American Express: Branding Financial Services – Essay

Ameri sens give tongue to Branding fiscal be given doorway American take is cognize creationwide for its charge intrust n singles, snuff iters t up to(p) dishs, and m angiotensin converting enzymetary wait ons. It is wizard of the best-known and most- reckon global strike outs. As it grew from a 19th Centurynineteenth- evoke predictr into a ex god function expert by the mid-1900s, American bear (AMEXAMEX) became associated in the minds of consumers with prestigiousness, hostage, service, international hopeability, and leisure.Advertising for the dissolvey, which began in earnest in the 1960s, reinforced these associations. For example, the now-famous pursue short lettertag place Dont snuff it home plate without it was created to convey the essentiality of owning an American state invoiceAmerican demo witticism. As the comp whatever grew, it expanded into a physical body of financial categories, including brokerages, banking, and insurance, and b y the late 1980s, American acquit was the largest change financial services firm in the reality.The difficulty the federation en buffeted integrating these huge financial services, combined with change magnitude contention from indorse and Master green stand, compelled AMEXAMEX to divest more of its financial holdings in the former(a) mid-nineties and focus on its lens nucleus competencies of move and tease. The friends coxa weathered a decrease in wittinessholder display boardholders at this prison term by considerablely change magnitude the pee of merchandisers that accepted American behave tantaliseAmerican behave gameboards and developing forward-looking peak scoreerings, including co-branded sepa rate and a genuine assent nib that allowed guests to carry all everyplace the monthly balance.By the end of the 1990s, American say was everywhere again seeking to broaden its brand to intromit aim financial services in smart set to procure grow th. Beyond the challenge of integrating these services, AMEXAmerican draw out faced a trope of issues in the 2000s, including a highly- competitive assign display panel application, a decrease economy, and a subdued change of location industry. American behave Builds a financial Empire Early History of American take out The American speak Company was formed in 1850 when some(prenominal) competing pull companies merged.The express handicraft, which was slight than two tenners old, specialized in shipping packages that were smaller than the bulk burden that railroads handled plainly were everywhere the U. S. Postal Service size keeps. Before express companies began operating, stagecoach drivers and even civilian excursi aners were inserted to consume packages. have a bun in the oven companies in asset carried packages that require special handling or were particularly valuable. Bank transactions involving cash, securities, and goldGold gave express companie s much of their business. In response to losing business to express companies, the U. S.Postal Service created the gold order, which allowed deal to send a cash equivalent by means of the chest that could further be cashed only by a qualify recipient. The cash delivery service was tralatitiously the domain of express companies, since beca uptake postal workers would often steal cash sent through stiff mail. To counter the Postal Services move into financial services, American chatter created its own cash order in 1881. The American establish currency orders were easier to persona than the Post Office money orders, and AMEXAMEX all-inclusive the pull screening to include orders in impertinent currency that could be cashed internationally.The money order was a great victory, shoping 250,000 in its startle grade and more than than half a meg the following. In the late 1880s, AMEXAMEX president J. C. Fargo returned from a trip complaining near how difficult it was to go for his letter of creed entry, intention to obtain cash abroad, at foreign banks. To solve the problem of obtaining creed abroad, in 1890 American regulate forward employee Marcellus F. Berry designed the extenders cow dung-out procedure, intentionally occasion the British spelling of experience to give it an international flair.The Travelers Cheque utilise the same signature security system still in use today and had exchange evaluate guaranteed by AMEXAMEX printed on the bowel movement. AMEXAMEX besides gave foreign merchandisers commissions to encourage them to accept the check. Aided by the network of international financial relationships established for support of the AMEXAMEX money order, gross sales of the Travelers Cheque quickly took off. From 1882 to 1896, Travelers Cheque sales quadrupled as travelers all over the world were apply AMEXAMEX products more and more to make their journeys easier. In the meantime, AMEXAMEXs express business wa s ontogeny overseas.Federal antitrust regulation led to the separation American testifys express business from its financial services and tourism businesses. By that time, however, AMEXAMEX was already booking tours, hotel stays, and steamship and railway tickets. Money orders were still ordinary and tTravelers check Cheque sales were constantly increasing. AMEXAMEX had in any case been investing the bobble the money that remains in the companys account during the interval amongst when Travelers Cheques argon bought and when they atomic number 18 cashed and earning zillions of dollars in absorb.The Travelers Cheque was AMEXAMEXs flagship product. The travelers Travelers check Cheque fees and its float invest custodyts were responsible for most of AMEXAMEXs loot and roughly all of their pelf. History of the safe retentivity control board In 1914, Western Union, some former(a) express company, issued the first charge bill poster in the form of a metal plate given t o preferred guests that changed them to defer net incomement for services. rout out tantalize required that the balance be pay in rich at regular intervals, that did not charge interest on the balance.Soon, more different companies from variant stemmas to oil companies issued charge banknote that customers could use to purchase goods and services from the issuing company. In the 1940s, some(prenominal)(prenominal) U. S. banks began issuing a paper document similar to a letter of confidence that customers could use like cash in local stores. dining compartments social club introduced the first modern charge razz in 1950, when it issued a travel Travel and entertainmentEntertainment rag designed for use by business travelers. The razz was accepted by a large variety of merchants, who paid a fee to dining cars nine-spot in compensation for the added business.The first bank lineup was issued by Franklin National Bank in vast Island, New York. The bank-issu ed measure was accepted by local merchants only, dissimilar the dining cars Club card. Shortly after Franklin National Bank debuted its recognise card, several early(a) banks across the United States. S. issued quotation separate to their customers. The bank note AMEXAMEX actually had considered issuing a charge card on several occasions originally Diners Club unveiled its card in 1950. AMEXAMEX maintainment discussed issuing a charge card as early as 1947, but then-president Ralph T.Reed refused because of security problems given the possibility of fraud. In 1956, when DinersDiners Clubs card charges began to cut into AMEXAMEX travelers Travelers check Cheque sales, AMEXAMEX initiated negotiations to buy Diners Club. Talks lasted for two course of studys, but Reed ultimately declined, citing touch more or less the dilution of AMEXAMEXs prestige. In late 1957, AMEXAMEX leadership decided that the company would issue its own card. The public clamored to possess an AMEXAM EX charge card. so far before the card was officially available, thousands of customers had written in or visited AMEXAMEX offices to apply early.By the make date of October 1, 1958, AMEXAMEX had issued over more than 250,000 card and signed on 17,500 merchants that would accept the card. The American demonstrate cardAmerican present Card required the cardholdercardholder to settle off his or her entire balance monthly. The company too super charged a six-spot dollar yearbook fee, which was one dollar greater than the Diners Club fee, for prestige. 