A consulting team has been asked to help JP Morgan Chase resolve the best way of building a successful and enduring credit card franchise. In August 2016, JPMorgan Chase launched the Chase Sapphire Reserve credit card, offering customers an unprecedented sign-up bonus of 100,000 points. Chase relied on social media to reach its target users?affluent millennials?and partnered with prominent financial bloggers and other influencers to promote the card. Customer acquisition levels surpassed the expectations of President of Chase Branded Cards Pam Codispoti and of Senior Advisor and former CEO of Chase Card Services Eileen Serra as the firm exceeded its 12-month sales target in just two weeks. Half of all new customers were millennials under the age of 35, a cohort that had long been resistant to credit cards. Reserve was described by one prominent credit card blogger as "the must-have card of 2016, if not the most appealing card ever." In July 2017, almost one year after the release of the Reserve card, the management team is now focused on how to retain these cardholders, many of whom had been lured in by the large sign- on bonus. As planned, in January 2017, Chase dropped the sign-on bonus from 100,000 to 50,000 points. Codispoti and Serra wonder what impact this will have on new customer acquisition going forward. Their focus is on developing a long-term profitable strategy for the cards business in general, and for Chase Sapphire Reserve in particular. They have sought consulting help in figuring out how best to incorporate Reserve into the existing Chase Sapphire product line, which includes the Chase Sapphire card with no annual fee, and Chase Sapphire Preferred, which carries a $95 annual fee.

Develop an analysis on the basis of the excel sheet of how Chase should maximize the CLV of each customer segment, andhow changes in the card's value proposition and/or marketing strategy might increase that CLV. consider the following questions:

1. What value does the Chase Sapphire Reserve card deliver to customers? How is it differentiated from customers? What value does the card bring to the company? 2. How to evaluate the 100,000-point introductory offer? Was this a good investment for Chase? Why or why not? 3. 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? 4. What is the current product line structure (i.e., multiple products, different price points etc.)? Who is the target market for each product? Is there anything missing in the portfolio? 5. How to manage marketing investment in the three products? Which product to support? Why? 6. What are the lessons to draw from the Chase Sapphire Reserve launch for building a brand that is popular with millennials? Which aspects of the product strategy are sustainable over time?

