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Smart Pricing: How Google, Priceline, and Leading Businesses Use Pricing Innovation for Profitability by Z. John Zhang, Jagmohan Raju

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8. The Snob Premium

“You get what you pay for.”Anonymous

In the 1960s, paying with cards such as Diner’s Club or American Express offered not just convenience, but cachet: Carrying a credit card implied a certain degree of status. Card providers made money mostly from annual fees.

As the market grew, competition drove those fees down. Not only did virtually everyone end up with a credit card, but most consumers carried multiple cards. Between 1997 and 2005 alone, card volume grew by 40%, from 1.80 cards per capita to 2.53. To survive, most card companies changed their business model.1 The smartest saw themselves as providers of a commodity and knew that when trying to sell a commodity, the best strategy is usually to expand the market as wide ...

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