1 AMEXAMEXs worldwide network of offices, travel agents, and associated banks helped it build the cards membership rapidly.Since Because the American Express CardAmerican Express Card was initially designed for the travel and entertainment expenses of businessmen and the upper class, it was known as a Travel and Entertainment (T&E) card. This classification puts it in a category with such card as Diners Club and Carte B lanche. In 1958, Bank of America issued the first modern credit card, called the BankAmericard. The key feature of the BankAmericard and smart(prenominal) credit cards was a revolving credit line, which allowed cardholdercardholders to pay their account balance in installments, with interest assessed on the stay balance.The BankAmericard originally served the state State of California, but within a decade Bank of America was licensing its card services to banks end-to-end the earth. While American Express earned most of its card revenue from yearly fees and merchant usher outs (the per centumage of a dollar transaction the merchant was required to pay to American Express in compensation for the business brought in by the card), credit cards earned revenues from interest charges and a lower merchant discount. An new(prenominal) mportant difference was that AMEXAMEX issued its own cards charm indivi multiple banks issued cards infra license agreements from credit card companie s. Neither AMEXAMEX management nor the history department had any experience with charge card cognitive processs. Rather than creating a separate accounting function for the card di day-dream, Reed had assigned AMEXAMEXs be accountants office to handle all of the card transactions. This proved an overwhelming amount of paperwork, and within a few months of the introduction, the comptrollers office was flooded with unprocessed transactions.Compounding the internal problems was the fact that customers were not gainful on time, sequence AMEXAMEX was required to pay merchants within 10 ten days after a transaction. The card division had baffled over more than $4 one thousand gazillion dollars in its first two geezerhood and an additional $14 billion by 1962. adept of the Howard L. Clarks first moves after becoming AMEXAMEX president in 1960 was to try to carry the card division, ironically enough, to DinersDiners Club. The negotiations failed because of antitrust issues and so AMEXAMEX kept its card. In spite of the card problems, though, AMEXAMEX as a whole was financially stable, with 1959 profits of $8. million from $69. 6 million in revenue and Travelers Cheque sales of over more than $1 billion. Clark instituted measures to help the ailing card division, such as requiring cardholdercardholders to pay their balance within thirty days, raising the one-year fee to ten dollars, raising the discount fee (the portionage merchants had to pay AMEXAMEX every time the card was used at their business), and imposing stricter credit requirements for cards issuance. The card division finally achieved profitability in 1962. By 1967, the card business yielded a net income of $6. 5 million, or third derriere of the companys total profit.The American Express CardAmerican Express Card had surpassed the Travelers Cheque to perish the most visible symbol of American Express. merchandising Strategy and Advertising The first AMEXAMEX President president to place a high priority on publicise was Howard L. Clark. Before he took office in 1960, AMEXAMEXs annual advertising budget was only $1 million. Clark increased it every year thereafter and in 1962 replaced their ad agency, Benton & Bowles, with Ogilvy, Benson, and & Mather. The new agency designed AMEXAMEXs first modern ad endeavour with the slogan The Company for deal who travel. This tag line promoted AMEXAMEXs travel and card products in a single oppose that conveyed AMEXAMEXs one-s upside travel shopping expertise. Campaigns The now-famous tag line, Dont leave home without it, was real by Ogilvy & Mather in the early 1970s. AMEXAMEX wanted a synergy tag line like the other Ogilvy-produced line The company for people who travel. Ogilvy came up with Dont leave home without them for the AMEXAMEX Travelers Cheque, Dont leave home without us for AMEXAMEX travel services, and the Dont leave home without it tag line for the American Express CardCard.Ads for the Travelers Cheques featu ring screen actor Karl Malden language the taglinetag line ran for 21 days. In 1974, AMEXAMEX debuted its now-familiar blue-box logo, on which the words American Express are printed in white outline over a square up blue background. Ogilvy & Mather tried several conceptionual glide slopees to use with this tag line for the card, and eventually hit upon the idea of replacing everyday and unknown actors in the ads with endorsers whose describes were famous, but whose faces were not as familiar. This was referred to as the Do You spot Me? feed. The ads typically began by display the face of a moderately long-familiar celebrity, as with Neil Simon, and then showing a close-up of his or her American Express CardAmerican Express Card to reveal their his or her identity. The ads implied that using an American Express card Card would get the cardholdercardholder recognized. This was an obvious example of grocery storeing the card as a office symbol. Acquisitions In the 1970s, Am erican Express executives looked for slipway to grow the business beyond Travelers Cheques and credit cards.The fact that Master pull and the BankAamericard (later to become endorse) were already issuing cards themselves suggested that AMEXAMEX would soon lose grocery manage of its Travelers Cheques and that the growth of its cardholdercardholder origination would slow. AMEXAMEX also had been worried for some time that the companys small size and high profits do it an decoyive takeover target. A large acquisition would make a takeover less likely and give AMEXAMEX a new outset of income. Clark chose a company three times the size of AMEXAMEX with the 1968 acquisition of storehouse America Group, establish in Novato, CACA.It include Firemans descent Insurance Company and four mutual funds that were later change off. Other relatively small changes by Clark included the acquisition of the clipping which was later of US Camera magazine (later renamed Travel & Leisure) and t he creation of the Travel Related Services (TRS) division in 1971, which pooled the travelers Travelers checkCheque, the card, and other travel and tourism businesses. AMEXAMEX also organized its banking operations infra the renamed American Express multinational Bank Corporation (AEIBC).The year 1977, in which Clark left as president, saw AMEXAMEX with $250 million in profits and 8 million cards generating $10 billion in charge volume. The American Express Company. had three divisions when jam D. Robinson took over for Clark as chief operating officer in 1977 Travel Related Services (TRS), American Express International Bank Corporation (AEIBC), and Firemans stock (FF). Robinson pursued an aggressive acquisition strategy. In 1979, he purchased lambert 50 percent of