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Clearly Amex has a major problem in the pricing area of their business today. In terms of promotion, the company's continual evolution as a brand that stresses an aspirational message also presents a dilemma to the company as well. Attracting consumers who may not have the disposable incomes to fit the aspirational spending that the Amex brand portrays requires credit scoring, data mining to alleviate risk, and more precise marketing as well. From this standpoint, if the aspirational selling of their brand works too well the company will also find that its image with its core customer base suffers as well. For Amex they must make their brand become part of the personas of their most loyal customers while also underscoring the aspirational aspects of their services tempered with reality (Zalaznick, 2008). Of the four aspects of the marketing mix, Amex continues to struggle with distribution or place, when taken in the context of global marketing (Taube, Gargeya, 2007). Attempts to increase distribution globally through partnerships created through its Global Commercial Services (GCS) and Global Network and Merchant Services (GNMS) have been only marginally effective as the financial analysis in Table 1: American Express Geographic Analysis illustrates.
The following is an assessment of Amex's strengths, weaknesses, opportunities and threats. These exemplify the extent of the challenges for the company as they attempt to move into new markets globally while staying profitable in their core markets.
Highly unique and differentiated business model that is spend-centric with compensating revenue from retailers and merchant partners. This is highly unique in the credit card and credit processing industry and provides Amex with a recurring revenue stream that is based on the extent of their scalability of operations and success rate in getting card holders to charge more on their personal and corporate accounts. The uniqueness of this business model also is seen in their approach to defining merchant services and partnerships globally as well.
Exceptionally strong brand with strong aspirational value. This is one of the most unique differentiators of the company globally, as its brand connotes Access, Advocacy, Accountability and Affiliation. The essence of the brand is approachable aspirational spending, and has a strong message of success associated with it as a result (Zalaznick, 2008).
Travel Operations in Corporate Accounts. This is one aspect of the Amex business model that in the context of Fortune 500 companies presents a nearly unassailable competitive position relative to other competitors in corporate travel services.
Lack of point-of-sale debit card support and no plans to capitalize on this high growth of the market. This is one of the most glaringly absent aspects of the Amex strategy, as the case study indicates the rpaid growth of debit card services yet does not show any intention on the part of Amex to capitalize on it. This ties back to the paradox the company is facing in terms of attempting to stay up-market with higher income customers yet needing to migrate down-market to capture greater market share.
Plummeting sales of Travelers' Cheques. The core business that Amex was founded on is faltering and is going to be gone within ten years. This is a major weakness as well, and could easily be solved if the company moved to support more debit-card-based travel services.
Increased financial risk from less-than-perfect credit card holders. In its attempts to move down-market. Amex has experimented with a variety of payment plan-based cards products and services, yet each have failed and cost the company money. This is because the internal systems for the company are oriented and aligned with card customers who pay their entire balances every month.
Innovative new products including debit card support globally. There is significant opportunity move more into the more lucrative areas of debit card purchases tied to bank accounts where Amex could charge a processing fee for handling the transaction. Second, Amex could create a clearinghouse for all debit card transactions through their most loyal retailers. The opportunities for growth in this area of the market are significant. The company must move aggressively in these areas to continue to grow.
Expansion opportunities in BRIC nations. The nations of Brazil, Russia, India and China together present significant opportunities for global expansion for Amex. Using the Global Commercial Services (GCS) and Global Network and Merchant Services (GNMS) to launch new services into these markets is critical.
Credit crisis is going to have a debilitating effect on the company. As has been seen in the news of the company (Stacey, 2009) the credit crisis has forced the most affluent customers Amex has to curtail spending, leading the company to let 7,000 employees go this year. There is also the challenge of keeping their retailers loyal in the midst of plummeting revenues that the card is bringing through distribution channels.
Interchange fees are going to be a political issue for Amex globally in 2009 and beyond. With the EU, Australia and many states in the U.S. passing legislation to limit interchange fees, Amex will find this will significantly impact their margins, which are already in a state of decline as seen in Table 2: American Express Company Ratio Analysis.
Increasing competitive pressure from VISA, MasterCard and Regional Card Providers. Competing with Capital One, JP Morgan Chase, Citibank, Bank of America and others is tempered by the global credit crisis, yet all of them share a common attribute of needing to generate incremental revenues quickly to stay in business. Today the strategy is to increase fees to the consumer, yet Congress is moving to block this. Over time there will be consolidation in this industry as consumers continue to cut back on their spending as the economic conditions stay uncertain.
Analysis of Industry, Demand & Competition
According to industry estimates (Stacey, 2009) the U.S. market achieved just over $2.2 trillion in purchases and cash advances in FY 2008. Per the case study the average American has 4.4 credit cards, with outside sources used in the analysis showing the average has dropped to 3.5. Retail cards are dramatically dropping in use, from 2.8 per consumer in 2008, projected to drop to 1.3 in 2010. Debit card use is at 1.6 per capita in the U.S. The net effect of these statistics is that the typical American consumer has 8 different types of payment cards on average. The major market segment for these cards is within the second highest and highest income quintiles (accounting for about 29% of the market respectively) as is shown in Figure 1, Distribution of Credit Card Holders by Income Statement. The individuals within these groups tend to purchase more often, and have the ability to pay back debt. The highest income quintile is Amex' primary target market and is comprised of those individuals that have a household income greater than $100,000. The second-highest income quintile are those with an income of between $75,000 and $100,000 and are the main aspirational segment that Amex most often appeals to. The two lowest income quintiles account for 5% and 13% are younger consumers who prefer to use debit cards.
From the studies of credit card use (Borzekowski, Kiser, Ahmed, 2008) several interesting findings emerge. First, Baby Boomers over 50 years of age are more likely to have a credit card than those 25 to 49, yet use them less frequently, often paying back the entire balance. This is due to the fact that the younger customer groups are purchasing more durable goods (Borzekowski, Kiser, Ahmed, 2008) and they will also tend to purchase more often on impulse. Second, nearly 75% of American college students have a credit card with the average balance being $2,000. As can be seen from this analysis there is a strong aspirational aspect to credit card purchasing that is a market dynamic Amex has been able to consistently capitalize on.
Figure 1: Distribution of Credit Card Owners by Income Segment
Second highest income quintile
Highest income quintile
Middle income quintile
Second lowest income quintile
Lowest income quintile
Source: Analysis of 10Ks, 10Qs filed by American Express with the Securities and Exchange Commission on a quarterly basis
American Express achieved 10% market share in 2008 relative to entrenched competitors JPMorgan Chase and Banks of America. The strengths of JPMorgan had been their aggressive use of debt investments to manage the losses in their card division. JPMorgan however has fallen victim to the credit crisis as has Citigroup. Their weaknesses are more structural from a financing standpoint. Amex has been able to withstand this dismantling of their two competitors due to their loyalty of their customer base and their unique spend-based business model.
Figure 2: Market Share by Competitor
Market Share Range
JPMorgan Chase & Company
Bank of America Corporation
American Express Company
Source: Analysis of 10Ks, 10Qs filed by American Express with the…[continue]
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