American Express Quality Management and BEEP Card Strategy

Introduction and Organizational Background

American Express is a global, diversified financial services company headquartered in New York. The company is over 150 years old, having been founded in 1850. It is best known for its credit card, charge card, and travelers check business, but has numerous ancillary operations that serve as profit centers. Analysts rank American Express as the fourteenth most valuable brand in the world, estimating the worth of the brand at over $21 billion (AXP, 2009). Despite its long tenure in the marketplace and high service level, American Express remains vulnerable to the fluctuations of the economy, and thus any additional product lines must be carefully considered.

The central question examined here is whether American Express should use quality management principles to excel in a highly competitive niche market — specifically, whether to launch the Business Executive Exclusive Perks Card (the BEEP Card) given current levels of business commitment in the field.

American Express is a diversified global financial services company that was founded just prior to the American Civil War. It is best known for its business line of charge cards and traveler's checks, and holds approximately 25 percent of total credit card transactions in the United States, largely because of its perks and programs focused on American business (Chenault, 2009). American Express does not sell anything truly tangible. Yes, they carry some merchandise, but their primary focus is to get as many American Express cards as possible into the hands of qualified customers. Revenue is generated through the fees charged to retailers and credit card clearinghouses. American Express is essentially branded as a service-oriented business — top-notch service that customers receive in every interaction with American Express staff (Bihlmier, 2002).

One of the reasons American Express has been so successful, despite the ups and downs of the economy, is its focus on customer experience and its ability to brand that experience as something that feels tangible, even though it is not. The company has achieved this through enhancement of the customer experience from initial contact through final payment, through celebrity endorsements, and through consistent branding of the overall experience (McCarthy, 2005; Davis, 2010; americanexpress.com).

For many business professionals, American Express is more of an experience than a product. Cardholders can call the company 24 hours a day, 365 days a year in an emergency, have funds delivered or charges authorized by phone, and receive discounts on hotels, car rentals, meals, and even special events. Being an American Express member "has its perks." With the new BEEP Card, specifically designed for that upper echelon of corporate executives, the experience offered will be even more customized and exclusive.

Even with billions in global assets, American Express's business model is tied closely to the economic pulse of the business world. As one of the top-rated charge cards for business and corporate use, the fiscal crises of recent years negatively impacted the company. In November 2008, American Express won Federal Reserve System approval to convert its operations to a bank holding company, which made it eligible for government subsidies under the Troubled Assets Relief Program, which at that time consisted of over $127 billion (Lanman, 2008). This development was serious enough for the Fed to waive its typical 30-day waiting period, and it resulted from credit card holders' failure to repay loans at almost twice the rate seen in 2007. One of the major strategic weaknesses of American Express is its tie to the health of global financial markets — the company posted several consecutive quarterly profit declines even as some segments showed upturns. As CEO Kenneth Chenault stated: "Given the continued volatility in the financial markets, we want to be best positioned to take advantage of the various programs the federal government has introduced. We will also continue to build a larger deposit base to broaden our funding sources" (cited in Lanman, 2008).

Literature Review and Business Model

American Express is a large company with core values in banking, financial services, travel, and corporate and personal credit and charge cards. Its Strategic Planning Group operates consulting services for management across all business units and also serves as a conduit for executive-level recruiting ("American Express Strategic Planning Group," n.d.).

The business model for American Express consists of several major revenue sections, with the top-grossing centers being: (1) discount revenue from card transactions (53%); (2) interest from card member lending services, i.e., revolving charge cards (13%); and (3) fees from cards, travel, and other holding fees combined (23%) ("American Express Summary," WikiInvest).

American Express acknowledged that 2008 was a difficult year and that its performance is tied very closely to the spending patterns of businesses and executive cardholders — particularly the dismal performance of both the 2007 and 2008 holiday seasons in luxury goods. Additionally, the impact of the Enron, Arthur Andersen, and automobile industry scandals and crises threatened to force additional oversight and regulation upon American Express's financial services division. Tactically, the company instituted several short- and mid-range solutions to improve its financial resilience: (1) adjusting lending models to reduce high-risk accounts, cancel certain accounts, reduce lines of credit, and limit new cardmembers; (2) managing risk to improve profits; and (3) enhancing services for businesses and cardmembers experiencing difficulty in order to prevent defaults ("2008 Annual Report," p. 5).