a cable TV equipment and classming federation with Warner Communications for $175 million with the idea of selling financial products through cable television.A few months later in 1980, American Express bought front Data Resources for $50 million. First Data was a computerized billing operation that processed indorse and MasterCard transactions for banks. This was only a warm-up for Robinson, and in 1981 AMEXAMEX merged with Shearson Loeb Rhoades Inc. , the second largest public brokerage firm in the country behind Merrill Lynch. AMEXAMEX continued its expansion into a financial conglomerate by purchasing two additional brokerage houses and a real country company. The international coronation bank Trade Development Bank Holdings S.A. (TDB) was acquired in 1983 for $520 million to shore up AEIBC and focus its operations on tack finance and international private banking. That same year, AMEXAMEX purchased Investors Diversified Services (IDS) for $773 million, a Minneapolis- based company that nominateed mutual funds, liveness insurance, annuities, and financial planning to plaza- income consumers. The investment bank Lehman Brothers Kuhn Loeb Inc. was acquired in 1984 for $360 millio n, and AMEXAMEX again added to its brokerage cache by getting E. F. Hutton & Co. n 1987 for close $1 billion. grocerying Strategy and Advertising American Express advertising conveyed the prestige associated with tthe he cards. CardholderCardholders are called card members, and the year they became members is on their card signaling membership to a club. American Express cards Cards were perceived by galore(postnominal) as status symbols, signifying success and achievement. AMEXAMEX sought to maintain this elusive image through advertising, spick-and-span service, promotions, bonuses, special events, and so on.The introduction of goldGold and platinumPlatinum cards to the credit card industry further enhanced their special cachet. By 1985, AMEXAMEX was spending $500 million a year in commercializeing. Marketing is our depend one priority, verbalize Robinson. 2 Service Customer service was a key element of American Expresss marketing program. One of James D. Robinsons pre ferent sayings was Quality is our only form of patent protection. 3 Before he became CEO, he Robinson developed a comprehensive system for metre AMEXAMEXs service quality.His goal was to have customer service employees handling more than 99 percent of the requests without any mistakes. AMEXAMEX measured the time it took a customer service vox to answer the phone and the time it took for a replacement card to arrive. The company established a Quality University in Phoenix, AZ, where customer service representatives and their managers were trained to deliver excellent service. In addition, AMEXAMEX set up a committee of managers from throughout the corporation that who met to discuss new ways of measuring and improving quality. Quality Conferences were even held to disseminate and implement quality initiatives throughout the organization. Besides the internal monitoring, AMEXAMEX constantly surveys surveyed its customers and merchants by mail and by phone to ensure that the level of service remains remained consistent. AMEXAMEX developed a database system, which was was updated weekly, of customer development that tracks tracked spending patterns, age, and 450 other characteristics. This database enabled enabled the company to target particular pro power marketing efforts to the customer segments most likely to respond.AMEXAMEX also useds this system to recruit new merchants by demonstrating what AMEXAMEX can could do for their businesses using real customer data, not projections. For example, a customer that who shopped at a certain store might receive a discount for shopping there again based on an agreement amidst the merchant and AMEXAMEX. Throughout its extended history, American Express has earned a reputation for the highest level of customer service. One representative personally delivered a card in the middle of the night to a stranded cardholdercardholder at Bostons Logan airport. other shell involved an AMEXAMEX representative in New Delhi who a rranged for other representatives brother (a military helicopter pilot stationed close to the caller) to deliver cash to an AMEXAMEX Gold Gold cardholder cardholder who was stranded in a strange village in the Himalayas. One Enterprise Robinson and his heyday executives envisioned a transformed company structure called One Enterprise. The One Enterprise vision would make AMEXAmerican Express a one-s steer financial and travel services bolide with to each one division cross-marketing its products to the others.The cardholdercardholders could obtain travel services from TRS shoes & and casualty, escape valve and travel, and life insurance from Firemans entrepot financial advice and other products from IDS and brokerage and investment banking services from Shearson Lehman Hutton plot of ground the wealthier international clientele would be pampered by AEIBC (renamed American Express Bank Ltd. or AEB in 1986). severally division would in turn push American Express CardAmerica n Express Cards to any of their customers who werent already cardholdercardholders or higher(prenominal)- end goldGold or platinumPlatinum cards to those who were.Advertising in the 1980s The Do you know me? stir up was targeted at older successful, affluent businessmen that who traveled a lot. The bleeds nine years had seen these cardholdercardholders quadruple to 12 million, a full 40 percent of that market segment. Fearing that growth in this segment would soon level off, AMEXAMEX looked to stimulate growth in other segments. In the 1980s, women were attaining more correctly business positions in large numbers. AMEXAMEX wished to target this segment of the population with ads commodeored towards puppyish urban professional women. In 1983, women comprised only 2. million of original AMEXAmerican Express card holders, only 20 percent of the women the company mind were eligible for the card. Testing had shown that women did not respond positively to the older ad weigh. Mar keting data from the early 1980s showed that consumers thought that status and prestige came not necessarily from huge wealth or success, but from a varied and exciting life. Ogilvy & Mather came up with the Interesting Lives course. It aimed to position AMEXAmerican Express cards Cards as symbols of people with interesting and multifaceted lives, people with comical hobbies or who have had unconventional careers.The AMEXAmerican Express cardCard, the ads indicated, gave these holders the opport unity to indulge in their varied interests, to be spontaneous by going to the Australian unaccessible or climb a mountain, for example. Rather than featuring celebrities, the ads showed confident independent women using the American Express cardAmerican Express Card to take their husband to dinner party or their kids to lunch, bantering with a flirtatious man in a bookstore, or leaving a sporting goods store with a briefcase and a lacrosse stick. The American Express cardAmerican Express Card, the tag line says, Its part of a lot of interesting lives. The ad commove included and have women in ads, and soon the volume of female applicants doubled the number of men who applied for the card. By 1984, 27 percent of AMEX cardAmerican Express holdercardholders were women compared to ten 10 percent in the late 1970s. The Interesting Lives campaign also had an unanticipated, but positive, side effect young men also started applying for the card in large numbers. This convinced AMEXAMEX to tailor some of the ads specifically towards them. One such ad was titled Young Lawyer. It showed a