Group Gaurav Mandore-PGP1013 October 21, 2012 Abishek Kamble-PGP1017 Kaif Siddiqui-PGP1031

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Contents

Case Background

Company Bachground

Past Challenges

The Turnaround

Q1, Q2, Q3, Q4

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Case Background ?
Overview Senior executives at American Express are reviewing the company's marketing strategy for charge and credit cards in the United States. A variety of growth options exists including further penetration of existing markets and the opening of new markets Historical background information in the case enables to analyze the phases of American Express's card strategy over the past fifty years.

Topics Covered

Marketing Communication Strategy

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Synopsis of American Express

Established in 1850 by Henry Wells, William Fargo and John Butterfield as an express delivery company It is a leading global payment & travel company Principle products & services include: charge & credit card payment products, travel related services Largest issuer of charge and credit card in the world based on value of purchases made Core attributes: Security & Trust

The case delves into past experiences and future strategies of American Express

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Products

First Card

Additional Cards
Gold (1966)
Corporate (1966) Platinum (1984) Optima (1987) First credit card Black Centurion card (1999) Invitation only card

Issued in 1958
Target Audience: Business travellers Launched as a response to Diners club card introduced in 1950

Formed an alliance with American Hotel Association gaining immediate customer bases of 150,000 card members & 4500 participating merchants

It offered customers convenience of payment rather than means of financing

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CONFIDENTIAL DO NOT DISTRIBUTE Past Challenges

Economic Downturn

Card Suppression

Others

Downturn in economy in 1991 leading to losses on Optima It therefore had to defer plans to expand credit card business

Merchants dissuaded consumers from using American Express card Restaurateurs in Boston did not honor American Express cards This discouraged consumers from using American Express card Market share of Amex reduced to 16% and was falling further

High cost compared to Amex most efficient competitors Card business division slow to change & adapt

Not flexible enough to meet the needs of targeted customers

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The Turnaround

Harvey Golub led the turnaround Key factors in the turn around Divesting the non core business of Amex thus bringing back the focus on card busines Increased frequency of new card product launch Adopting the co branding strategy to tailor suit high spending consumers

American Express thus had a successful turnaround

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Competitors
Networks: 1.

Visa Inc:
Worked on different product platform: debit card, credit card, prepaid and commercial payment Visa USA generated 82% of revenue from service & processing fee

2.

MasterCard:
Primary source of revenue: transaction service fee and data processing fee

3.

Discover Financial services:

Primary source of revenue interest income earned on revolving card member balance

Issuers:
Predominantly under Visa and MasterCard brand

Acquired new customers by cross selling to retail branch

Emerging payment networks:

Offered nontraditional, convenient technology based payment method Included players like Paypal, Google Checkout

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AMEX Spend-Centric Business Model

Investments in premium value

Premium Economics

Attractive Customer Base

High Average Spending

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Membership in Lifestyle
Emphasized that company sold not just a card but a relationship and they are increasingly trying to match the nature and level of rewards to what members are expecting. Company is committed to offer following services to members: Access Advocacy Accountability Affiliation For motivating customers, AE launched Membership programme (MR) which had more than 160 redemption partners and featured 29 airlines among its 250 merchandise brands Innovations like First Collection, a luxury tier exclusively for US Platinum and Centurion card members

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Data-Based Marketing

Direct relationships with both its card members and its merchants Competitive advantage - Have access to both merchants and cardholders Purpose to develop insights and offers that would match members interests, drive charge volume, & increase loyalty

Did not use individual data but rather clustered cardholders data into segments based on personal, financial and lifestyle characteristics
Correlations across spending categories to identify potential partnerships How spending behavior evolved through various life stages & increasing levels of affluence

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Marketing Communications
Advertising Campaigns

Period 1958 early 1960s 1969-1974 1975-1987 1987- 1992 1996-2000 2002 2004-2007 2007-2008

Campaign Good as Gold. The world around! For people who travel Do you know me? Membership has Its Privileges Do More/ Seinfeld Make Life Rewarding My Life. My Card. Are You a Cardmember?

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Marketing Expenditures
Investing in websites reduced AEs costs and built brand presence & prestige By 2008, 38% of AE applications, payments, & reward redemptions had migrated to web at lower costs & attracted new customers American Express Company US Card Media Spending

Media Type Online Television Non Traditional Media Print Radio

Share of media spend 2003 (%) 7 48 14 23 8

Share of media spend 2007 (%) 19 57 10 13 2

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Fees Paid by US Merchants to Accept Card Payments -2005

Payment Card Brand

Fees Paid ( $ billion)

Weighted Average (%)

Visa/ Master Card Credit Cards

Visa/ Master Card Debit Cards American Express Discover

25.13
9.76 8.51 1.46

2.19
1.75 2.41 1.76

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Reasons for success of Amex

Expertise in evaluating the credit risk of individual consumer

they could maintain best in class credit quality

Focus

on their core attributes of security & trust

Focusing

on core business of Amex

Understanding the changing dynamics of the market and taking appropriate action: 1. 2. 3. Move to launch Amex card understanding the shift in the preference of consumers from travellers cheque to card Corrective actions taken by Golub & Chenault to address higher cost and low flexibility & adaptability Co branding with Hilton, Delta, Costco, Starwood & Jetblue

