MasterCard operated with explicit annual pricing quotas to hit revenue targets, raising prices every year regardless of added value. This backfired: customers demanded price caps, and the burden shifted to smaller merchants who had no leverage to negotiate.
Chapters
at MasterCard, like we had a number, we had a target. I mean, it's almost like pricing is carrying a quota. And tell me if this is wrong, but like I'm not aware of many pricing teams at software companies that are carrying a quota. Tell me if that's incorrect.
No, that's exactly right. That's exactly right. It was the only place I had ever been at where it was structured that way. Because if you think about it, like especially in mature markets, Yes, you're always trying to grow usage in different areas, but the growth is much more conservative because most people have a credit card at this point, right? And they spend on the credit card. The, the growth comes from, yes, using credit cards in new categories and things like that. So as a result, we continually had pricing targets. I also think it was unique there because both MasterCard, uh, and Visa were nonprofits, so their pricing. Was originally at a very low level, was essentially pass-through costs. And then once they became public, you know, they had the opportunity to, to bring the pricing up, uh, to meet it. Um, and so as a result, you, you had some runway as well. What it also was really eye-opening for me, the way they did it with a pricing target was beneficial from a stock standpoint because it made it very predictable in terms of, of, of quarterly numbers and, and more consistent growth. But from a customer standpoint, the better way probably would have been just to right-size once and then, you know, yeah, make minor increases here and there based on actual lift. But when you keep coming back to the trough every year— here's your increase, here's your increase— without actually having concrete benefits that associated with those increases, um, your customers resent it. And then it also— you start— every contract starts having price caps. So now you're limiting where that increase can go and, and sort of like You know, the terrible waterbed analogy, you're pushing down and it just pops up somewhere else, right? And so, uh, all of a sudden it's basically on the side of the smaller customers who have less power, who end up paying more.