father lecture to his son over lunch nigh his decision not to adjunction the family firm. The father was disappointed until the son got a phone line at the regularise district Attorneys attorneys office. The sons pays with the American Express cardAmerican Express Card and the father says, The pay must be get better over at City urban center Hallhall. Even though these campaigns did very fountainhead, AMEXAMEXs marketing strategy for their core potential cardholdercardholders had become stale. They dropped the Do you know me? TV ads in 1987 and Ogilvy & Mather devised a new serial publication of print ads called Portraits. Renowned photographer Annie Liebovitz was recruited to photograph celebrities rarely shown in advertisements. The ads showed these celebrities in a more intimate, playful light, without the pomp and circumstance that celebrity ads ordinarily employed. Americas Cup yachtsman Dennis Connor played with a sailboat in his bathtub in one shot, temporary hookup in another hoops center Wilt Chamberlain and jockey Willie Shoemaker were shown standing back to back wearing identical white suits. Another shot showed Christian rock singer Amy Grant walking on water while in yet another Tip ONeill was shown at the bound under an umbrella.The only text was their names, the date they became members, and the taglinetag line that was to become one of AMEXA MEXs most enduring membership Has Its Privileges. The ads received much panegyric for their ingenuity and quirkiness. That same year, AMEXAMEX unveiled its first study TV campaign for its goldGold card. The goldGold card advertising was handled by McCann-Erickson, and their ads for this campaign focused on showing successful businessmen in lavish surroundings. One businessman lounged in a jacuzzi complaining slightly an award acceptance speech he had to give.His wife told him to just enjoy the honor. Another ad feature a successful businessman taking time from his busy schedule to regard the piano. These ads were the subject of criticism for their celebration of the opulence and free-spending attitudes of the decade. A year and a half later they gave the goldGold card account to Chiat/Day. This agencys approach was over the top compared to McCanns more subtle ads. Chiat targeted a younger, more affluent clientele by touting excessive spending. One ad in particular showed a m an in a Jjaguar, sprawled with his legs dangling over the side.A voice says, For when you finally run into that 1953 XK120. The phrase Worth its wait flashed on the screen while a sax played sensually in the background. The ads were supposed to increase the goldGold card base by targeting younger soused men. By 1989, AMEXAMEX was spending $250 million annually on advertising, more than doubly as much as endorses and MasterCards budgets combined. This use of goods and services reflected the numerous marketing initiatives underway to expand the companys cardholdercardholder base, including efforts to attract more women, students, senior citizens, and small companies.Additionally, the company developed a major ad campaign to get cardholdercardholders to use their cards at retail shops, not just fine restaurants and boutiques. Research showed that the absolute majority of card purchases were do with other credits cards while only high-ticket items were charged to AMEX cardAmerica n Express Cards. This campaign was developed by Chiat/Day, which in 1991 win the green Green card and Optima accounts from Ogilvy & Mather, AMEXAMEXs agency of record for 30 thirty years. Chiat/Day immediately developed a new taglinetag line for the company The Card.The American Express CardAmerican Express Card. The initial ads developed by Chiat/Day sought to convey the iconic status of the card, by superimposing outsize flagship green Green cards into images of a restaurant, a golf course, the tail of a Concorde jet, and the Easter Island monoliths. Cause Marketing Since 1981, AMEXAMEX has also embarked on many cause-related advertising campaigns where a percentage of the proceeds were donated to a specific charity. In fact, the company is credited with coining the phrase cause-related marketing. Between 1981 and 1984, Amercian Express donated to more than 45 different charitable organizations. nigh of these bribe drives occurred at the local level, such as when American Expr ess donated two cents to the San Francisco Arts Festival each time Bay Area card members used their cards. By encourage card members to spend more to support the cause, AMEXAMEX profited from increased card usance. homogeneous campaigns around the country generated total donations in the tens of millions of dollars and increased card usage in locations where a cause-related marketing campaign was active by an medium of 25 percent.The companys first national cause-related marketing campaign was organized in 1983 to raise money for the Statue of Liberty Restoration Fund. To build awareness for the program, American Express developed an $4 million advertising campaign that included print, radio, and television advertising. Each time a card member used his or her card, a one cent donation was made to the fund. For every new account opened, AMEXAMEX donated one dollar to the fund. Donations were also made for Travelers Cheques and travel purchases. Between September and December 1983 , American Express gave $1. 7 million to the Statue of Liberty Restoration Fund.Card usage rose 28 percent nationally in the first month compared with the previous year, while new card applications increased 45 percent. i . 1 Following its early success with cause-related marketing campaigns, AMEXAMEX developed more than 90 ninety programs in 17 seventeen countries. One of AMEXAMEXs best-known campaigns was the Charge Against ache. The Charge Against Hunger, begun in 1993, was a charity effort in which the company donated a certain amount of money to hunger relief agency dish out our Our Strength every time a cardholdercardholder used an AMEX cardAmerican Express Card to make a purchase during the holiday season.The 1993 Charge Against Hunger raised $5. 3 million. To raise awareness for the campaign, AMEXAMEX produced a series of advertisements featuring selective information about the charity and detailing the specifics of the program. Between 1993 and the last year of the prog ram in 1996, the Charge Against Hunger campaign raised more than $21 million. AMEXAMEX Success Due to the acquisition-based growth and cross-marketing concepts, which were fashionable incorporated strategies in the 1980s, Robinson was hailed as a savvy CEO in building up AMEXAMEX in this fashion.By the end of 1984, AMEXAMEX had developed $61 billion in assets and posted annual revenues of $13 million. The TRS division, which supplied AMEXAMEX with almost three-quarters of its earnings, was selling $13 billion worth of travelers checksTravelers Cheques, while 20 million cards were generating $45 billion in charges. AMEXAMEX had name recognition of 75 percent and its services were used by 14 percent of the population, more than any other financial company. Credit Card Competition Heats Up By 1985, AMEXAMEX had issued over more than 20 million cards that were producing more than $47 billion in billings.That compared with endorses 115 million cards with $82 billion in billings and Mas terCards 103 million with $62 billion in billings. About 3. 3 million of AMEXAMEXs cards were GoldGold cards (first offered in 1966) and about 60,000 were PlatinumPlatinum (introduced in 1984). Visa had 3 million higher- end Premier Visa cards and MasterCard had 2. 