For Santander Bank's credit card offerings, should we focus on increasing cashback rewards to attract new customers or on lowering interest rates to retain existing cardholders?

Introduction

For Santander Bank's credit card offerings, we're faced with a strategic decision: should we focus on increasing cashback rewards to attract new customers or on lowering interest rates to retain existing cardholders? This trade-off involves balancing customer acquisition against customer retention, each with its own set of implications for our business model and customer relationships.

In addressing this challenge, I'll analyze the context, identify key metrics, design an experiment, and provide a data-driven recommendation. My approach will consider both short-term gains and long-term sustainability for Santander's credit card portfolio.

Step 1

Clarifying Questions (3 minutes)

• Based on recent market trends, I'm thinking this decision might be driven by increased competition in the credit card space. Could you share more about the competitive landscape and how it's impacting our market share?

Why it matters: Helps understand external pressures and market positioning Expected answer: Increased competition from fintech companies offering attractive rewards Impact on approach: Would influence whether we prioritize acquisition or retention strategies

• Considering our current customer base, I'm assuming we have a mix of transactors and revolvers. Can you provide a breakdown of our cardholder segments and their typical behaviors?

Why it matters: Different strategies may be more effective for different customer types Expected answer: 60% revolvers, 40% transactors Impact on approach: Would help tailor our approach to the most valuable or at-risk segments

• Looking at our financial model, I'm curious about the relative impact of interchange fees versus interest income on our revenue. Could you share the current split between these revenue streams?

Why it matters: Helps prioritize between driving more transactions (cashback) or maintaining balances (interest rates) Expected answer: 70% from interest, 30% from interchange fees Impact on approach: Would influence which strategy aligns better with our current revenue model

• Considering implementation, I'm wondering about our technical capabilities. How flexible is our current system in terms of implementing variable cashback rates or interest rates?

Why it matters: Affects the feasibility and timeline of implementing either strategy Expected answer: Moderate flexibility, but requires significant development time Impact on approach: Would impact the scope and timeline of our experiment design

• Thinking about our long-term strategy, I'm curious about our customer lifetime value (CLV) targets. How do our current CLV metrics compare to our acquisition costs?

Why it matters: Helps balance the cost of acquisition against the potential long-term value of new customers Expected answer: CLV is 3x customer acquisition cost (CAC) Impact on approach: Would influence whether to focus more on acquisition or retention