Amex Case Group5

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    October 21, 2012

    Group Gaurav Mandore-PGP1013

    Abishek Kamble-PGP1017Kaif Siddiqui-PGP1031

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    Contents

    Case Background

    Company Bachground

    Past Challenges

    The Turnaround

    Q1, Q2, Q3, Q4

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    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

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    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

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    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

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    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

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    AMEX Spend -Centric Business Model

    Investmentsin premium

    value

    AttractiveCustomer

    Base

    High AverageSpending

    PremiumEconomics

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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 29airlines 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 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?

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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 Share of media spend2003 (%)

    Share of media spend2007 (%)

    Online 7 19Television 48 57

    Non Traditional Media 14 10

    Print 23 13

    Radio 8 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 CreditCards

    25.13 2.19

    Visa/ Master Card DebitCards

    9.76 1.75

    American Express 8.51 2.41

    Discover 1.46 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. 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

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    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-

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    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