Case 2: Megabank

After the Norwegian Telecom case, we present a new one, directly taken from the Fuqua School of Business case book. Due to evident copyright issue, we can’t attach the case here but if you have the casebook, then just look for the Megabank case.
We won’t go in as much details as we did with the Norwegian Telecom case, mainly because the case is way more simpler than the elaborated version that we cooked up. So what we did is that we provide a glimpse about the notes we took while doing the case, especially the MECE trees. We believe this is what really matters in this kind of case. As usual with business cases, there is no right or wrong answers, only structure or unstructured ones ;-) The issue trees are not the “typical correction” and only reflects our solution. Should you have any comments, you are more than welcome to voice it out :)

The situation

• Client is a bank issuing credit cards
  
• 3 selling channels:
  
  • Cross-selling with existing customers
    
  • Direct mail
    
  • Partnerships with retailers and airlines
• They are now looking for a new card member growth area --> Hispanic penetration is low

Problem: Why is the penetration so low for the Hispanic population? What can the bank do?

Question 1: What might be wrong?

As often, we use an issue tree to structure our thinking:

Question 2: How many additional members does Megabank want to add?

The following information is given to us:

• 40 million Hispanics in the US
• 3/8 are too young to have credit card --> 5/8 are ok
• Average customer is worth $180 over the course of his life
• Average Hispanic customer if worth 10% more --> worth $198
• Bank's penetration rate is 10% for valid prospects and they want to increase to 30% over 5 years

Once again, we use a MECE tree to model the number we need:

NB:  once the structure is landed from left to right, you have to work the numbers backwards: you start with the lower levels and you go up to the top.
We determine that the bank would need an additional 5 million customers in order the reach its growth objective.

Question 3: How much is the additional market share worth to the client?

This is straightforward, just use the numbers you were given and your estimation:
5m extra with individual worth of $198 = $990m --> ~$1b