Gold Card - Jackson
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Auburn University *
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4970
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Information Systems
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Apr 3, 2024
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___________________________________________________________________________________________________ © 1996-2017 Jeanne M. Brett. Distributed by Negotiation and Team Resources (NTR). To request permission to reproduce contact negotiationandteamresources.com by Jeanne M. Brett The Gold Card
Role of M. Jackson, First Midwest Bank You are M. Jackson, Head of the Credit Card Division of First Midwest Bank in Chicago. Recently J. Lowrey, Executive Vice President for Consumer Banking, negotiated an arrangement with the Leonid Corporation to provide a special services credit card, "The Gold Card", to Leonid's customers. This card is to have extended credit lines, e.g., $5,000 to $25,000, special interest rates, etc. Since Leonid is a financial services firm, not a bank, it cannot provide the card itself. Leonid also does not have the operational capacity to service a credit card. First Midwest currently has a very large and profitable credit card operation. The credit card customers are mostly middle-income people and a significant portion of the bank's income is derived from interest on extended consumer credit. You were not involved in setting up the financial terms of the joint venture, but you know that First Midwest agreed to split the revenues from the card fee, loan interest, and float, and the costs due to loan loss 55 percent for the bank, 45 percent for Leonid. You understand the bank expects to gross over $1,000,000.00 a year from this venture once it becomes operational. The Vice President who negotiated the joint venture for Leonid turned over the design of the details of the product to the Gold Card product manager, T. Wheeler. You have been trying to work with Wheeler, but Wheeler understands nothing about credit card operations. Wheeler wants Leonid's customers' statements redesigned and printed on special business forms that are imprinted with "First Midwest-Leonid Gold Card." Wheeler does not seem to understand that the computer prints statements by zip code so as to facilitate mailing. Your equipment does not have the capacity to shift from one business form to another. You offered to have the computer print "First Midwest-Leonid Gold Card" on each Leonid customer statement, but that was not fancy enough for Wheeler. Wheeler will probably ask that the statements be printed on rag content paper next! Redesigning the forms, which you agree could be improved, you estimate to be a one-time cost of $10,000. Another problem is in the area of customer service. First Midwest's customer service response time for questions about balances is 75 seconds. Wheeler said Leonid's was 30 seconds and that First Midwest must also service Leonid's Gold Card customers in 30 seconds. Again, what Wheeler does not understand is that your computer files are many times greater than Leonid's. Part of the response time is in the computer, but the major part is the time a call is on hold until a customer service representative is available. The obvious solution would be to add sufficient customer service representatives to reduce the response time from 75 to 30 seconds. You haven't discussed this alternative with Wheeler, because you were waiting for data on what it would cost. Now that the figures are in, it looks like getting the bank's response time down to 30 seconds would require adding 5 new customer service representatives, at a cost of approximately $100,000 per year. The current system has the capacity to add more than 5 customer service stations, so this alternative would not require additional capital investment.
___________________________________________________________________________________________________ © 1996-2017 Jeanne M. Brett. Distributed by Negotiation and Team Resources (NTR). To request permission to reproduce contact negotiationandteamresources.com Gold Card – Jackson Info. - 2 A second alternative would be to add a special telephone line for Leonid customers, and one representative to handle their calls. You are quite sure that this solution would result in an average call waiting of about 30 seconds, but the variance would be significantly greater. It would also require capital investment for a separate telephone system. You estimate the one-time capital investment at $5,000 and the annual expenditure to be about $20,000 per customer service representative. This second alter-native is less attractive to you because it does not provide the overall customer service benefits of the first alternative. Wheeler also asked for detailed monthly reports about the types of Leonid customer service calls, the response time, etc. In your system, the telephone computer orders calls and computes waiting time. Account information is managed by a different computer system, one that is not designed to differentiate types
of customers. If Leonid goes with the second alternative, all the telephone statistics from the special system will be for their customers. If they go for the first alternative, they will not get any special information. This is a real drawback to your first proposal. The only way to give Leonid what it wants with the first alternative would be to invest in an entirely new computer system that integrates telephone and account information. Your computer representative told you that small capacity systems work well, but that large ones, such as what the bank would need, are unreliable. You did not even ask for a price on this option. You were not really surprised when Lowrey called you about the Leonid Gold Card. Lowrey had a call from Rory Martin, Vice President for New Business Development at Leonid, with whom Lowrey had negotiated the Gold Card venture. Lowrey was concerned that the Gold Card joint venture was in jeopardy of falling apart. Lowrey explained that this new venture was very important for the bank, saying that the credit card market was saturated, that profits from the middle-income customer were falling as the economy improved and that the bank needed an entry into the upscale market. If this joint venture were to be successful, Lowrey thought that the product could be marketed to other financial services firms, like Leonid, but there is no other financial services firm waiting in the wings if the venture with Leonid fails. Lowrey asked you to meet with Martin and Wheeler next week when you are to be in Los Angeles anyway. You explained the product design problems stemming from the difference in level of service that you can provide and the level of service that Leonid expects. You then told Lowrey about your alternatives. The merits of adding five customer service representatives were obvious to Lowrey as wel1. Before you agreed to meet with the Leonid representatives, you asked Lowrey how much your operations budget could be increased to provide the service Leonid wants. Lowrey said the bank was unwilling to provide Leonid special services. If they wanted alternative 2, they could pay for it out of their profits. On the other hand, if they wanted alternative 1, the bank would be willing to do it: a) if Leonid wanted to pay for it entirely; b) if Leonid were willing to increase the bank's split, ideally to 65 percent, though Lowrey authorized you to accept 60 percent. Because Lowrey was about to begin a three week vacation, you were authorized to negotiate for the bank.
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