Most people know that the original American Express (NYSE: AXP) green card is not a credit card but rather a charge card. Balances are due each month for AmEx charge cards as opposed to credit cards, which allow cardholders to carry balances and to enjoy the privilege of paying interest on those balances. (See Getting Out of Debt for more on how The Motley Fool feels about carrying balances on your credit card.)

But the charge card concept is not what differentiates AmEx from the rest of the field. In fact, AmEx is knee-deep into the credit card game these days with Optima and its latest offering, Blue. Last year, AmEx booked more than $2.3 billion in net finance charge revenue thanks to those credit cards.

What differentiates AmEx cards is a list of privileges or at least the perception of privileges carefully put together for its members. The air of exclusivity surrounding the card was enough to get me to apply and has kept me paying the annual fees year after year. I didn't sign up for my American Express card (member since '89) because of specific benefits; I signed up because I wanted to be a part of the club. I wanted to know if I was good enough to get in. I'll admit it! Will you?

So, to get myself off the hook for buying into the "privileged few" hoopla, I conducted my very own, completely unscientific study. I dug the original cardholder agreements for my Chase Mastercard, Citibank Visa, Discover card, American Express Gold, and American Express Blue out of my filing cabinet (pretty impressive I still have them, eh?). I read through them (zzzzzz) and developed a list of benefits for each. Below is a sample of some of the value-added services offered on my Blue account:

  • Return Protection -- lets me return purchases of up to $300, even ones made online, even if the merchant will not take it back.
  • Best Value Guarantee -- assures that I pay the lowest available price by promising to credit my account by up to $250 if I find (in print) the item I purchased for less within 60 days of buying it.
  • Purchase Protection Plan -- covers my purchases for 90 days up to $1,000 against accidental damage or theft.
  • Buyers Assurance Plan -- extends the manufacturer's warranty up to one additional year.

All nifty services but what I discovered was that AmEx has its privileges and so do the others, as long as you're willing to pay. Most of the services above are not unique to AmEx. For example, a platinum Chase (now J.P. Morgan Chase (NYSE: JPM)) card offers a similar purchase protection plan, and Citibank (NYSE: C) offers 90 days protection from theft or damage on its Citi Gold and Platinum Select cards. Just like the traditional AmEx charge card, these platinum and select cards have annual fees (AmEx collected $1.65 billion in net card fees last year) or minimum account balances, so comparisons to American Express charge cards are fair. But Blue offers these services and is free.

So, what are these guys up to? They already have a credit card with Optima, so what do they need Blue for? My guess is that management is working the differentiation angle on a new credit card. AmEx was built on the differentiation concept, and the top brass are applying this strategy with Blue.

According to Michael E. Porter, author of Competitive Advantage, differentiation is one of three core competitive advantages. The other two are cost leadership (read: low-cost provider) and focus (read: narrowly targeted customer base). If you're interested in learning more about competitive advantages, come join us in March for Art of Rule Maker, our online seminar. It's just $49 and is 100% Foolish with a money-back guarantee.

Back to the topic. Differentiation is all about rewarding the customer with something unique at a premium price, and nobody does this better than AmEx.

Blue ain't your daddy's credit card. It contains a "smart chip." OK, I know. I laughed at first, too. Just another gimmick, right? Maybe not. The reason for the smart chip is so that the credit card can be used with a Smart Card Reader, which provides secure access to the American Express Online Wallet. This wallet speeds up online ordering by automatically filling out online order forms with your personal information. It's a service that differentiates Blue from the hundreds of millions of credit cards arriving in your mailbox daily.

Here's how it works. Each time you want to buy something online, you insert Blue into the Reader, enter a personal identification number (PIN), and use the online wallet to shop. AmEx promotes the card on its website with, "In the future, your Smart Card Reader will also allow you to load up Blue's Smart Chip with helpful offers and tools -- special savings and utilities that we are custom-developing right now." The card, the reader, and the online wallet are all about providing a unique service to the customer, not to mention targeting a younger demographic. Blue goes after the Web-savvy, younger clan with a differentiated and cool product. Even the look, with its shiny silvery-blue color, says "cool."

Honestly, it still seems a little gimmicky, but the strategy is clear and has worked for AmEx before. These guys have mastered the art of distinctiveness or at least the perception of distinctiveness. Here they go again.

For more on AmEx, its strategy, and its savvy management, I encourage you to check out the excellent recent Fortune article What's In The Cards For AmEx?

On a personal note, if you're not a TLC and Discovery channel junkie like me, you may have missed the photos of asteroid 433 Eros. It's worth a look. Scientists from the Johns Hopkins University Applied Physics Laboratory landed a spacecraft on an asteroid 200 million miles from Earth. And you thought investing was hard!

Todd Lebor is a co-manager for the Rule Maker Portfolio and lives in Alexandria, Virginia. At the time of publication, the writer did not own shares in any companies mentioned above. Todd's other holdings can be found online, along with the Fool's complete disclosure policy.