Upload
skaif
View
243
Download
0
Embed Size (px)
Citation preview
7/30/2019 Amex Case Group5
1/22
CONFIDENTIAL DO NOT DISTRIBUTE
October 21, 2012
Group Gaurav Mandore-PGP1013
Abishek Kamble-PGP1017Kaif Siddiqui-PGP1031
7/30/2019 Amex Case Group5
2/22
- 2 -
CONFIDENTIAL DO NOT DISTRIBUTE
Contents
Case Background
Company Bachground
Past Challenges
The Turnaround
Q1, Q2, Q3, Q4
7/30/2019 Amex Case Group5
3/22
7/30/2019 Amex Case Group5
4/22
- 4 -
CONFIDENTIAL DO NOT DISTRIBUTE
Synopsis of American Express
Established in 1850 by Henry Wells, William Fargo and John Butterfield as an expressdelivery company
It is a leading global payment & travel company
Principle products & services include: charge & credit card payment products, travelrelated 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
7/30/2019 Amex Case Group5
5/22
- 5 -
CONFIDENTIAL DO NOT DISTRIBUTE
Products
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 & 4500participating merchants
It offered customers convenience of payment rather than meansof financing
First Card Additional Cards
Gold (1966)
Corporate (1966)
Platinum (1984)
Optima (1987) First credit card
Black Centurion card (1999) Invitation onlycard
7/30/2019 Amex Case Group5
6/22
- 6 -
CONFIDENTIAL DO NOT DISTRIBUTE
Economic Downturn Card Suppression Others
Merchants dissuadedconsumers from using
American Express card
Restaurateurs in Boston did nothonor American Express cards
This discouraged consumersfrom using American Expresscard
Market share of Amex reducedto 16% and was falling further
High cost compared to Amex most efficientcompetitors
Card business divisionslow to change & adapt
Not flexible enough tomeet the needs of targeted customers
Downturn in economy in 1991leading to losses on Optima
It therefore had to defer plans to expand credit cardbusiness
Past Challenges
7/30/2019 Amex Case Group5
7/22
7/30/2019 Amex Case Group5
8/22- 8 -
CONFIDENTIAL DO NOT DISTRIBUTE
CompetitorsNetworks:
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
7/30/2019 Amex Case Group5
9/22- 9 -
CONFIDENTIAL DO NOT DISTRIBUTE
AMEX Spend -Centric Business Model
Investmentsin premium
value
AttractiveCustomer
Base
High AverageSpending
PremiumEconomics
7/30/2019 Amex Case Group5
10/22- 10 -
CONFIDENTIAL DO NOT DISTRIBUTE
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 29airlines among its 250 merchandise brands
Innovations like First Collection, a luxury tier exclusively for US Platinum and Centurion card members
7/30/2019 Amex Case Group5
11/22- 11 -
CONFIDENTIAL DO NOT DISTRIBUTE
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
7/30/2019 Amex Case Group5
12/22- 12 -
CONFIDENTIAL DO NOT DISTRIBUTE
Marketing Communications
Advertising Campaigns
Period Campaign
1958 early 1960s Good as Gold. The world around!
1969-1974 For people who travel
1975-1987 Do you know me?
1987- 1992 Membership has Its Privileges
1996-2000 Do More/ Seinfeld
2002 Make Life Rewarding
2004-2007 My Life. My Card.
2007-2008 Are You a Cardmember?
7/30/2019 Amex Case Group5
13/22- 13 -
CONFIDENTIAL DO NOT DISTRIBUTE
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 Share of media spend2003 (%)
Share of media spend2007 (%)
Online 7 19Television 48 57
Non Traditional Media 14 10
Print 23 13
Radio 8 2
7/30/2019 Amex Case Group5
14/22- 14 -
CONFIDENTIAL DO NOT DISTRIBUTE
Fees Paid by US Merchants to Accept Card Payments -2005
Payment Card Brand Fees Paid ( $ billion) Weighted Average (%)
Visa/ Master Card CreditCards
25.13 2.19
Visa/ Master Card DebitCards
9.76 1.75
American Express 8.51 2.41
Discover 1.46 1.76
7/30/2019 Amex Case Group5
15/22- 15 -
CONFIDENTIAL DO NOT DISTRIBUTE
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. Move to launch Amex card understanding the shift in the preference of consumers from travellers cheque to card
2. Corrective actions taken by Golub & Chenault to address higher cost and low flexibility & adaptability
3. Co branding with Hilton, Delta, Costco, Starwood & Jetblue
7/30/2019 Amex Case Group5
16/22- 16 -
CONFIDENTIAL DO NOT DISTRIBUTE
Delineate and rank in order the various growth options open to the American Express card
Further develop data-based marketingSince American Express is a closed-loop network, they have access to much more purchase information thancompetitors
Nothing wrong with what they are currently doing, but investing heavily in this type of field will yield terrificresults, 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 AmericanExpress 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 Expressmarketing 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 toU.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 presenceunmatched in its industry.
Their recent Small Business Saturday campaign and their strong initial presence in the social media industryconfirm 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 truerelationship withcardmembers, increased Social Media activity (especially Pinterest givenAmerican Express s history in travel)
Growth options available to American express are-
7/30/2019 Amex Case Group5
17/22
7/30/2019 Amex Case Group5
18/22- 18 -
CONFIDENTIAL DO NOT DISTRIBUTE
Delineate and rank in order the various growth options open to the American Express card
Growth opportunities for payment forms
The growth opportunities for payment forms outside of their traditional charge and credit products -- such asprepaid, payroll cards, remittances and virtual currencies -- are expanding quickly, due in part to changingconsumer 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 highgrowth rates. Capturing even a small market share represents the potential to add billions of dollars of revenuein 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 theyexhibit good payment practices as they load and use their card.
The program is intended to help consumers with thin or no credit files.
Growth options available to American express are-
http://www.mainstreet.com/article/moneyinvesting/credit/debt/american-express-banks-low-fee-prepaid-cardhttp://www.mainstreet.com/article/moneyinvesting/credit/debt/amex-making-its-prepaid-cards-friendlierhttp://www.mainstreet.com/article/moneyinvesting/credit/debt/amex-making-its-prepaid-cards-friendlierhttp://www.mainstreet.com/article/moneyinvesting/credit/debt/american-express-banks-low-fee-prepaid-card7/30/2019 Amex Case Group5
19/22- 19 -
CONFIDENTIAL DO NOT DISTRIBUTE
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 company s bottom line.
Since it had a core competency of risk management, they had already vetted the majority of prospective card members whowould 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 theOptima card (the only card in which members were allowed to carry a balance) posted massive losses in the wake of therecession in 1991.
Again, this is evidenced by a 25% drop in Net Loans.
Jud Linville, CEO of Consumer Services at American Express believed that because of the economic recession, thecompany challenge was to deepen consumer understanding to provide innovative, value-added products that would attractand retain card members.
Through data mining, and appending the information to card member accounts, American Express was able to providerelevant and personalized promotions that not only increased card member spend and retention, but provided a better overallcustomer experience because they were not bombarded with information that was of no use to them
However this involved additional cost.
7/30/2019 Amex Case Group5
20/22
7/30/2019 Amex Case Group5
21/22- 21 -
CONFIDENTIAL DO NOT DISTRIBUTE
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
7/30/2019 Amex Case Group5
22/22
Thank You