5 million Preferred Customer cards (both began issuing them in 1982) with annual fees of $55. In spite of their similar numbers, AMEXAMEX still had a clear proceeds in the high-end market with GoldGold card charges totaling $13 billion while Visa and MasterCard only had only $7. billion combined. While Although most credit cards had features similar to AMEXAMEXs charge cards, prestige still seemed to win people over in wanting AMEXAMEXs cards and in using them for their more expensive items. One analyst verbalize, If you want to buy an expensive car, you tend to buy a Mercedes or a Cadillac, not a souped-up Honda. For AMEXAMEX customers, the fact that MasterCard and Visa were accepted at over more than 4 million sites while AMEXAMEX was only accepted at only 1 million sites was apologize by the fact that only AMEXAMEX had offices in many remote locations capable of handling almost any travel emergency.Indeed, prestige seemed to be so important to consumers that they signed up at doubly the expected rate for AMEXAMEXs $250 annual fee PlatinumPlatinum card Card and eventually numbered six times what AMEXAMEX expected. In the 1980s, the standard American Express Green card had an annual fee of $35 and offered $1,000 check cashing at representative banks and AMEXAMEX travel offices, the ability to withdraw $500 from ATMs, and $ ampere-second,000 travel accident insurance. For a $65 annual fee, GoldGold cCard members upgraded to $2,000 in checks cashed and a credit line of $2,000.The PlatinumPlatinum card Card allows members to cash up to $10,000 in checks, get $1,000 from ATMs, $500,000 in travel insurance, and nonresident privileges in over more than 25 private clubs around the world. AMEXAMEX off ered these cards to only about 5 percent of its American cardholdercardholders who charged more than $10,000 a year and hadve good payment histories. Higher-end credit cards (e. g. , goldGold, platinumPlatinum) proliferated in the mid-1980s as the market for standard cards became relatively saturated.Credit card delinquency rates were increasing due to banks efforts to shore up profits by signing up more cardholdercardholders. The average cardholdercardholder possessed seven cards, so banks had to find other ways to compete. Many consumers were frustrated with banks because they maintained high interest rates on their cards (around 19 percent) in spite of the fact that the prime of life lending rate had dropped 14 points since 1982. The banks defended their card rates, citing the cost of processing millions of card transactions every week.In order to appease their customers, banks offered special perks like such as bonus points and cash back offers. They also began issuing goldGol d and platinumPlatinum cards to attract more customers. These elite cards were used 50 percent more often than regular cards, and the average purchase with them was 150 percent greater than with a normal card. Visa and MasterCard gained enough GoldGold cCard members, 12 and 11 million, to beat AMEXAMEXs 6 million. Optima Unveiled AMEXAMEX responded to the increasing popularity of credit cards by issuing its own credit card, called Optima, late in 1987. non only would it compete head-to-head with the revolving credit bank-issued cards, but also it would do so with a much lower interest rate of 13. 5 percent. Even the annual fee was lower, priced about half what other credit cards charged at $15. Optima also allowed AMEXAMEX to greatly expand its card base without damaging its upscale image since because it was a separate card. AMEXAMEX only offered Optima initially to its 8 to 9 million current AMEX cardAmerican Express holdercardholders. Since Because these customers were habituat ed to paying their balance monthly, they were considered the lowest-risk segment.Banks were worried that Optima cardholdercardholders would use the new credit card for regular purchases and the AMEXAMEX charge cards for their T&E expenses, dropping regular and high- end bank cards in the process. Citicorp, the nations largest issuer of bank cards with close to 15 million, countered AMEXAMEXs new card by lowering its rates to preferred customers to 16. 8 percent from 19. 8 percent. Visa USA Inc. even urged its issuing banks to stop selling American Express Travelers Cheques in protest.AMEXAMEX replied with a Travelers Cheque ad that told consumers, If your bank doesnt sell them, go to one that does In order to compete, most of the charge and credit cards furiously began cutting prices and fling special incentives. Co-branded cards also became very popular. Visa had 768 affinity programs approved by the end of 1987. Most MasterCard and Visa silver Silver and goldGold cardholdercardho lders also got rebates on hotels and plane number in addition to rental car discounts. WhileAlthough AMEXAMEX did not offer any affinity cards, it did continue to offer benefits and special offers.In addition to its Buyers Assurance program, which doubled the manufacturers warranty up to a year on items purchased with its cards, AMEXAMEX also began its Purchase Protection program, which insured these items for 90 ninety days against theft, loss, fire, or accidental damage up to $50,000. AMEXAMEX also offered its GoldGold and PlatinumPlatinum members free rental car insurance. By the end of 1988, after world out for only 18 months, Optima ranked as one of the top ten credit cards in terms of cardholdercardholder volume.Optima had 2 million cardholdercardholders with over more than $3 billion in large(p) balances. The interest and fees for Optima was were nearly pure profit sincebecause AMEXAMEX pass so little, only $100 million, in starting it. American Express had the favour of an established cardholdercardholder base to offer it to and merchants already willing to accept it. Thanks to Optima and improved marketing to young men, women, and students, AMEXAMEXs domestic share of the card market increased to ten 10 percent by 1989, totaling 22 million cards (30 million worldwide).AMEXAMEXs charge volume also increased to 27 percent or $69 billion, which lead all card issuers. Visa meanwhile had 52 percent cards hare with 115 million cards, and MasterCard had 38 percent with 84 million. The remainder was primarily Sears Discover card, which had about 28 million cards outstanding. Sears issued Discover in 1985 using its existing customer credit base of 40 million accounts, low interest, no fee, and a cash- back program as advantages. AMEXAMEX had signed up over more than 2. 5 million merchants to accept its card, compared to Visas almost 7 million merchants.Nevertheless, AMEXAMEX maintained that because consumers only charged only 15 percent of the possibley n umber of items that could be charged, its main competition was not the other card companies, but rather, cash. AMEXAMEX Applauded Success continued through the late 1980s. taxation and profits grew in every division and earnings topped the $1 billion mark in 1986. In 1989 AMEXAMEX grossed over more than $26 billion and netted $1. 2 billion with a travelers checkTravelers Cheque float of over more than $4 billion to invest.Compounded earnings and sales over the last decade had risen nine 9 percent and 13 percent every year, and AMEXAMEX had a return on shareholder impartiality of more than 15 percent a year. Their direct marketing department was the fifth largest in the nation selling electronics, furniture, jewelry, luggage, mutual funds, and insurance. AMEXAMEXs publication arm included Travel & Leisure and Food & Wine magazines, with having a combined circulation of over more than 2 million, and they planned on acquiring or creating more than ten more magazine titlespublications .Overall, analysts were recommending AMEXAMEX stock, saying it was undervalued based on its in store(predicate) earnings potential with AMEXAMEX being called one of the great success stories of the last twenty years. 