needs to make various changes in customer
acquisition strategy
.
One of the problems JP Morgan Chase is expected to encounter is to make a profit from
the card in the coming years. Despite the card being a successful driver of the acquisition and
utilization for a wide card credit portfolio, it will not break even in the coming years. The main
challenge is that the balances being held by cardholders are not likely to give valuable revenue
from interest to the bank. The cuts to rewards programs are likely to increase since the associated
costs are continuing to skyrocket. Another challenge is that the bank is currently having higher
acquisition expenses than the revenue generated from the dormant users and transactors.
Consumers are reluctant to renew the card after earning the high original bonus, making it
difficult to generate revenue from the cards
.
One of the opportunities JP Morgan Chase should seek to exploit is retaining a large
number of new customers by creating more value for them. JP Morgan Chase should take
advantage of its positive brand to reinvent and come up with products and services that create
value for their customers. The bank should exploit its brand that resonates with consumers to
come up with new initiatives that will increase revenue generation and at the same time meet
customers' needs
.
Recommendations and Solution
Since Chase has succeeded in maximizing market penetration, it should consider
discontinuing its cardholder acquisition program. The move will prevent the bank from incurring

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further expenses from the costly acquisition program. Instead, they should shift their efforts in
maximizing value for the existing Chase Sapphire Reserve cardholders. Creating products and
services that create value for customers will not only boost customer retention but also increase
revenue generation
.
The Chase Sapphire team should consider redesigning products and brands as well as
redefining the marketing strategy focusing on dormant customers and revolving customers. The
teams should come up with initiatives to increase the activity of dormant customers. For
instance, initiating a point's bonus initiative may influence dormant customers to have their
accounts active. Additionally, establishing rewards such as cashback bonuses and proprietary
currency products is likely to increase the engagement and activity of revolving customers. The
cashback bonuses initiative is significant in retaining revolving customers and encouraging them
to keep up the high activity level considering that they are carrying a balance every month. Also,
the Chase Sapphire team should strive to increase revenue and retain transacting customers by
coming up with offers to influence them to use their cards more often. For instance, the team can
put up a rich offer such as a person will get X amount of points if they spend Y amount of dollars
in a given period. The offer will influence customers to use their cards quickly, which will
become a habit and daily routine. All customers should find value in the bank's products.
Maintaining high activity level of all customers is fundamental in ensuring customer retention
and increased revenue generation. Another solution is investing in technology such as machine
learning that will prevent cardholders from failing to renewing their cards after reaping the initial
benefits. The move will increase the activity of dormant customers and ensure that customers
continue to renew their cards to reap more benefits
.

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One of the recommendations regarding the future of the Chase Sapphire product portfolio
is that JP Morgan should consider differentiating between Chase sapphire preferred and Chase
Sapphire Reserve. The difference between the two can be well portrayed through reliable
marketing promotion strategies. For instance, the bank should reinvent its website by providing
comprehensive options for clients as far as selecting their suitable sapphire card is concerned.
Also, JP Morgan can consider marketing the two cards using social media influencers especially
those who are popular for their traveling lifestyle. These social media influencers have a large
following on various social media platforms such as Instagram, which increases the probability
of attracting customers
.
The other recommendation is that the bank should consider integrating the Chase
Freedom Unlimited Card with the Chase Sapphire Reserve. When combined the points earned on
the Freedom Unlimited Card may be redeemed when consumers want to travel. Hence, it means
that a combination of these two cards generates cash back on all the purchases
.
Chase Sapphire:
Creating a

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Millennial Cult
Brand
Scroll down to see the second solution!
Please scroll down to the bottom of this post to
download the additional Excel spreadsheet!
Chase Sapphire: Creating a Millennial
Cult Brand – Case Analysis
This Harvard Business Study revolves around
consumer banking and the credit card market.
It explains the dynamics that revolve around
customer loyalty, customer acquisition, and the
intense competition that the credit card
industry faces.
In this case study, I will be analyzing
recommendations in my capacity as an
independent consultant and guiding the JP
Morgan Chase brand to break-even and
maximize their profits.

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INTRODUCTION - Chase Sapphire
JP Morgan Chase secured revenue of $44.9
billion and reached a net income of $9.7 billion
in 2016, it ranked in top 2 credit card issuance
and had a strong network and spread over the
US. Chase Sapphire was launched to change
the perception of how a credit card is viewed. It
was able to identify and capture 15% of the
market segment which consisted of a high net
worth customer segment.
With the launch of Chase Sapphire Reserve
Card in 2016, the sales target was met within
two weeks, as against the forecasted target of
12 months. However, a dip in net revenue has
been reported and the top management is
anticipating customer behavior, and steps it
needs to turn their customer behavior in its
favor (Santana et al. 1,2,4).
SWOT ANALYSIS
The following is a summarized version of the
SWOT analysis for JP Morgan Chase (Santana
et al. 1-11).