Assumptions / Inputs Transactors Revolvers Churners Annual Spend $16,000 $16,000 $4,000 Percent of Balance on Revolve 0% 50% 0% Interchange Fee on Spend 1.5% 1.5% 1.5% Interest Rate on Revolve Balance 20.5% 20.5% 20.5% Card Acqusition Expense (Approximate amount given in the case) $350 $350 $350 Sign On Offer (In Points) 100,000 100,000 100,000 Points Redemption Rate S 0.015 0.015 $ 0.015 Customer Revenues Annual Card Fee 450.00 450.00 450.00 Interchange Fee Revenue on Spend 240.00 240.00 60.00 Interest Revenue on Unpaid Balance 1,640 Total Revenues $690 $2,330 $510 Customer Acqusition Expenses Card Acqusition Expense 350 S 350 350 Bonus Point @ 100K 1,500 1,500 1,500 Total Expenses 1,850 S 1,850 S 1,850 Per-Card Margins Revenues 690 S 2,330 S 510 Expenses 1,850 1,850 1,850 Gross Margins (Assuming Card Activation) (1,160) 480 (1,340)Cumulative NPV per Defection Lost Discounted Profit Cumulative NPV All Discounted Data Given Value Year Nominal Profit NPV Cumulative NPV Starting Base Ending base Average Base Customer (Def) Rate Customer (Column G) Remaining Customers Remaining Customers Profit Per Customer Customer Acquisition 1,850 0 -1475 -1475 -1475 25% 10,000,000 2,500,000 7,500,000 10,000,000 S (1,475.00) $ (14,750,000,000.00)| $ (14,750,000,000.00) | $ 1,475) Receive but not activated 25% 1 585 508.35 967 22.5% 7,500,000 1,687,500 ,812,500 6,656,250 | $ 508.35 | $ 3,383,690,217.39 $(11,366,309,782.61) $ 1,137) Example Cohort Group 10,000,000.00 2 830 527.83 339 20.3% 5,812,500 1,179,938 4,632,563 5,222,531| $ 627.83 $ 3,278,840,889.13 $ (8,087,468,893.47) $ 809) Active Card Holders 7,500,000.00 3 974 540.44 302 18.2% 4,632,563 843,126 8,789,436 4,210,999 $ 540.44 $ 2,696,881,083.51 $ (5,390,587,809.96) $ 539) count Rate 15% 1076 615.21 917 16.4% 3,789,436 621,468 3,167,969 3,478,702 $ 615.21 $ 2,140,119,805.20 $ (3,250,468,004.77) $ 325 Years 20 5 1160 576.73 1494 14.8% 3,167,969 468,859 2,699,109 2,933,539 S 576.73 $ 1,691,845,273.96 (1,558,622,730.81) $ 156) 6 1220 527.32 2021 13.4% 2,699,109 362,957 2,336,152 2,517,631 $ 527.32 S 1,327,599,033.23 $ (231,023,697.58) $ (23) Note: 7 1274 479.08 2500 12.2% 2,336,152 283,970 2,052,183 2,194,168 479.08 $ 1,051,185,498.04 $ 820,161,800.46 $ 82 As card holders only 8 1322 432.07 2932 11.0% 2,052,183 225,488 1,826,695 1,939,439 | $ 432.07 $ 837,965,535.53 $ 1,658,127,335.99 $ 166 receive the sign on bonus 9 1363 387.58 3320 3.9%% 1,826,695 181,430 1,645,265 1,735,980 $ 387.58 S 672,827,029.41 | $ 2,330,954,365.40 $ 233 if they activate the card, 10 1404 347.05 3667 9.0% 1,645,265 148,074 1,497,191 1,571,228 $ 347.05 S 645,290,487.47 $ 2,876,244,852.87 $ 288 nominal profit will be 11 1435 308.35 3975 3.1% 1,497,191 121,505 ,375,686 1,436,439 $ 308.35 142,931,157.88 $ 3,319,176,010.75 $ 332 different from customer 12 465 273.90 249 7.3% 1,375,686 100,919 1,274,768 1,325,227 S 273.90 |$ 362,977,561.50 $ 3,682,153,572.25 $ 368 acquisition fees. This is 13 1494 242.78 492 6.6% 1,274,768 84,532 1,190,236 1,232,502 $ 242.78 $ 299,231,593.95 $ 3,981,385,166.20 $ 398 shown in the table and is 14 1520 214.83 4707 6.0% 1,190,236 71,344 18,892 1,154,564 $ 214.83 $ 248,033,828.91 |$ 4,229,418,995.10 $ 423 linked to the Revolver 15 1535 188.64 1895 5.0% 1,118,892 65,945 1,062,947 1,090,920 | $ 188.64 $ 205,794,419.23 |$ 4,435,213,414.34 $ 444 segment data on the 16 1567 167.50 5063 1.9% 1,062,947 52,061 1,010,887 ,036,917 $ 167.50 $ 173,683,413.06 |$ 4,608,896,827.40 $ 161 previous tab. 17 1589 147.65 5210 4.4% 1,010,887 44,754 966,133 988,510 |$ 147.65 145,952,403.47 $ 4,754,849,230.87 $ 475 18 1609 130.03 5340 4.0% 966,133 38,664 927,469 46,801 S 130.03 S 123,110,166.12 $ 4,877,959,396.99 $ 488 19 1628 114.41 545 3.6% 927,469 33,551 893,918 910,693 S 114.41 S 104,196,124.59 $ 4,982,155,521.58 498 20 1650 100.82 5556 3.5% 893,918 31,287 862,630 878,274 $ 100.82 $ 88,543,600.92 |$ 5,070,699,122.49 $ 507 = 354.47In(Year)+ =Nominal/ (1- = prev. Cust Repeat of =Prev. Cum. NPV + Formulas discount = 0.2465* e^(- Remaining * 584.6 0.101*years) (1-current def Column G =NPV * Cust Remaining Current Weighted NPV rate)year rate Average amount of As you are only given customers throughout the Total amount of nominal profits for Same concept year discounted some years, you can as the NOTE: Year 0 has an Explanation use a logarithmic profit for each method for "average base" of the trendline to fill in the customer that nominal lasts to that full 10 million people as rest (see graph on other profit we are only looking at year tab) the customer acquisition costs in "year" O. CLV = S 507.07Nomial Year Profit 582.5 1800 1650 y = 354.47In(x) + 584.6 IN 1600 1535 R3 = 0.9998 1400 1404 1160 1200 1160 1000 Profit Per Customer 800 Nomial Profit 8 600 - Log. (Nomial Profit) 9 582.5 10 1404 400 11 200 12 13 0 5 10 15 20 25 14 Tenure 15 1535 16 17 18 19 20 1650Year Def Rate 0 25% 23% IN 20% 3 18% Def Rate y = 0.2465e-0.101x 16% 30% RZ = 0.9993 5 15% 6 25% . 25% 23% 7 20% 20% 18% 16% 9 Defection Rate 15% 15% Def Rate 10 9% 10% 11 9% " ..=.".". Expon. (Def Rate) 12 5% 13 0% 14 0 5 10 15 20 25 15 5% Tenure 16 17 18 19 20 4%