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American Express. Customer Service Operations and Excellence

The need for strategy change for American express

From the case study, American express had previously concentrated on getting as many clients as possible, and then having little regard for the onwards. This is fatal for any customer oriented business, and had severe consequences, as shown by the drop in market share and even such drastic measures as the rebellion by the restaurants and the merchants. According to business link (2008), the better a business manages its relations with customers, the more successful it will be. A look at a popular customer complaints website, My3cents.com, outlines some of the responses that can be expected in a highly competitive credit card market. Small problems can greatly affect the loyalty of customers, such as how complaints are handled in terms of responses, waiting period, and how fast the problems are resolved, if ever. Initially, the credit card market was dominated by Visa and Mastercard, for example in 2004 the average market shares for the card companies were as follows: Visa – 40%, Amex – 36.4%, MC – 21.3%, whereas average 2006 share of the total market, Visa had a 44% share, compared to MasterCard’s 31%, AmEx’s 20% and Discover’s 5%. This not only shows the volatility of the market, but also shows that the American Express interest in the same has not been consistent and therefore customer relations management is of paramount importance (Moskylaluk, 2006). American express sought to differentiate its service thereby creating a niche for itself by concentrating on the exclusive appeal, having only a number of cardholders’ customers, and charging them extra for the exclusivity (Ideamarketers, 2008). Although this might have been effective in the short term, it drew the attention of Visa, which started to target the customers of American express for its marketing campaign. This, combined with an increasing tendency of customers to prefer value in terms of interest rates and other card charges i.e. the cost of the card to the benefit of a prestige image. A typical customer logic sequence for choosing the best card can be easily summarized with this example, where an American Express customer compares the interest that is charged by the credit card companies for a transaction of $100. Using a VISA card results in fees of $1.62, MasterCard clocks in at $1.80 and American Express comes in a $2.19. it is therefore evident that the rational choice for a customer aiming to maximize the value that he will derive from the cards would most certainly not be American Express, which charges the highest fees. (Blueprint for financial prosperity, 2008) American Express’s market can be separated into two, the individual cardholders who pay for services with the card and the merchant who provide services and charge the expense to American Express. Apart from losing favor with the individual market, American Express also had difficulty in keeping up with the rest of the market players as far as delivering value for the merchant segment of the market. This is because American Express still charged the highest fees, a situation which led to the merchants discouraging the purchasers from charging their purchases to American Express, to the detriment of the company and fortune of its competitors. In some case it led to a complete boycott by merchants of the use of the card, with the wave starting with restaurants that went ahead to encourage the other industries to follow suit probably in an effort to pressure the company into lowering it rates. This situation was very uncomfortable for American express and therefore the company took the necessary steps to correct by embarking on several campaigns to improve the image of the company in the minds of its customer thus boosting their loyalty and customer satisfaction (American Express, 2008). American express therefore realized its mistake in its approach to customer relations and undertook to remedy the situation by effecting strategies for improving its relationships with them. A complete turnaround is evident from the new company policy documents, which says in part, ‘American Express has built strong, lasting relationships with our customers, partners and merchants through a long-standing commitment to trust, integrity and service…’ (American Express). This shows American expresses new commitment to center their business operations on the most important stakeholder in the company that is the customer. Thus, American Express switched from their previous strategy that concentrated on numbers at the expense of individual service, in favor of a more appreciative technique that emphasized the needs of the customer to ensure that the services that are provided actually add value to them. This, especially for the merchants’ segment of the market, would mean that the merchants are not only just customers, but business partners who will strive to increase the frequency and volume of charges to American Express cards in return for better partnerships and industry/business specific products from the American Express. To this end, American Express introduced several loyalty encouraging services facilitated by partnerships with the merchants, such as free miles for frequency fliers, in which individuals would get free flying distances based on the volume of their card charges. Individually focused services and value adds were also used to make customers feel like part of the American Express. Examples of such are personal services such as discounts for cardholders at restaurants and movie theatres.

