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Over the last few weeks, we’ve seen extensive coverage of the changes made to the Chase Sapphire Reserve. While a few cardholders expressed happiness, many were not too pleased. What could be some of the possible reasons behind the changes that Chase recently made to the Sapphire Reserve? Let’s try to peel back the curtain and have a look.
Sapphire Reserve changes
Before we have look at the possible reasons, here’s a quick rundown of the changes that Chase announced.
- New Annual fee of $550 for new users after January 12, 2020
- Annual fee will be $550 for existing cardholders renewing in or after April 2020
- $60 DoorDash credit to be added for 2020 and 2021
- Complimentary Lyft Pink membership added on January 12, 2020
- Sapphire Reserve Cardholders will earn 10x Ultimate Rewards Points per dollar spent on Lyft rides
These benefits are already active and cardholders can access them after logging into their accounts.
We know what the changes are. However, why were those changes made? Chase has a great deal of access to customer data. This can be in the form of demographic data as well as data on customer spend. Gary Leff of View from the Wing pointed out this interesting report in which Chase revealed some data about its Sapphire Reserve customers.
A few nuggets stand out in the report:
- Chase Sapphire Reserve Customers have an average annual income of $180,000
- The average FICO score of these customers is 785
- Most importantly, Chase Sapphire Reserve customers renew their cards at a 90% rate
This data is from 2018. So why is this still relevant and how does it inform us with regards to the recent changes to the Chase Sapphire Reserve? Let’s have a look.
Chase Sapphire Reserve is a premium travel credit card. However, with these recent changes, Chase seems to be drilling one level deeper when it comes to segmentation. The initial aim was to target frequent travelers with a decent income who dine out often. However, the recent changes point to another interesting trend.
The addition of Lyft and Doordash clearly favors certain cities over others. Some may call it the rural-urban divide or the difference between big and small towns. Clearly, Chase’s data tells them that it’s a good strategy to bet on the high earning urban customer who resides in a big city. As this customer resides in a big city, he/she frequently uses public transit to commute.
Given how much time people spend during office commute in most big cities, these people tend to drive less and end up using ride sharing services to get around town. Consequently, the spend less time at home and more time at work or commute, which means that they tend to use food delivery services like Doordash.
If you live in a medium or small town but still have high income and travel frequently, the updated Chase Sapphire Reserve may not be the best deal for you, especially if you drive your own car to work daily.
Lyft and DoorDash Partnerships
These two partnerships present some interesting challenges and opportunities. As Lyft and DoorDash look to penetrate deeper into different markets around the country, the Chase Sapphire Reserve partnership immediately opens up their brands to Chase’s entire customer base in those markets.
Also, for Chase Sapphire Reserve customers who live in cities that also have UberEats and Grubhub, it generates an automatic habit of ordering with DoorDash. This makes the customer develop a habit whereby the customer prefers DoorDash to a competitor because they hold the Chase Sapphire Reserve Card. Similarly, in markets served by both Uber and Lyft, Chase’s customers will automatically choose Lyft over Uber.
There’s a good chance that Chase will update this card next in 2022, once the DoorDash benefits end in 2021.
Recent market data suggests how this is a push in order to gain market share with these partnerships. The chart below clearly shows Uber’s dominance with about 70% of market share.
In contrast, DoorDash already has the lead in the food delivery market, with a 37% market share, well ahead of the next best, Uber Eats. Also, DoorDash is raising more capital. The Chase Sapphire Reserve partnership plays well with their goal of further penetrating and solidifying their existing market position.
GrubHub v/s DoorDash
An interesting bit from the report by Second Measure stands out. It clearly outlines one of the key reasons behind why DoorDash would want to partner with Chase.
The top two food delivery services may be close in U.S. market share, but their strongholds are in different regions. Grubhub is the most popular service in many Northeastern metro areas, including New York, Boston, and Philadelphia. DoorDash rakes in more than half the sales in the two biggest Texas metros, Dallas-Fort Worth and Houston.
Clearly, DoorDash sees a great market opportunity in habituating Chase Sapphire Reserve customers in major markets like New York, Boston and Philadelphia to using DoorDash instead of Grubhub and grabbing their share of wallet. The report by Second Measure also highlights how customers aren’t very loyal with regards to food delivery companies. The Chase partnership clearly aims at addressing that issue.
The Pundit’s Mantra
Chase sees an alignment of goals while partnering with companies like Lyft and DoorDash. The northeastern market remains key to them and ties in well with DoorDash’s goal of snatching market share from Grubhub. DoorDash is still lagging behind in market share in major markets like New York City (15%) and Miami (15%).
Any guesses where Lyft is also looking to get market share? As evidenced by this report, they’re looking to snatch market share from Uber in major markets like Houston, New York City, Washington DC, Los Angeles and San Francisco.
These partnerships tie in very well with their definition of the ideal customer profile for the Chase Sapphire Reserve. A recent report by Gallup speaks to the same – 45% of Americans in the age group of 18-29 use ride sharing services. For people earning $90,000 or more annually, 41% of them use ride sharing services. With these new partnerships, Chase gets access to a customer base that’s financially affluent, younger and on the move.
As a Sapphire Reserve cardholder, will this partnership clearly make you choose Lyft and DoorDash over their competitors? If you don’t live in markets served by these brands, do you still see value in keeping the card with the $550 annual fee? Let us know in the comments section.
Are you looking to earn a great deal of Ultimate Rewards points? Then you can apply for the Chase Ink Business Preferred Card. You’ll get a welcome bonus of 80,000 Ultimate Rewards points! (Chase’s 5/24 rule applies to this card)