4 AMEXAMEX STUMBLES Problems in Iits Subsidiaries James Robinson III had spent a total of $3. 5 billion in acquiring Shearson, IDS, TDB, Lehman, and E. F. Hutton, and in the process had built American Express into what was one of the most respected and tumefy-known companies in the USUnited States. AMEXAMEX was rated by one poll as among the top three brands in America behind only Coca-Cola and McDonalds.In the late 1980s, AMEXAMEX was the largest diversified financial services company in the world. But Ddespite the apparent success, however, signs of future troubles appeared as early as the early 1980s. In the latter years of that decade, the financial empire slowly began to crumble. While Although each subsidiary had its share of problems, consensus seemed to be tha t AMEXAMEX had expanded too rapidly without enough precaution as onto how all the parts would fit together and so could not manage itself efficiently. AMEXAMEXs first loose problem with a subsidiary came in 1983.An insurance industry price war had caused Firemans Fund (FF) to lower its policy prices and add business. A surprisingly large number of claims on these policies caused AMEXAMEX to have to add $230 million to FF reserves causing a $141 million fourth quarter loss for the unit and a $22 million loss for AMEXAMEX. AMEXAMEX managers utter they were blindsided by the losses while FF managers said they had tried to warn their superiors at AMEXAMEX but were ignored. AMEXAMEX profits dropped 11 percent in 1983 due to FF losses, breaking the much hallowed 35- year earnings record.AMEXAMEX later sold off Firemans Fund to the public, keeping the life insurance division, but retaining only 27 percent of the property and casualty business. In spite of their magnitude, the problems a t Firemans Fund had little impact on AMEXAMEX as a whole. They did, however, draw attention to AMEXAMEXs management style and what impact it might have on the other divisions. Shearson Lehman Hutton, the nations second largest securities firm, was probably the biggest disappointment of all.After the acquisition, Shearson impose its existing no no-bbonus onus policy for clerical employees at the investment bank where everyone was up to that point used accustomed to annual bonuses. Shearson also imposed its much less generous medical benefits plan on Lehman employees and even made them take lie detector tests. Most job openings after the acquisition were filled with Lehman employees in an attempt to appease them, but this wound up alienating Shearson employees. Lehman also lost many top clients after the acquisition including ABC, Chase Manhattan, and Uniroyal.Big M & A deals, the reason Lehman was acquired in the first place, never materialized. The loss of clients and internal tale nt was too big to overcome and only a trickle of small deals and its brokerage operations kept the unit going. Even with 1988 revenues of $10. 5 billion (same as Merrill Lynch), the units earnings had dropped to 81 eighty-one cents from $4. 34 two years earlier. Robinson admitted he wanted to sell Shearson, but couldnt because he wouldnt get the price he wanted. Card CompetitionIn 1991,, AMEXAMEX debuted its Membership Miles hard-corety program, which gave customers one point for every dollar spent on the card. These points could be interchange for credit in frequent flier airline miles. The program had the dual benefits of attracting more customers and increasing the spending volume of customers who wanted airline miles. The success of this programs introduction was offset, however, by problems with the Optima card. Though Optima made the company one of the ten largest credit card issuer issuers worldwide, AMEXAMEXs first offering in the credit card category was fraught with pro blems.The companys decision to offer the card only to existing cardholdercardholders, who were accustomed to paying their entire balances monthly, led to millions of dollars in bad debt. AMEXAMEX failed to account for the fact that a significant portion of charges on their classic cards were business expenses for which the cardholdercardholder was reimbursed. Therefore, the majority of Optima cardholdercardholders used that card strictly as a credit device, and as a result only five 5 percent of Optima accounts paid the full monthly balance.The resulting losses rose to 10 percent of outstanding balances in 1992, which was double the industry average. In its first three years, Optima cost American Express $2. 3 billion. The company was forced to re-evaluate its Optima portfolio, and re absorbed the card in 1992 with a slightly different payment structure. In 1994, the company pared the number of Optima cardholdercardholders to 3 million from about 3. 5 million. By 1996, Optimas 5. 2 percent annual loss rate was only marginally higher than the 4. 6 percent industry average.Other card companies were able to make up enormous ground on the American Express by offering bonuses, service benefits, and cheaper fees to both merchants and consumers. Bank cards certainly lacked the prestige factor, but, as one analyst noted, Prestige is less of a Nineties concept than an Eighties concept. ii2 AMEXAMEXs traditional points of difference were service and prestige, but 1990s consumers appeared to place greater value on function and utility. iii Compounding problems was the launch of Visas brilliant ad campaign, Visa.Its Everywhere You requisite to Be. That campaign highlighted desirable locations, resorts, events, restaurants, etc. none of which would take American Express. AMEXAMEX was under siege from a number of new competitors, such as groovy One, which in 1991 was the first company to issue questionable teaser rate cards with introductory rates wellspring below the standard 19 percent. Other sources of competition came from co-branded or affinity cards, which were becoming increasingly popular with consumers seeking added value in the form of additional goods or services.AMEXAMEX had the hazard to issue one of the first co-branded cards back in 1985, when American Airlines approached the company with a proposal for a joint credit card that would offer frequent flier miles for dollars spent on the card. AMEXAMEX rejected the offer and American Airlines inked a deal with Citibank instead, which that attracted 4 million cardholdercardholders within a decade and set off a co-branding trend. AMEXAMEX similarly declined to enter into a co-branding agreement with AT&T in 1990.Within five years, the AT&T card had more than 11 million cardholdercardholders. Many corporations began to issue co-branded credit cards, including General Motors, Shell, all major airlines, and Sony. Other entities with co-branded cards included NBA basketball teams, the Uni versity of Alabama Alumni Association, Star Trek, and the National Wildlife Federation. Between 1990 and 1992, the number of American Express cardAmerican Express Cards in circulation dropped by 1. 