I’ve had a surprising number of people tell me over the years that they don’t carry an American Express card, because there are too many businesses that won’t accept it. The reason, of course, is that Amex charges retail establishments an average fee of 2.5 percent of the total purchase for the privilege of accepting its card.
The result of this is that a whopping 36 percent of American Express’s $28 billion in net revenue last year came from card fees. By contrast, MBNA, a giant MasterCard and Visa issuer, earned only 9 percent of its net revenues from fees.
So, how does the Amex card manage to not only stay in business but thrive? One word: image. Amex cardholders tend to be much bigger spenders than MasterCard and Visa cardholders.
According to Amex, its cardholders charge an average of $9,500 a year, or about four times that charged by the average MasterCard or Visa user. Because of this, large retailers simply can’t afford to refuse to accept the Amex card.
While rapidly changing credit-card laws may force fees down in the not-too-distant future, Amex has successfully weathered the price-competition storm for decades. Call it posture, call it image, call it perception, but year after year American Express manages to pull it off.
Whatever your product or service may be, you would be wise to take a cue from American Express when it comes to pricing. One of the four or five main reasons why small businesses go broke is the failure to charge enough for their products and services.
Plus, there’s an important marketing reason for keeping your prices at a higher level than those of your competitors. Study after study has shown that many people (like me, for example), when given a choice of comparable products, will choose the more expensive one.
I’m a salesman at heart, so I’m easily sold. I tend to believe that if the price is higher, the product must be better. As long as there are guys like me out there waiting to give you top dollar, don’t be shy about raising your prices.
This is especially true in the information business. Remember, as the late and legendary Joe Karbo used to point out, you’re not selling paper and ink. You’re selling information. If that information is valuable, charge according to its value.
In that respect, a CD or a book can be worth nothing to you or it can be worth a million dollars. Too many people make the mistake of perceiving value by product category rather than content — i.e., a book is worth this much, a CD is worth that much, and so on. They are dead wrong.
Amex made a lot money by practicing my Posture Theory long before I created it in my first book. That theory states: It’s not what you say or do that counts, but what your posture is when you say or do it.
Through good times and bad, Amex has always managed to position itself above the pack, and will likely continue to do so no matter how much government regulators try to change the grade of the playing field.