Case_In_Point_7th_Edition_Page001_183_2

A mex R evenues:
1 0 million customers paying a $50 annual fee equals $500 million. Each member spends $2,000 x 2% =
$40 a year x 10 million customers = $400 million. Total revenues then = $900 million, with 55% of that
figure coming from fees.
Would card members spend more money if they didn’t have to pay the annual fee? Amex card members
would have to more than double their purchases to make up for the loss in fee revenues. It seems
unlikely that they would go from spending $2,000 a year to spending $4,000 a year because of a
dropped $50 fee. Even a modest bump in new members couldn’t make up the difference.
How many new customers would Amex have to secure in order to make up the $500 million difference?
Amex would have to more than double its card members from 10 million to about 25 million in a short
period — say, two years. Is that feasible? It took Amex 25 years to reach the 10 million customer base it
currently has. So doubling it in two years seems unrealistic.
M
yav ie t A A mex t is seep i ts fee i rpaAe.
That’s it. That’s the answer. The interviewer doesn’t want to hear about reducing the fee to $25 or turning
Amex into a credit card. This is a straightforward question. Listen to the question.
Busi ress S tategy an r O perat ns i C ases: Some business strategy and operations cases should
be answered in less than 15 minutes. These are referred to as mini-cases. An example:
GE has invented a new light bulb that never burns out. It could burn for more than 500 years and
never blink. The director of marketing calls you into her office and asks, “How would you price
this?” What do you tell her? (See answer on page 84.)
A regular case question, like the DuPont case below, could take anywhere from 25 to 35 minutes to
answer. It could be a market-sizing question and a strategy question all rolled into one, such as: