In the following Input, Processing, Output analysis (IPO), we will be examining the basis of lowering the transaction fee that American Express charges merchants to process their credit card. Throughout the analysis the three model system of Forecasting, Program evaluation and review technique and Critical path method, (PERT/CRM) and Simplex Linear Programing will be used to analyze and assess the benefits and drawbacks of changing the transaction fee. Upon analyzing the issue, a resolution will be explained in detail, setting a concise range and output for the impact of different transaction fees needed to increase customer growth as well as increase merchant usage.
IPO Summary
With the creation of the credit card, American Express has been one of the leading providers of high end credit card service to the wealthy, business user, and well-traveled credit card user. However, with recent trends in the credit card sector, other providers such as Visa and Mastercard have encroached upon American Express’s core demographic user causing them to lose market share and profit. With a decreased market share, the higher transaction fee that American Express charges merchants is becoming more and more of a burden working against American Express’s ability to grow its user base.
For our IPO analysis, we will be looking at overcoming the issue of decreased user base by examining what impact a lower transaction fee would have on the market. At the present time American Express’s transaction fee is double the cost of the competition, Visa and Mastercard. With running an IPO analysis of the impact different transaction fees would have, we will be able to first see if there is a positive correlation between lowering transaction fees and increasing usage. Second, we will then examine what the feasible range of the transaction fee will be to increase user base while keeping the transaction fee as high as possible. In determining the optimal solution of transaction fee to increasing cardholders, we will be able to take our findings back to the Board of Directors at American Express.
Topic Statement (Organization Issue)
The issue that American Express is facing in an ever changing credit card environment is to increase their user base as well as show the value in why their transaction fee is double the competition’s transaction fee. This higher transaction fee associated with American Express has previously been accepted by merchants in order to get access to the demographic that American Express cardholders represent. This higher fee in today’s market is being undercut by the competition all while the competition is still able to provide the merchants with the same high valued card holder demographic that American Express has previously offered.
This higher fee is causing large corporations such as Costco, American Airlines and United Continental, just to name a few, to switch to the completion, Visa and Mastercard. By running an IPO analysis, we will be able to bring the transaction fee back in line with the competition, increase our user base and still maintain positive annual revenue.
3 Model System
In running our IPO analysis, we will be using a three model system consisting of Forecasting, PERT/CRM and Simplex Liner Programing which will allow us to best analyze the different aspects of American Express. During the Forecasting portion, we will be examining different intervals over multiple data points using a five year forecast.
Upon completing the forecasting model, we will then be running a PERT/CRM model that will examine uncertain conditions that can lead to possible unfavorable outcomes. This will allow us to determine the optimal solution to take back to the Board of Directors of American Express. The last model we will use to examine American Express’s declining user base is the Simplex Linear Programing model. During this model, we will be examining possible variables and constrains beyond the transaction fee. This model will allow for multiple variables and constraints to be examined with their impact upon maintaining increased annual revenue growth and an increase in their user base.