Strategies of The Chase Cardmember Services - Case Study Example

Case Study: J.P Morgan Chase Company Strategic Decision Introduction The Chase Cardmember Services (CSS) is an integral part of the entire J.P Morgan Chase Company. The CSS offered ranges of products such as Visa and MasterCard products which contained cobranded cards, agent bank cards, and very minor secure cards. Although its business area was comparatively smaller, the CSS had a growing corporate card presence. During the 1990s, the consolidation process occurred at financial service industry greatly benefited the CSS. As a result of two large mergers, Chemical Bank with Manufacturer’s Hanover and this integrated bank with Chase Manhattan, the J.P Morgan Chase Company became one of the few remaining credit card issuers (JPMorgan Chase & Co., 2008). Since numbers of commercial banks had existed particularly in credit card segment, the CSS could take some advantages of the consolidation trend. As a result, the CSS purchased the whole credit card portfolio of the Bank of New York. Although there were large numbers of portfolios including mid-sized and large portfolios available for sale, the CSS could not effectively expand its business areas other than by portfolio acquisitions. In order to overcome this difficulty, the CSS installed a new management team early in 2000 an it vehemently focused on growth and profitability. However, the new management team could not bring the desired results; and therefore the CSS still remained in its past industrial position. The CSS had to resolve ranges of strategic issues so as to convince the customers that the firm could service them better than any other card issuer. It was necessary to establish an effective customer service division in order to retain customer loyalty. In addition, an increased concentration on innovative product categories, underserved segments, valued added services, and improved technologies was also essential to satisfy the diverse customer interests. Since the firm is mainly financed by its parent company, it was crucial to keep high return investment that would make the firm’s financial position stronger. In order to resolve all these series of issues, the CSS management considers two alternatives. The first alternative focused on both international and domestic growth whereas the other focused more on domestic expansion only. This paper will critically evaluate the potentiality of two proposed alternatives on the ground of Porter’s Five Forces model and SWOT analysis with intent to suggest the most effective and appropriate one. For the effective selection of the most potential alternative, it is necessary to discuss the business background and structure of CSS. The Porter’s Five Forces model and SWOT analysis would be beneficial to scrutinize various market opportunities and threats. Porter’s Five Forces analysis Michael Porter has proposed five forces that influence and model an industry. The five forces are the threat of the entry of new competitors, threat of substitute products or services, bargaining power of buyers, bargaining power of suppliers, and finally the intensity of competitive rivalry. 1. The threat of the entry of new competitors Obviously more and more new firms would be attracted towards a market, when the existing marketers yield high rate of returns. This situation would decrease the profitability of all other firms in the market. According to traditional economic models, competition among rival firms drives the abnormal profit rate towards zero. The case with the introduction of credit card system seems similar as this feasibility promoted new competitors towards this business. As Preziosi, et al points out, although large number of firms started credit card business, only a few of them could effectively survive the tough market competition. Most of the US large and mid-sized banks entered bank card business; however, majority of them had not possessed the scale to operate credit card business efficiently. This market situation created favorable business environment for existing business firms. Therefore, it is obvious that the threat of the entry of new competitors would not hurt the developmental notion of CSS. 2. The threat of substitute products or services From the case study, it seems that ranges of credit cards were introduced. Some of the introduced substitutes showed more competitive advantages of the credit cards. For instance, the affinity cards offered some special benefits to customers although it did not dominate the market. Since the CSS had not dealt with affinity cards, the firm faced some challenges from the emergence of affinity cards. The CSS did not have a strong corporate card presence and it also assisted the competitors to challenge CSS(ibid). Although, no effective substitutes for credit cards are introduced, varieties of credit cards have been developed using information technology. The idea of smart cards that contain the features of both credit and debit cards found to be a major substitute to credit card business of CSS. The CSS could not advance much in the credit card business despite the improved technology and credit card system. Therefore, it is necessary for CSS to expand its business operations immediately. 3. The bargaining power of buyers Although, the credit cards are categorized as the company products, the credit card issuance seems to be a service rather than mere product delivery. Credit cards are also essential part of the modern life as it has become difficult to operate day to day money transactions without its application. In addition, there are no competitive substitutes to credit cards. The lack of close substitute to credit cards mitigates the bargaining power of buyers since they have no other option. In this situation, the effectiveness of firm’s service delivery determines the buyer’s bargaining power. Since the CSS could not effectively apply the modern developments in credit card issuance, it would increase the bargaining power of the buyers when they deal with CSS (ibid). The increased bargaining power of consumers is an adverse business condition as it would challenge the firm’s reputation. In order to get rid of these market difficulties, CSS must bring its business into 21st century by focusing more on the recent developments in information technology. 4. The bargaining power of suppliers As a result of two big mergers, the CSS remained one of the large issuers in credit card industry. It is also evident that there were not much potential industries in the credit card business sector; and hence it adds to the competitive advantages of the CSS. Moreover; the J.P Morgan Chase, the parent company of the CSS, had possessed a well stature in the commercial banking sector. All these positive factors increase the potentiality of the CSS organization and this reputed position assists the firm to attain dominance while dealing with its suppliers. The bargaining power of the suppliers would increase when firm’s market stature remains unsatisfactory. In the case of CSS, it still maintains good reputation regardless its failure in modernization strategies. However, if the firm’s current position persists, it would gradually diminish its market stature and in turn it will increase the bargaining power of its suppliers. 5. The intensity of competitive rivalry As far as CSS’s rivals are concerned, the Citibank and American Express were the potential competitors. Citibank started its credit card operations many years ago and much of the credit card industry’s innovations including cobranded cards and aggressive direct mail campaigns are the direct contributions of the Citibank. It is observed that the Citibank adopted acquisition practices as an effective strategy to fuel its growth. The Citibank successfully maintained worldwide presence and this feature made them attractive to business travelers and vacationers since the organization could meet their needs efficiently on the strength of its worldwide accessibility. The Citibank also possessed the top airline co-brand credit card by which the organization could keep a good partnership relation with American Airlines. The strategic alliance with American Airlines has assisted the Citibank to add value to its market stature. In short, the business operations and rapid international operations of the Citibank largely influenced the business growth of the CSS. Similarly, the American Express was the leader in the charge card as well as in corporate card market. The most fascinating feature of the American Express is that it brings new innovations timely so as to par its business notions with changing customer interests. However, the company’s interests in charge card business have surpassed its interests in credit card sector. Possession of a global processing platform seems to be one of the major advantages of the CSS. From the analysis of these two firms, it is plain that both Citibank and American Express are huge international players and raised high degree of competition to CSS. SWOT analysis SWOT analysis is the strategic forecasting method used to explore internal as well as external factors of a business. Strengths and weaknesses are the internal factors whereas opportunities and threats constitute external factors. Strengths From the detailed case analysis, it seems that long years’ marketing experience of the CSS is one of its potential strengths. This feature assists the firm to responds to change in market trends and unforeseen contingencies timely. The CSS deals with varieties of products including Visa and MasterCard products and it aids the company to meet diverse customer demands (JPMorgan Chase & Co., Our business). The concept of cobranded cards has also added to the strength of the company as it had offerings in various industries including gasoline, airlines, and retailing. The CSS’ strategic alliances with corporate giants like Wal-Mart improve the operational efficiency of the firm. Moreover; since the firm always gets assistance from its parent company, it can efficiently meet its working capital requirements. Weaknesses While discussing the weaknesses of the CSS, it is clear that the weaknesses surpass company’s strengths. Firstly, since the firm’s management could not update the business according to the modern market trends, this adverse condition allowed the competitors to dominate the market. The CSS did not possess an international commercial banking presence and it negatively affected the firm’s objective of acquiring new customers. Similarly, the CSS could not establish an effective international infrastructure for providing service to its customers. Other competing firms like Citibank and American Express advanced largely as compared to CSS. Following traditional practices would gradually terminate CSS out of the horizon of the credit card market. Opportunities The rampant development in the field of information technology offers fruitful opportunities to the firm’s credit card business sector since credit card based online banking transactions have been popularized globally (Strategic Management). Effective innovation in the credit card sector would greatly promote the CSS business growth since vast majority of global cash payments are made using the facilities of credit cards. Recently, the CSS has made strategic alliance with some global organizations and this concept would add to the expansional notions of the firm. Moreover, the wide popularity of internet facilities would create ranges of opportunities for CSS. Threats Tough competition from the existing rivals found to be one of the potential threats to CSS. They have already implemented their own innovations in the market so that it would be very difficult for CSS to overcome all these difficulties. Similarly, the firm’s rivals have superior access to ranges of distribution channels since they have presence across the globe. In addition, the new developments in credit card sector such as smart card become a considerable threat to the territorial expansion of the CSS. It has also been identified that chances of fraudulent activities exist in the credit card transactions. Therefore, if people switched their demand from credit cards to other more reliable techniques, it would cause adverse impact on credit card industry as a whole. Conclusion In short, it is necessary for the CSS to expand its business operations both domestically and internationally in order to exist in the modern credit card market. The Citibank and American Express are the two potential competitors to the CSS and both these organizations operate globally. Hence, in order to vie with these rivals, mere domestic business expansion would not be sufficient. Maintaining traditional business practices was found to be the major threat to the sustainability of the company and this adverse business condition can be overcome if and only if CSS management completely undergoes reasonable organizational change. References JPMorgan Chase & Co., 2008, The history of JPMorgan Chase & Co. 200 years of leadership in banking, viewed 25 May 2011 JPMorgan Chase & Co., Our Business, Official Website, viewed 25 May 2011 Preziosi, S et al, J.P. Morgan Chase & Co.: The credit card segment of the financial services industry, pp.23-43 Strategic Management, SWOT analysis, QuickMBA, viewed 25 May 2011 Read More