Wacc # 1: Chase Sapphire

Zia Ahmed
09710

2. How would you evaluate the introductory 100,000 sign-on bonus points? Do you think
this was a good or a bad acquisition investment for Chase?

Answer:
I believe that this was good move by Chase. The market of young affluent customers was in
some ways untapped. Amex could not capture them because they couldn’t divert their
attention from premium customers. The 100,000-signing bonus was quite a high investment
which could account to $1500 worth of credit but cost of acquiring new customers is usually
high. With the $450 renewal fee, Chase will only recover the initial investment if the
customers stay on board for a couple of years. As mentioned in the case the cost is only
accounted for in the first year by earn over the next seven years’ time. The Customer
acquisition strategy to introduce the 100,000 sign-on bonuses was a good idea, however the
profitability for chase depends on how they retain the customers. Chase’s best bet would to
retain the ‘Revolvers’. Retaining them mean they will be paying the $450 annual fee and
also since they are likely to delay payments, Chase could earn thorough the interest
payment they make. However this is still a tricky segment because the target customers are
young, affluent but also they are likely to carry student loans. Therefore Chase must to tbeir
research to retain them.

What was significant of this reserve card by chase was that they were able to differentiate
themselves not only other cards but also its on preferred card which was very important to
do otherwise they would have clashing market segments.

3. The behaviour of the individual adopters of the card will vary in how much they spend,
whether they pay all of their charges in full each month and whether they churn (i.e.
whether they renew their card annually or not). As noted on the top of page 3 in the case,
three customer archetypes were transactors, revolvers and dormants. Assuming the
following for each type of customers, how can the Chase Sapphire team best design its
product and brand to attract the right customers? Has it done so successfully with the
Chase Sapphire Reserve? Why or why not?

Transactors/revolvers

- both spend $16000 per year

- credit balance carried: $0 for transactors, 50% of annual spend for revolvers

- Interest rate avaerge 21%

- renew the card at $450 annual fee

Dormants

- spend only enough to earn the sign-on bonus

- credit balance carried = $0

- do not renew card at $450 annual fee

Answer:

As we see that with the given information, the revolvers are the best customers to target as
they offer the best margin. In year one Chase doesn’t cover the initial 100,000 bonus cost
however we see that in the second year they are able to do so. Now is the task to keep
these revolvers. They are already attracted to your initial offer but now to keep them chase
will need to keep offer them good benefits. One of the major factors could be lower interest
rates since they are always paying late.

Dormant customers are the kind of customers who are initially loss-making customers.
However, we know that they are only attracted to the offers so what Chase could do is send
me limited time bonus offers when their card is inactive for let’s see 2 months something
like how foodpanda does.

Transactors is a tricky customer base. Since they pay on time the only way Chase can from
them is if they make more transactions. Therefore, giving them incentives to spend more
like giving bonus points for restaurants and travel will encourage them to spend more.
Perhaps giving them incentive to take credit will also be profitable.