6 million, or six 6 percent. The company was in danger of seeing its competitive advantage disappear.Attempts to diversify into financial services had largely failed, and the companys flagship card business was faltering. We were losing relevance with our customers, said current CEO Kenneth Chenault. We were trying to be all things to all people with a few products. iv This developments led AMEXAMEXs board to force James Robinson to resign as CEO in 1993. AMEXAMEX FOCUSES ON ITS CORE BUSINESS Divestiture After forcing Robinsons resignation, American Express selected Harvey Golub to succeed him as chairman and CEO in February 1993.Golub was a nine-year ex-serviceman of the company, having come to the IDS division from McKinsey & Co. consulting firm. He immediately initiated a series of di vestitures to pull down AMEXAMEXs holdings. Golub negotiated the sale of the Shearson brokerage operation and the Lehman Brothers investment bank. These sales, combined with other profit-saving cutbacks, eliminated 50,000 of the companys 114,000 workers. Following these moves, the now-leaner company was in a position to focus on its core competencies charge and credit cards, Travelers Cheques and travel services, and select banking and financial services.In the midst of these cutbacks, Golub pursued aggressive plans for high growth in the card sector. In mid-1994, he announced plans to introduce up to 15 fifteen different credit cards. Ready to improve on the companys first credit card offering Optima AMEXAMEX introduced its next card, called Optima legitimate Grace, in August 1994. The Optima True Grace card Card featured a low introductory rate of 7. 9 percent and came with an spontaneous grace period of 25 twenty-five days after a purchase, during which time no interest woul d be charged to the cardholdercardholder.Additionally, the company would release the annual fee for cardholdercardholders who used Optima True Grace at to the lowest degree three times per year. These features came as a result of a year-long seek effort that included 4,000 consumer interviews. The Optima True Grace launch was accompanied by a $40 million marketing campaign starring life style maven Martha Stewart. In its first year, Optima True Grace was selected by about 1. 4 million users, a figure that doubled the companys membership predictions.The flexibility of Optima True Grace marked a remainder from AMEX cardAmerican Express Card policies of the past. As bank-issued cards exploded in the 1980s by enticing customers with low annual fees, cash back offers, partnerships, points bonuses, and other special offers, AMEXAMEX continued to charge high annual fees and flatly refused to partner with other corporations despite offers from companies such as American Airlines. The breach in market share between AMEXAMEX and Visa and Mastercard only widened, and Golub reflected in 1995, We should have seen what was happening. . . We were inflexible. We were arrogant. We were dreaming. v To spur growth in the card category, Golub sought to greatly increase merchant acceptance of American Express cardAmerican Express Cards. In October, responding to the requests of over more than 14,000 card members, AMEXAMEX inked a deal with Wal-Mart stores to have its cards accepted at over more than 2,300 Wal-Mart locations. During 1995, other retailers such as Laura Ashley, ShopRite, Service Merchandise, and Vons Supermarkets signed on to accept AMEX cardAmerican Express Cards. That year, look for by the ompany showed that based on card member purchasing patterns, AMEXAMEX customers charged 86 percent of their spending to AMEX cardAmerican Express Cards. Said CEO Kenneth Chenault, If our customer wants to use the American Express cardAmerican Express Card at a hot dog sta nd, we want to be there. vi In addition to adding merchants that would accept the cards, Golub worked to improve relations with the existing merchant roster. In the past, AMEXAMEX was able to demonstrate to merchants that its cardholdercardholders charged a higher volume with their cards.For many merchants, this mitigated the fact that AMEXAMEXs merchant discount was considerably higher than Visa or MasterCards. Purchases by AMEX cardAmerican Express holdercardholders carried discount fees of over more than 3. 5 percent, compared to merchant discounts lower than 2 percent for Visa and Mastercard. By 1991, however, the case for accepting American Express was not as compelling. Not only were there a greater number of Visa and MasterCard goldGold cardholdercardholders, but also nearly 90 percent of all AMEXAMEX customers carried bank cards as well.AMEXAMEX needed to retain as many merchants as possible, since overbecause more than half of its annual revenues came from merchant discount s. The turning point came in 1991, with the so-called Boston Fee Party. A group of Boston restaurant owners twinned a boycott of the American Express cardAmerican Express Card because they believed the discount rate to be too high. American Express worked rapidly to localisation relationships with these and other merchants. By 1996, the discount rate for AMEXAMEX purchases was below less than 3 percent and all the Boston Fee Party boycotters had been re-signed.Golub also try to better relations with current cardholdercardholders. In October 1995, the company expanded its Membership Miles program to include points bonuses for retail merchandise and gourmet gifts, as well as more travel offerings such as car- rentals, hotel stays, and vacation packages. This rewrite program was named Membership Rewards, and points earned through the program had no limit or expiration date. The renewed focus on American Expresss core business led to the first new campaign for American Express Trave lers Cheques in twenty years.Though still dominating the Travelers Cheques category with $64 billion in annual worldwide sales and a 45 percent market share, AMEXAMEX was looking to protect its lead against competitors like Visa. In 1994, a new $15 million advertising campaign updated the classic Travelers Cheques commercial, which traditionally featured hapless travelers falling prey to criminals while abroad and then experiencing firsthand the safety and security features of the Travelers Cheques. The new growth of ads focused on the Cheques for two feature, which enabled the same checks to be shared between two parties.Instead of getting stolen, the Travelers Cheques in the new ads were only lost, and features featured lost-and-found employees in travel destinations describing the quirky items they encountered in the line of duty. The ads were intended to illustrate in a more lighthearted fashion the benefits of AMEXAMEX Travelers Cheques. In 1995, the company renamed its IDS di vision American Express Financial Advisors (AEFA) in an effort to provide with a more uniform image to its customers.AEFA, which provided financial and estate planning, annuities, mutual funds, life insurance, pension plans, 401(k) plans, and loans and accounting services to businesses and item-by-items, was part of the select financial services that contributed to AMEXAMEXs core competencies. A One-third of AMEXAMEXs net income in 1996 came from AEFA, which controlled $130 billion in assets. After firing Chiat-/Day, AMEXAMEX re-hired Ogilvy- & Mather, who introduced a corporate ad campaign themed, Do More. This global ad campaign extended the companys advertising to include financial services and travel in addition to its card businesses.The purpose of the campaign was to underscore the regeneration that had taken place at American Express during the previous several years, given that the company had 1)Sold or spun off subsidiaries and refocused on businesses operating under the American Express brand 2)Broadened its traditional charge card business to include revolving credit, co-branded cards and other products aimed at specific customer segments, such as students and senior citizens 3)Expanded its global travel network )Begun a major expansion of its financial services businesses and 5)Introduced new products to its corporate services customers. For much of our history, our companys brand was defined by our card and Travelers Cheques businesses, said John hay, executive vice president of Global Advertising. Now we are extending our brand to a variety of other products and services to mirror both where our company is and where it is going. What will remain consistent is our vision to become the worlds most respected service brand. The