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IDENTIFYING THE PROBLEMS
From the case study, the following problems
have been identified for JP Morgan Chase
(Santana et al. 1-11).
PROFITABILITY
• Revenue lost due to the open-loop system.
• Affiliation costs with cobrands for the

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rewards system.
• Heavy customer acquisition costs ranging
from 250$ to 500$
CUSTOMER RETENTION
• Payment of annual fee
• Reduction of bonus points to 50,000 from
100,000.
• High rate of churners.
CANNIBALIZATION
• Heavy clutter due to existing sub-brands.
• Absence of tailor-made reward system.
• Similar tangible cards for sub-brands.
UNDERSTANDING THE CREDIT MARKET
Before proceeding to the solution, it is
important to understand the credit market and
what the consumers prefer. A ranking system
has been developed to analyze such needs and
present the features that are most suited
(Santana et al. 11-21).

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*1 – Most favorable feature represented by
green.
*6 – Least favorable feature represented by red.
From the above analysis, we can conclude that
the most valued features as required by the
credit consumer markets are airline miles,
followed by no/ less annual fees. Further
preferred features are unlimited cashback and
bonus on specific.
FIXING THE ISSUES
FOR PROFITABILITY:
CURRENT SITUATION
The following is the split of revenue for

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JPMorgan Chase vs Amex (Santana et al. 1-3).
RECOMMENDED ACTION
1. Adapt a close loop system, currently, only
1.5% per transaction fee (maximum
chargeable fee is 2.2%) is being realized, as
compared to our competitors who are
making 2.45% per transaction fee.
2. Seek out profitable cobrand rewards,
replace high affiliation costs with lower
costs, maintain a balance between cobrand
remuneration and interchange fees.
3. Let the Chase Reserve card be subscribed
by the invite-only model, this will reduce
customer acquisition costs as the card will
now be an elite card, eliminating the need

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to go out searching for the customer. In its
initial stage, it will be invite-only, after
gathering enough traction and subscriptions
this can be changed to a referral model,
something to which the youth could relate
to.
Example: Zomato in India was able to create a
buzz by introducing Zomato Gold subscriptions,
using the invite-only methodology, this helped
them reduce high churners and establish a
status quo to its gold membership.
FOR CUSTOMER RETENTION:
CURRENT SITUATION
The following is a comparison of Morgan Chase
with other competitors with respect to bonus
points, APR%, and annual fees (Santana et al.
20).
*From January 2017, 50,000 points.

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RECOMMENDED ACTION
1. Reduce the annual fees to USD 250 to
increase customer incentive.
4. Increase the signing up bonus points to
60,000 to par with the market.
5. Identify churners from internal data by
checking the credit score before giving
access to the reward points system and
offer additional points on crossing a pre-
decided frequency or credit limit.
Example: Reliance communications in India
launched JIO in the telecom market, with a
reduced price entry, it garnered many
subscribers and other leading telecom
providers lost their share of wallet.
FOR CANNIBALIZATION:
CURRENT SITUATION

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*Second year onwards USD 95
#January 2017 onwards 50,000
RECOMMENDED ACTION
1. Merge sapphire preferred and sapphire
reserve into a new sub-brand offering
existing features of sapphire reserve, for
existing customers of sapphire preferred
demand a one-time upgrade fee.
6. Introduce tailor suited rewards system,
allowing different customers to select the
kind of rewards best suited to them for the
new sub-brand created.
7. Differentiate the tangible experience of
sapphire cards, add ELITE on the cards, and
invest more in the physical appeal of the
cards.
Example: TTC Toronto reduced its clutter by
merging in with Presto, making it easier for its
commuters to choose from the day pass, week
pass, or monthly pass.
CONCLUSION
As a solution, I would highly recommend the

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above-mentioned suggestions which, if
followed, would help solve the problems which
include low profitability, low customer
retention, and cannibalization of existing
products at Morgan Sapphire brands.
To put the whole solution together, Chase
Sapphire should merge Sapphire preferred and
Sapphire reserve to Sapphire Elite giving
adequate options to existing customers to
upgrade from Sapphire preferred to Sapphire
Elite or to downgrade to Sapphire from
Sapphire preferred while transferring Sapphire
Reserve customers to Sapphire Elite and calling
in new subscriptions by invite-only, more so by
targeting the high net worth individuals.
Chase should introduce a closed-loop system
and tailor-made rewards system for its
customers a first in its kind at the same time
seek out cobrand reward affiliations that are
less expensive than the existing ones. Lastly,
the annual fees for Sapphire Elite to be reduced
from that of competitors while other bonus
points to be made at par if not more.
Reference:

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Santana, Shelle, et al. “Chase Sapphire:
Creating a Millennial Cult Brand.” Harvard
Business Review, 26 November 2018, pp. 1-21.
doi: 9-518-024.
Second Solution
Summary
Chase has launched the Sapphire Reserve card
with a very extra sign-on bonus. The card
exceeded its 12-month sales target in 2 weeks.
Now the bank has to try hard to retain the
acquired customers because there are very low
barriers to switching credit cards. Under the
Sapphire name, Chase has two other products
and has to carefully manage the whole portfolio.

