Case Study Amex Card

American Express Co launched its charge card in 1958 expecting to free the
consumer's wallet from the large number of credit cards contained therein. The first card
was purple cardboard model. Today there are over 34 million plastic American Express
cards in use around the world, mostly green but also the more recent gold, platinum and
Optima additions which offer credit lines and extended payment schedules. The cards
have achieved tremendous success, being accepted at almost 3 million establishments
in 130 countries. American Express as become one of the best known brand names
among consumer businesses.

American Express' strategy has been to focus strictly on upscale spenders in top-line
establishments. However, as its cardholders level off, a new tack has been to get
current customers to use their cards more frequently, even for mauncane occasions. It
is welcome at over 1800 Cineplex movie theaters and has been tested at McDonald's.
Not only are above-average salaried cardholders welcome, but also college students,
who have potential for greater earnings.
The American Express card has carefully built its image over a period of time by
stressing five factors affecting its prestige: higher price, high quality, limited supply,
higher qualifications and exclusive reference groups. The card has been prices far
higher than alternative bank cards. Even silver or gold so-called 'prestige' or premium
bank cards can often by obtained for no fee. Thus, because the American Express card
is priced higher than most other cards around the world it connotes much prestige.
However, the challenge is to be expensive enough to be profitable and perceived as
exclusive, but low enough to be attainable by appropriate segments. While American
Express claims its interest rates are lower than other cards, some feel that consumers
don't understand percentage rate comparisons, but instead, respond more directly to
fees. Another side of the pricing issue is the fee charged business who accept the card.
This 'merchant discount', or the amount American Express keeps from the charges
business submit, is believed to run from 1-25 percent to 1-5 percent higher than other
bank cards. This difference can be a significant amount for low-margin or struggling
businesses.

The quality issue is closely connected to the pricing question, as people reflect on value
received for the price paid. AmEx has pursued a high-quality image based on ordering
more and better services than other cards. It provides over 1,400 travel service offices
throughout the world. Executives do not apologize for the high cost of the card because
they feel the quality is superior. According to one executive, AmEx customers want the
best product, not the cheapest product. Although it may sound like a cliché,
Management truly insists that the company strive to deliver the highest possible level of
service. The service emphasis extends from the chief executive down through the
organization. The company has a system for quantifying quality that measures how long
it takes operators to answer service center phones (7 seconds) and how long it takes
customers reporting lost cards to receive replacements by mail (48 hours). In addition,
AmEx spends heavily to research card member's perceptions of the service they
receive.
While AmEx seeks widespread ownership of its card, it must be perceived as not
suitable for everyone if it is to maintain its prestige. As AmEx broadens its card's appeal
it asks alienating those who are attracted by its upscale image. Such a move has the
potential of endangering the card's niche. While helping its profitability, the move may
damage its image in the failure.

Will the card be able to retain its 'snob appeal' when the person who uses it to charge a
purchase at an exclusive store knows that across town it is being used to buy petrol at a
grimy self-service station? Executives claim that the card is a badge of distinction and it
doesn't matter where or how the card is used. Others feel that the move to broaden its
usage can help profits but hurt the American Express image.
Advertising for American Express has reinforced the desire exclusive image of the card
but also broadened it somewhat through successive campaigns. Ads also stress service
and try to minimize concern about qualifications by encouraging prospectus to apply
even offering an 800 number to facilitate the process. Effective advertising has made
the brand extremely recognizable. During the 1970's AmEx ran the 'Do you Know Me?'
campaign which presented interesting and well-known famous-named people who were
not recognizable but were accorded importance when they used the American Express
Card. The promise was that the ordinary user would also be accorded prestige when
they used the card. In the long-running 'Membership Has Its Privileges' campaign,
cardholders are showing enjoying the man, benefits of the card's services. In all of these
campaign, consumers are encouraged to think of being members of an exclusive club,
not with 34 million participants.

Perhaps the brightest area for credit card growth is the foreign market, although AmEx
lags far being its compotators in Japan and Europe. The eventual foreign target market
consists of 100 million or more people. One problem slowing expansion will be the
merchant discount which some merchants say differs by 4 percent from the charged by
bank cards. Another element which may restrict the growth of American Express in
foreign markets is the company name. Politically the name could be a negative factor in
some markets. In France, Germany and Britain, the card market is mature therefore,
competing against well established cards has been challenging for AmEx. In the
Japanese market the card has been able to grow rapidly as a niche player, appealing to
users designer-abel affinity. However, the AmEx upscale image is being toned down
somewhat as evidence by applications forms that are found even in the back seats of
Tokyo taxis.

The ultimate competator for AmEx is not another credit card, but cash. It is estimated
that today only 15 percent of the items that could conceivable be charged, are.
American Express has been able to gain success by effectively discerning what its
present and potential card members want, and by carefully refining and test marketing
new ideas. Te company has learned just what card 'enhancements' (such as automatic
car insurance) are really important to customers and don't cost to much to make
available. The company maintains a profile of 450 attribute and purchasing patterns on
all cardholders that is updated weekly. AmEx segments card owners by lifestyle and
income, and then aims services appropriately for each group, such as extra travel
insurance for senior citizens concerned with security or a special magazine for students.
AmEx then piles its customer database with bill stuffers or catalogs to sell other items to
receptive buyers. By carefully targeting direct marketing efforts to cardholders only for
products and services that are relevant to them, the company tries to avoid harming the
client relationship.

Questions:
a. Would you consider the purchase of a card like American Express card a low
involvement or a high involvement decision? Give reason for your answer

b. How is the concept of social class relevant to marketing of American Express card?

c. How has American Express used the concept of social class in marketing its credit
cards?