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Delineate and rank in order the various growth options open to the American Express card

Growth options available to American express are Further develop data-based marketing Since American Express is a closed-loop network, they have access to much more purchase information than competitors

Nothing wrong with what they are currently doing, but investing heavily in this type of field will yield terrific results, as they are already experiencing
Expand Global Network Services division The Global Network Services division, which allows for third-party institutions to market and sell American Express cards, has been a driver of growth since its inception in 1997. By targeting the most affluent customers that somehow slip through the cracks of the American Express marketing division, GNS increases card membership without cannibalizing sales. Adjust marketing spend Currently Amex is spending well over half of their marketing budget on television, while focusing under 20% of Its spend on the internet . Television advertising is all about building awareness and brand value, but American Express is very relevant to U.S.consumers and has excellent brand equity already. By focusing more its spend on SEO and SEM, American Express would be able to have a search presence unmatched in its industry. Their recent Small Business Saturday campaign and their strong initial presence in the social media industry confirm this thought. It is imperative for them to focus their marketing efforts on adjusting theirmarketing spend towards the ever changing market needs. Furthermore, as theonly charge or credit card company that tries to build a true relationship withcardmembers, increased Social Media activity (especially Pinterest givenAmerican Expresss history in travel)

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Delineate and rank in order the various growth options open to the American Express card

Growth options available to American express are Increase use of internet for all card-related inquiries and payments While this practice has increased dramatically, its cost savings is so large that American Express really has to focus on driving more leads to their website

If American Express is to grow the number of applications, payments, and reward redemptions online, they need to educate their card members on how this benefits them, which might also mean emails or direct mail pieces to their card members
Near Field Communication technology If American Express were able to create an application that takes advantage of NFC, they would provide convenience to their card members who would only have to waive their cell phone in front of a reader to pay for things with their American Express cards. This industry is just in its infancy and we will see it becoming more prevalent as more merchants start to offer this as a method of payment Financing for affluent business (Mercedes, Lamborghini, Tiffany)American Express has in the past tried to become a powerhouse in the financial services industry, but found this to be a distraction to their company, However there is a place for a small number of financing partners that would create revenue for the company by leveraging its core competency of risk management, while further developing partnerships with prestigious brands such as the ones named in the option header More exclusive partnerships with smaller brands (online & retail locations) Just like it has enjoyed an influx of membership and profit through its exclusive partnership with Costco, American Express can attempt to create other similar partnerships with smaller brands. It would be impossible to get a large retail location to suddenly stop accepting other forms of payment, but if AmEx is able to identify a smaller and equally prestigious (at least locally)chain of stores or a website that specializes in selling affluent brands, they might be able to catch lightening in a bottle and increase membership this way

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Delineate and rank in order the various growth options open to the American Express card

Growth options available to American express are Growth opportunities for payment forms The growth opportunities for payment forms outside of their traditional charge and credit products -- such as prepaid, payroll cards, remittances and virtual currencies -- are expanding quickly, due in part to changing consumer behaviors, rapid economic development and evolving cultural norms across the world. In total, the market for these payment forms is well in excess of $1 trillion and generates disproportionately high growth rates. Capturing even a small market share represents the potential to add billions of dollars of revenue in the coming years.

Enhancements to its Prepaid Debit Cards American Express introduced major enhancements to most of its prepaid debit cards, including direct deposit, higher ATM withdrawals thresholds and additional cash loading options. It also palns to give prepaid debit cardholders the opportunity to upgrade to a traditional charge card if they exhibit good payment practices as they load and use their card. The program is intended to help consumers with thin or no credit files.

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What challenges face the American Express card in 2008?

American

Express faced the same challenge as all of the organizations in the United States in 2008, economic recession

Amex customers spend on an average almost three and a half times as much per card as its next closest competitor, even a relatively small percentage of its clients defaulting could have had a major impact on the companys bottom line.
Since

it had a core competency of risk management, they had already vetted the majority of prospective card members who would have otherwise defaulted.
This

competitive advantage likely saved the company billions of dollars of loss in only a couple of years.

Also, in response to the recession, the company tightened restrictions even further after having learned its lesson after the Optima card (the only card in which members were allowed to carry a balance) posted massive losses in the wake of the recession in 1991.
Again, Jud

this is evidenced by a 25% drop in Net Loans.

Linville, CEO of Consumer Services at American Express believed that because of the economic recession, the company challenge was to deepen consumer understanding to provide innovative, value-added products that would attract and retain card members.
Through

data mining, and appending the information to card member accounts, American Express was able to provide relevant and personalized promotions that not only increased card member spend and retention, but provided a better overall customer experience because they were not bombarded with information that was of no use to them
However

this involved additional cost.

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What challenges face the American Express card in 2008?

Proliferation of new methods of payment

As a closed-loop company that is not by definition a financial institution, American Express does not offer debit cards. While the interchange fees they would earn are significantly lower than what they are currently charging, growth in debit card payments has far outpaced that of credit card payment

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Economic recession & its affect on Amex

Consumers

and businesses become more cautious about how they spend during recession

They

demand more value for product/services they pay for

This

will affect the revenues directly

Recession

will also lead to more bad loans & writeoffs resulting in decreased profit

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