Case Study on "American Express"

Case Study 10 pages (4415 words) Sources: 1+

[EXCERPT] . . . .

American Express Case Study

SITUATION ANALYSIS

Analysis of the Firm

American Express (NYSE:AXP) is one of the world's leading providers of premium travel-related services and payment processing system support services globally. American Express (Amex) has grown steadily through a series of mergers, acquisitions and later divestures to focus entirely on their premium card and payment processes services (Taube, Gargeya, 2007). AMEX concentrates today on a series of financial products and services to individuals, small businesses, and large corporations including the Fortune 500, and higher education institutions globally. The company operates on a global scale, yet the majority of its revenue is generated in the U.S. For an analysis of American Express Revenues and Earnings before Interest and Taxes, see Table 1: American Express Geographic Analysis. In an effort to bolster foreign revenue, Amex reorganized to have operating segments re-aligned to a global consumer and global business-to-business structure (Taube, Gargeya, 2007). The company also completed this re-organization for corporate accounts and ancillary businesses as well. As part of the re-organization, Amex placed its U.S. Card Services unit (USCS) and it's International Card Services (ICS) within the global consumer group with the intent of creating a more uniformly focused culture on customer service and recovery in this sector (Giglio, Michalcova Yates, 2007). Of all services divisions of the company, USCS is the most well-known as it concentrates on the issuance of cards to consumers and the offering of services to small businesses in the U.S. through 2007, and since the reorganization, globally (Taube, Gargeya, 2007). As part of the re-organization the company has also integrated in its Travel Related Services (TRS) unit with its U.S. banking subsidiaries to include the icon of their brand, their consumer charge cards. From the classic green American Express personal card, to the American Express Gold, Platinum and Centurion Card, to the revolving cards including Blue with is the processor of Optima, this division manages consumer accounts. What is remarkable is that the average spending $8,360 per Amex card is four times that of competitor Visa's average spending of $2,470 per card and MasterCard's $1,960 per card as well. This point made in the case quantifies how powerful the Amex brand is within the upper income segments of the American credit card market, and also shows significant potential for global growth with affluent consumers. To continually pursue global growth the company contracted in 2007 with Harrods to offer a customized American Express card for that store as well (Taube, Gargeya, 2007). Amex realized that in addition to these customized cards, the need to increase the number of redemption services was also critical, and as a result they added 1,400 redemption partners globally since the reorganization (Taube, Gargeya, 2007). This network is comprised of 80 different partners in each country with only a fourth of them in the travel industry (McClellan, 2007). One of the strategic objectives as defined in the case study and apparent from subsequent research is the development of the Global Commercial Services (GCS) and Global Network and Merchant Services (GNMS) divisions so they would be more aligned with the needs of business-to-business (b2B) clients globally (Taube, Gargeya, 2007). The GCS is specifically focused on transition-based services, and has been one of the key factors that is responsible for the increasing Revenue Per Employee as shown in Table 2: American Express Company Ratio Analysis. Globalization efforts for American Express have been constrained by the lack of marketing effectiveness (McClellan, 2007) in specific regions of the world and the scalability of the Global Network and Merchant Services (GNMS) which has been constrained in its profitability by the current financial crisis and the dollar's lack of strength as a global currency.

Marketing Strategy

The case study provides a progression of the marketing strategy for Amex from its founding in 1957 through present day, with the maturation from the predominantly male business traveler, to affluent women, and also families. The shift in messaging to leisure travel and experiences in the 1987-2002 timeframe was the beginning of the company's move to more lifestyle messaging over their heavily aspirational approach of using the "Do You Know Me?" campaign during the 1975-1987 timeframe. The progression through "Make Life Rewarding" to My Life, My Card messaging that concentrated on rewards and incentives to stay loyal to the Amex brand were the primary marketing strategy through the years of 1996-2007. In the midst of the global re-organization (Taube, Gargeya, 2007) the company moved to celebrity endorsements. The decision to rely on Tiger Woods had been proven in previous endorsement efforts the golf legend has been involved in (Farrell, Karels, Monfort, McClatchey, 2000) and therefore the risk was seen as minimal. With the strategy of using "Are You Are a Card member?" The company embraced the concept of how unique each card member is and how their lifestyles exemplify the branding concepts of Access, Advocacy, Accountability and Affiliation - all critical components of the company's messaging and membership messaging platform. As the marketing strategy has progressed, it has however lacked the necessary aspects of a marketing campaign for fuel aspirational use. The typical Amex card hold spends $8,360 per year on average, a spending rate that only 5% or less of the most affluent Americans can sustain. In fact the marketing strategy is a paradox both today and in the timeframes of the case study. There is on the one hand the need to gain greater loyalty from their existing customer base yet also expand the total available market by providing card services to income levels below their target market. This also represents a challenge for the company in terms of taking on relative levels of risk as well. To move further down the income scale, Amex would have to take on greater financial risk of default given their cards being predominately honored by merchants who can afford their fees. Amex has a strong brand at the higher end of the market yet also is almost blocked from going down-market given the fact that 70% of their revenue is generated from retailer and establishment fees. In this sense, Amex is trapped from moving down the income levels both due to risk and the constraints it places on retailers to pay higher fees to accept its card relative to competitors VISA and MasterCard. The Optima experience the company had also highlights the risk of opening up the Amex network of retailers and establishments to income levels of customers who do not pay their entire balances off completely very month, which is a core assumption of the company today.

The marketing strategy has continued, in spite of these major limitations, to concentrate on celebrity endorsements, the use of integrated marketing communications (IMC) strategies (Hosford, 2009) and the increasing use of the Internet for capturing new accounts and serving existing ones. What has been missing however is a universal theme that foreign consumers can relate to and identify with. Amex continues to struggle globally from a marketing standpoint both within the case study and today (McClellan, 2007) due to the inability to attract profitable customers for life.

As the financial analysis shows in Table 2, the company is actively serving many customers, yet not achieving profitable growth. This is because the marketing strategies excel at attracting aspirational members, yet does not do enough to, even with data mining as mentioned in the case, to find long-term, profitable customers.

Organizational Goals

The organizational goals of Amex center first and foremost on selecting key investments that will allow for long-term revenue and profit growth, without sacrificing the gains made in emerging global businesses. This is apparent in the approach Amex is taking in terms of its globalization strategy (Taube, Gargeya, 2007) and its approach to trimming back acquisitions earlier in the 20th century as the case study suggests. Second, Amex is focused on the business process management (BPM) and process re-engineering in an attempt to ensure all of its divisions perform together in unison. This is evident from the discussion in the case study with regard to the re-organization of 2007 and the integration of services into divisions that allowed for greater sales internationally. A third organizational goal is to nurture customer loyalty over time, fostering this through lessons learned from data mining and customer research. Taken together, Amex is striving to find new avenues of profitable growth while at the same time nurturing and growing lifetime customer value.

Marketing Mix

The product, price, promotion and distribution or place, or marketing mix analysis of Amex exemplifies an organization that has tested alternative services to its core business, yet has found that its unique value proposition is in providing credit card and travel-related services for affluent individuals, small businesses and larger corporations and institutions worldwide. These services include credit card processing, customized credit card programs for merchants and banks, and payment processing services globally. Across the spectrum of services the company provides, the pricing models concentrate on higher-end, value-added service offerings capable of supporting their higher gross margin-based business model.… READ MORE

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