Jake Wright
HW #1
6/23/14

Answer the following two questions based on The American Express Card Case:

1. American Express was able to expand its merchant mix over time despite charging merchants a higher discount rate than Visa and MasterCard. Why were merchants willing to start accepting American Express cards?

Merchants were willing to start accepting American Express cards because of the patrons that were associated with those cards. The case mentions that the annual average purchase volume for an AmEx card holder ($8,360) was substantially higher than that of Visa or Mastercard, $2470 and $1960, respectively. This meant that the AmEx card holders were more likely to spend more at locations. AmEx used the higher discount rates to study the purchase habits and inclinations of card holders. These studies led to more targeted promotions, which allowed merchants who accepted AmEx to bring in more patrons who were more likely to purchase more at their locations.

2. How does American Express create and sustain a key competitive advantage over major competitors such as Visa and MasterCard?

In order to create and sustain a competitive advantage over its competitors AmEx targeted a certain customer and their “lifestyle.” Instead of targeting customers that were transaction oriented, AmEx targeted customers that were “high wallet” consumers, with spending of over $30,000. These consumers were identified as travelers, liked to be different and liked special access to different experiences. By doing this AmEx created a sort of lifestyle that made its customers feel different than the average credit card user.

Answer the following two questions based on the Harrah’s Entertainment Inc. Case:

3. What type of customers was Harrah’s primary target?

The primary target of Harrah’s was the theoretical low rollers of the Las Vegas experience. These customers were the ones that had an average spend of $2000 a year in the gambling industry. Harrah’s typical customer was the slot playing, middle aged people that could be retired teachers or doctors. The customers usually did not stay in the hotels they were gambling at and mostly stopped by later in the day to gamble.

4. Which important elements of Harrah’s strategy cannot be easily replicated by competitors? Why?

An important element of Harrah’s strategy that cannot be easily replicated by its competitors was the constant scanning of their customers. As customer’s tastes changed Harrahs can quickly and effectively change how they catered to those customers. This could take weeks to months in order for their competitors to do the same thing. Harrahs system was put together with many different applications that interface together and are not easily imitated. Individually these systems do not provide much information, but when together they can provide information that Harrahs can use to their advantage.