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Analysis
Reserve card has brought many new
“extraordinarily good” customers. It is
beneficial for the bank as a whole because
JPMorgan Chase may now wisely capitalize on
these customers by introducing them to other
products. For example, the bank may now make
a special offer to these customers about
investing certain amounts in return for waiving
the cards’ annual fee or about using JPMorgan
Chase as their corporate bank, too.
It’s a very common practice for the affluent
segment, which helps the bank benefit from the
economy of scale and build a more loyal
relationship with the bank.
As for Sapphire sub-brand, now that they are
entering the new year with these customers,
they may retain them by improving
differentiation and giving a choice between
their own card options, not between “stay or
leave” options.
The brand itself now has many strong
associations and a lot of fame. However, now
the card became a challenge itself because

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Chase had an overwhelming inflow of new
customers which has to be dealt with and,
therefore, the card cannot be unequivocally
regarded as good.
Chase Sapphire is a great sub-brand, which
excels at understanding their target audience’s
needs and wants, formulating the precise
targeted message “Our card is meant for people
who want to be viewed as interesting, not rich”,
making sure these values are both reflected in
their product and perceived by their customers.
Chase Sapphire manages to understand how to
win millennial consumers and that they
wouldn’t succeed in it only by thinking about
their rewards, they need to build “a brand that
people connect with emotionally and that
delivers a great customer experience”.
This success may only continue if Chase
improves the differentiation; improves the
benefits of the cards that are only available to
the ongoing users; finds ways to keep existing
customers from quitting.
Recommendations:

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First, Chase should analyze real card user
experience patterns for each product. I would
offer to pay special attention to the following
criteria:
• How much on average do the customers
deposit (comparing to their expenditure)?
• Which categories are popular among the
customers (also analyze patterns for the
categories that do not give special points
yet, such as online shopping)?
• How do their behaviors change after they
were able to redeem their bonus?
Based on this data, I would introduce the
following improvements to differentiation:
• Make a certain minimum deposit amount
that may help waive the annual fees for
Preferred and Reserve (obviously, it’s a
different minimum) – which is good for the
bank as a whole.
• Change the set of categories for each
product that has multiplied points (I may
suggest that one of them is certainly online
purchases) and allow the customers to
change their favorite category with x2 or x3
points each month, while other categories
get x2 or x1 points.

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• Introduce a loyalty incentive - a program
made in the way of achievement levels that
allow you to earn more points. To progress
to another level, customers have to
complete certain requirements such as a
certain spending level a couple of months in
a row, a low percentage of cash redeemed
at ATMs, etc. Gamification is a powerful
tool!
• Review and add new benefits. See exhibits 1
and 2.
I would keep all 3 categories of Sapphire, but
with better differentiation and improvements
described. This strategy is viable because it
helps to retain more customers by improving
the scope of benefits within the bank. The bank
may collect and use data about customer
experience patterns and keep on improving
their offering with time for each product.
Millennials love customization, so after
reviewing, Chase should make a tool on their
Sapphire website where customers can choose
their favorite benefits and expenditure
categories, and how much they are willing to
pay a year for them, and the system would
suggest their best offer.

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This would help retain customers, making them
feel how they are controlling their life choices
and switch some of them to a cheaper option
instead of losing them at all. Moreover, they’ll
choose the benefits that they are getting, which
will decrease their incentive to search for them
outside.
Also, they will be able to choose a custom
design for their card and even for their Apple
Pay card. If they choose within a set of pre-
existing options, it’s free. If it’s their own
design, it should be for an extra fee. Such a
scheme is feasible because for every individual
design in Apple Card, you have to go through a
verification process.
Moreover, Sapphire should not only have their
own website, but also an app, since people are
going mobile and carry their laptop around less,
so the app should be available at a glance and
give the customers easiness of controlling their
points, sharing their experience with Sapphire
on social media and gaining extra points for
these interactions. And also, it will give a
feeling of being a part of an interesting
community with their own app.

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Most importantly, Chase should continue
building a relationship with their customers and
giving them that feeling of being interesting.
This way, the bank is likely to minimize
churners.
Logically, the competitors will keep on
improving bonuses and other benefits. But as
long as Chase is “winning the hearts” and
satisfying the needs and wants by their own
range of products, it doesn’t really matter what
exactly the competitors do because loyal
customers won’t react.
References:
All quotes in brackets are from the case unless
stated otherwise.
Chase Sapphire: Creating a Millennial Cult
Brand. Santana, S. Avery, J. Shively, C. Harvard
Business School Publishing. 2018.
A framework for Marketing
Management. Kotler, P
. Pearson
Publishing. 2015.

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Marketing to the (new) generations: summary
and perspectives. Chaney, D., Touzani, M., &
Ben Slimane, K. Journal of Strategic
Marketing. 2017.
Exhibits:
During my internship in a bank, I conducted my
own marketing research on the mass affluent
segment. These exhibits are based on that
research.
Exhibit 1: The most popular benefits of
Mass Affluent banking.
Exhibit 2: Some specialty benefits.

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• Airport transfers.
• Airports fast pass.
• Luggage search.
• Organization of urgent return home.
• Invitations to closed events.
• Jewelry handcuff for contactless payments.