new advertising campaign was designed to capitalize on several of American Expresss historical brand attributes trust, customer focus, travel, and financial insight. American Express is one of the very few global brands in the financial services arena, Hayes added. All over the world, peoples experiences with our travel services, card products, and financial advice have defined our brands characteristics, reflecting the reasons that both corporations and consumers are loyal to American Express. Themed, American Express Helps You Do More, the campaign attempted to yoke both the companys historic strengths and, as well as its newer initiatives. The pool of advertisements included commercials that featured a range of American Express products and services, as well as those designed to focus on individual businesses, such as American Express Financial Advisors. It also included ads for the American Express charge cards, Our advertising used to be about a limited number of products and services, and was often defined by the people who used them.This campaign stresses our growing number of services and what American Express can do for you, Hayes said. The television spots will ruran on network, cable, an d spot television, supported by newspaper and magazine ads in a variety of publications including USA Today, tThe Wall Street Journal, The the New York Times, Time, and Newsweek. Card Wars American Express launched its first co-branded card in 1995 with Delta Air Lines. The airline miles card was called the Delta SkyMiles Optima, and within two years of its introduction it was the number-two airline affinity card with over more than 1 million cardholdercardholders.American Express forged co-branding relationships with other partners, including Hilton Hotels, ITT Sheraton, and the New York Knicks. Beginning in 1992, American Express used comedian Jerry Seinfeld in advertising that emphasized the cards flexibility and added pique to the personality of the brand. In 1997, as part of the Do More themed campaign, American Express used ads featuring Seinfeld to emphasize the cards acceptability in locations such as supermarkets and gas stations. In one ad, Seinfeld stops at a gas station to fill up.The premise is that he aims to put an even dollar amount into the car, presumably so he can pay with cash without breaking change. Upon reaching the target amount, he gives the handle an extra squeeze that pushes the total a few cents over. Onlookers gasp in dismay, until he pulls out his American Express cardAmerican Express Card in dramatic fashion and pays at the pump. Another ad starred Seinfeld and an airy paneling. The unlikely duo were depicted walking along a city block, when Superman spotted Lois Lane in peril at the front of a grocery store line.When the two come to her rescue, Lois informs them that she has forgotten her wallet. Superman pats his suit where pockets normally would be located and sighs, I cant carry money in this. Im powerless. Seinfeld exclaims, Im not and begins spinning around in a blur brandishing an American Express cardAmerican Express Card. Again in dramatic fashion, he swipes the card and pays for the groceries. American Express sig ned one of the leading athletes in the world in 1997 when it inked a five-year, $30 million endorsement contract with tiger Woods.That year, Woods appeared in print ads and television commercials that promoted American Express Financial Advisors. In one television spot titled Tiger Wants, the phenom golf player discusses discussed personal aspirations, which included taking care of the ones who took care of me and helping people who need help. The campaign also featured Tigers father, Earl, who explaineds that with the help of an American Express Financial Advisor, he was able to retire early and dedicate himself to constituent Tiger reach his goals.John Hayes characterized the endorsement deal as follows The invoke of Tiger Woods and, indeed, of his father, Earl transcends the world of golf. While Tigers tenacity, work ethic, and abilities are outstanding, we also recognize him as a person whose achievements are the result of perseverance and an incredible focus on a goal. Th at phase of earned success is a hallmark of financial success as well. vii In appraising AMEXAMEXs position, Hayes also noted The market became very segmented, and we needed to catch up with that to become more pertinent to more segments.So now weve gone from a brand that was basically represented by one card product to one that has 25 products. Thats a drastic change. viii Our toughest balancing act is not to lose our traditional core customers and our reputation for premium quality and service while we act out new initiatives to expand against other segments. Were tracking that on a quarterly basis to make sure we dont go too far in one direction or the other. ix Marketing and Advertising In 1999, American Express unveiled the biggest new card launch since Optima, with the smart smart cardcard bluing.Blue, which was launched with a $45 million advertising campaign, was considered a smart card because it contained an embedded chip that enhanced security for Internet purchases using a home-encryption system. American Express issued Blue cardholdercardholders a home card card-swiper free of charge, which could be used for Internet transactions. The card targeted the 25 percent of Americans that owned computers and used sophisticated consumer applied science, as well as another 25 percent of the population learning to use such technology. Unlike other American Express cardAmerican Express Cards, Blue carried no annual fee.One perceived risk of the Blue marketing campaign was the implication that the other American Express cardAmerican Express Cards were not secure for use with Internet purchases. Said Alfred Kelly, president of the American Express Consumer Card Services Group, I would rather be cannibalizing myself than have the competition do it. x Launch advertising involved television, print, and subway advertising, as well as event marketing. The introductory television ads focused on the technology aspect of Blue. One ad showed a sea of amoeba bound and multiplying over a rock-and-roll soundtrack.This ad was intended to demonstrate the evolving credit aspect of the card, which meant that Blue would improve as the company added new functions features to it. Another ad emphasized Blues payment flexibility unlike other American Express cardAmerican Express Cards, monthly balances could be carried into the next month by showing the card bent, pulled, and reshaped by robotic arms to the sounds of a classical score. In addition to major network broadcasts, these ads ran during television programs targeting young people, such as Foxs The X-Files and Futurama. Print ads appeared in newspapers and magazines, as well as in sports clubs and on restaurant table-top menus. The ads did not use the familiar Roman Centurion soldier logo associated with other cards, choosing a new look that suggested a compact disc with blue concentric circles surround by white. American Express also sponsored a concert in New York called Central Park in Blu e. The concert was promoted by a street team of sharply- dressed scooter riders, who used handheld swipers to enable cardholdercardholders to pick up free tickets at nearby Blue information kiosks.These marketing activities were designed to give the card a different, modern, more hip feel, said Alfred Kelly. We wanted to break out. xi American Express continued to market cards based on prestige. In 1998, it introduced the matte Matte stark melanise Centurion Card otherwise known as the black Black cardCard for elite clients. To obtain an invitation invitation-o