American Express Case Study

Ethen Anthony

MBUS 610

American Express

American Express (“Amex”) is well known as a provider of high-quality service and generously rewarding its clients and using marketing for reaching mass affluent.  The attraction with the brand experienced by the customers is considered essential, and it is well known as a favorite card.  The overall business strategy is focusing on creating a range of premium branded charge cards for its customers.  Amex has retention-based loyalty, and it encourages price competition.  The emphasis is on customer service and engagement.  Amex provides positive experiences and financial rewards for the customers.  Amex creates strategic business alliances across some industries like healthcare, travel, restaurant, entertainment, etc.  It provides several benefits for the customers and focuses on increasing efficiency and business profitability.

Amex’s New Business Model

Amex has changed its previous business model to a new strategy involving reducing merchant charges on transactions.  In the past, Amex chose to charge higher merchant fees compared to the other three major credit card companies.  The previous model was one way for Amex to earn more revenues per transaction.  

In March, Amex announced it is changing its previous business model.  Amex is taking the opposite approach by beginning to focus on transactional volume.  Amex’s plan reducing the fees it charges to its merchants will allow more merchants to accept the card thereby increasing card usage.  The increased transaction value has the potential of leading to more massive card loans to offset the impact of lower merchant fees.  

The lower merchant charges and increased transactions will help Amex increase transaction volumes which will grow at a faster rate.  Additional, since the primary target market of Amex, are individuals with more income, more transactions by those cardholders should help card balances grow.  This leads to higher interest incomes in the future.  

The Costco Effect

Amex officially sold its Costco partnership to Citigroup.  Share prices of Amex dropped close to 50% when the partnership ended.  At the time, a significant portion of Amex’s revenue was from Costco transactions.  When Amex lost its long partnership with Costco, Amex began to restructure its business practices to mitigate the loss.  Amex has increased its efforts on both maintaining existing customers and acquiring new ones.  According to most reports and by its current share price, the strategy is bringing success.  Amex is increasing its customers base positively.  In Q1 of 2017, Amex added 1.7 million US cards, higher than Q4 2016.  An additional benefit is the newly acquired customers, and the existing customers are spending more.  Amex’s loss of its partnership agreement is overcome by the potential of its new business model.