As with most others, my most pronounced experience with organization and transaction costs came with internships. This summer I interned at American Express under their GNICS division which was in charge of developing new credit products and how to market said products. I worked as a paid market analyst intern. The position required gathering market data such as relevant consumer bases, their consumption patterns and future growth and outlook of specific segments in order to better market new products towards key consumers. These data then had to be interpreted into text form as well as communicated visually via graphs and diagrams. Due to the nature of the job, the selection process for the position focused heavily on the prior writing and researching experiences which had to be demonstrated through case studies and previous research papers.
Throughout the summer, I prepared a market research report on a new line-up of credit cards that departed from the traditional high-end target consumer base of American Express products. This meant having to deviate from conventional strategies and analyzing the needs of emerging segments of the lower to middle class. I was also fortunate enough to have been assigned project leader and having other interns to manage and coordinate deadlines which was a fantastic experience and a rare glimpse, to someone my age, of what corporate management is all about. After finalizing and delivering the report, I then shadowed my boss by accompanying him to round table talks with other firms to secure value-added propositions to the new AMEX card. This meant seeing first hand how the common interest of gaining market share and brand penetration can unite firms from wholly different market segments. A great example of this is that from the analysis of consumer bases, the strategy of providing customers with faster shipping and discounts to pharmaceutical companies was identified. However, transaction costs really comes into play here as signing a value-added proposition with one firm often comes with the condition of exclusivity, meaning we could only cooperate with one pharmaceutical company for them to agree to giving AMEX card holders a premium. This then launched the entire project into a series of new market research in order to determine which firm best fits the portfolio resulting in a lot of extra work and time.
My expectations for the position was largely that I was to perform a 9-6 office job. Instead, I got the chance to experience managements, see negotiations and explore a new market. I would gladly take a full time position at American Express again as I feel strangely attached to the brand after spending 4 months trying to develop it.
I used to be an AMEX customer and the University had a contract with AMEX and encouraged staff to use the card for University Business. But ultimately either that contract ended or it became inconvenient to manage, and now its been many years since I've been an AMEX customer. So forgive me if this is out of date, but let me see if my recollection rings a bell.
ReplyDeleteThere was an annual fee when I had my gold card, but the university absorbed that when I switched to their card. The assumption was that all charges would be paid in full. So their model at the time was to generate revenue on how much they extracted from the transactions, not by interest charges on customers who carried balances.
This makes sense for customers like me. It may not make as much sense for customers with lower incomes, who sometimes use credit cards not for liquidity but rather for taking out near term loans. Such customers often carry positive balances from month to month. But then they need tighter credit limits and substantive minimum payments so they service those loans. This, however, starts to make AMEX look like the other credit card companies. Is that what is happening?
The discounts at pharmacies that you mention is something that would appeal to older customers. But, if my case is an example of a more general principle, the pharmacy I frequent is determined mainly by my health insurance. They are the preferred provider. The pharmacy itself has its own frequent customer loyalty program, though it is really small potatoes in terms of rewards. The big deal is the size of the co-pay on the prescription drugs. That the insurance company determines. So I could see some arrangement between the credit card company and the insurance companies, rather than via the pharmacies.
One more thing. Our current credit card gives points for purchase that are usable at Amazon.com. These points are different than cash discounts for the customers, in that the former encourage additional purchase in general, while the latter encourage specific purchase where the discounts are large. It may be for customers who don't carry balances, the points approach is more attractive. For other segments of customers, perhaps it switches. That would be interesting to know.
Yes, AMEX does charge an annual fee for their more premium cards such as the gold, platinum and black lines. They extract 2.5% from the transactions as opposed to the usual 1.5 charged by Master and Visa. These kinds of cards certainly would not be attractive to lower income customers as it can be viewed as charging a premium for the branding and exclusivity that AMEX tries to market.
ReplyDeleteThe pharmacy discount I mentioned was a much smaller part of the value-added program AMEX was trying to promote. AMEX offers points as well instead of cash discounts. For every purchase made with a partnered retail chain such as Macy's, customers gain points. This approach does seem to be more attractive to those who don't carry balances. The market research found that direct cash rewards are most attractive to customers who tend to shop a lot. However, since the card I was working on was targeting lower to middle class consumers whose consumption habits are less frequent, the points approach was deemed more appropriate.