Strategically, the company pursued the following actions:

Reengineering: Control of costs, cutbacks in spending across every area of the business, increased efficiency, and elimination of activities not supporting the company's highest priorities, including the elimination of 10% of the global workforce (7,000 jobs). Benefits of $1.8 billion were expected as a result of this reengineering.

Partnerships: Forging new co-branded partnerships in key international markets, primarily in the Far East and Australia — signing 13 new partnerships and launching 130 new products with banks that issue American Express-branded cards globally.

Servicing: Improving the servicing aspect and offering more opportunities than competitive products — an effort that resulted in earning the J.D. Power and Associates Customer Satisfaction Award.

Business partnerships: Even in a down economy, partnerships with businesses continued to help American Express grow its revenue. Partnering in the B2B space improved ready income while continuing to provide greater incentives for additional partnerships ("2008 Annual Report," p. 8).

American Express has navigated recessionary periods before and has emerged stronger by returning to its core values and strategies.

Marketing and Advertising Strategy

One of the key factors in the improvement of American Express's market position is the continual thrust of its brand. American Express has taken branding to a new level — moving away from the outdated marketing models of the 1960s toward a more integrated approach that makes every employee, essentially, a brand manager. American Express does not sell anything truly tangible. Yes, they carry some merchandise, but their primary focus is to get as many American Express cards as possible into the hands of qualified customers. Revenue is generated through the fees charged to retailers and credit card clearinghouses. American Express is branded as a service-oriented business — top-notch service that customers receive in every interaction with American Express staff (Bihlmier, 2002). The company has achieved this through several simple yet powerful changes to its business paradigm:

Customer Contact: Every step of the American Express experience has been refined to be distinct and competitive from all other credit and charge card companies. Employees are highly trained, communicate professionally, and begin every customer interaction with the client as the top priority.

Accuracy of Statement: American Express statements are double- and triple-checked for accuracy, with backup data readily accessible at a moment's notice. Recognizing that most card use is for business purposes, American Express organizes statements into categories that simplify employee expense reporting.

Business Cards: American Express actively pursues large business accounts and has made it easier for company employees to receive cards and submit only their receipts back to their employer. American Express customizes reports by employee and category for larger companies' accounting management, and for some clients, delivers reports electronically based on their individual needs.

Ease of Disputing a Charge: American Express assumes the client is correct, and with a simple phone call will act as an advocate for any unauthorized charges (AmericanExpress.com).

Utilizing celebrities as role models: Rather than having a celebrity simply pitch a product, American Express has taken two distinct approaches to improving its brand through celebrity association. The celebrities actually use the product — their names are printed on the card — and they are shown in their particular field of expertise (e.g., Tiger Woods, Robert De Niro). The company also produces ads that play on popular cultural archetypes (McCarthy, 2005).

Differential Branding: American Express now offers not only the Gold and Green cards, but also Blue and Red cards, with different cards serving credit customers as opposed to charge customers. The Product RED card, for example, supports the fight against AIDS and other humanitarian causes. One AmEx commercial showed a model near a traditional Maasai warrior; the model holds the RED card and says, "It doesn't make you feel so guilty about spending your money!" ("American Express — Card of Conscience," 2007).

For many business professionals, American Express is more of an experience than a financial product. Being an American Express member "has its perks." American Express excels at creating strategy from the "outside in," rather than following the typical product management model of working "inside out." This strategy has shown an increase in brand recognition even among consumers who do not currently use the product. As the population ages and becomes able to afford participating in the American Express experience, that recognition functions as a long-term marketing investment strategy rather than merely a short-term campaign (Alsteil et al., 2005).

Design and conformance quality are both strategic management issues that, for a company with American Express's demographic profile, are vital to the success of their product. For a merchant, American Express is significantly more expensive than MasterCard or Visa, takes longer to reimburse, and offers less flexibility in discount rates. It is precisely the design and conformance quality — the value of the product and the degree to which product promises and specifications are realized — that makes it worthwhile for merchants to accept the card at all. In many cases, corporations require employees to use only American Express, and those employees are motivated to use that card, which is typically billed directly to the home office without the necessity for reimbursement and T&E expense reporting.