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Further strategies for better customer relations

Internet

One of the most recent and possibly most effective customer relations management strategies that American Express should embrace and take advantage of is the internet revolution. This boom has led to change of conventional thinking about commerce, with billions of dollars in purchases happening online without any connection between the seller and buyer, the transfer of money being electronic. Some of the advantages of online commerce, as opposed to the traditional brick and mortar sales, is that the overheads are very minimal and therefore revenues are less affected by fluctuations in the economic climate. According to the internet retailer (2005), the current United States recession is pulling down retail sales in the physical world while Internet sales continue to grow strongly, which means that the web represents lucrative territory in the quest to gain card market share. the above strategy relies heavily on the retailers that are actually selling online, much like the partnerships with merchants discussed earlier. These partnerships take many forms, among them putting the card of the company as the default check-out choice, which is when the client reaches the options for payment, the specific credit card is already selected. Other strategies include placing the logo of the credit card company with more prominence than the rest and participating the online retail security and transaction verifying services offered by the companies. All these strategies ensure that the credit card company gets many of the internet sales charges to itself thus increasing its revenue. Another strategy that should be used to boost American Express loyalty from its customers is the provision of quick resolution of problems, which may be facilitated by having highly a interactive website, wherein the customers can submit their queries about the services offered by the companies and get almost real-time responses from contact personnel, or automatic responders (International Herald Tribune, 2008). The latter would be more appropriate for frequently asked questions (FAQs), since it encourages consistency and eliminates bias and human error in the responses. This system is however only useful as long as the responses are frequently reviewed to reflect changes in the customer circumstances and make sure that it remains relevant as time progresses. For more personal/specialized issues, human input is desired and this should be facilitated by live/real-time communication structures such as discussion forums, where the company would have customer service personnel that have adequate access to all the relevant knowledge/information that might be of use to the customers. The internet can also provide a superb avenue through which to market the company’s product themselves, as statistics chow that on average more people spend a lot of their free time surfing the internet than engaging in alternative forms of entertainment/information such as print media, television and radio. This translates to the company having a wider reach per advertisement placed on the internet, and since the company also has its own website, products descriptions of a detailed nature are availed to the public at a low cost, thus the company’s products gain in familiarity and relevance to the market.

Product diversification

One of the major problems of most of service-based businesses is the mistaken belief that there can be a single approach and/or product that will fit all categories and classes of people. This leads to some outlying categories of people being left out of the product appeal of the company. This not only limits the sales potential of the company but also has a negative effect on the public image of the company since the population may get a feeling of being left out. The only escape from this problem is to carry out extensive market research to understand the different types of people that are potential customers and their differing needs. There are several examples of corporate successes that have only been made possible by diversification an example of which is Hallmark Cards, which survived by inventing gift wrap and Virgin Media, which was able to diversify by forging a partnership with another company (Executive Business Executive Lifestyle, 2005). American Express should therefore put resources and time into market research to ensure that their card offerings are all inclusive, which will avoid the above outlined problems. One of the ways of looking at the benefits of product diversification is concerned with the product life cycle hypothesis. This hypothesis states that a product’s useful life follows a predictable pattern, whereby, there are the high sales associated with the launch as a new product. Follows id the maturity sales, which are more or less stable, and the obsolesce stage whereby the product has either fallen out of favor of the consumer, or competitors of the business have introduced a better product into the market. Therefore, by diversifying the range of products that the company has, it effectively protects itself from the effect of obsolescence on their products that would have an adverse effect on their cash flow. A word of caution is however deserved to be mentioned at this juncture because there have been cases where companies have over diversified their products to the point that some of them lose their personality, i.e. their connection with the parent company which has also lost market value for them. A study that was conducted on a number of large Spanish firms who used product diversification and market research as a strategy to improve corporate performance revealed that firms that have high levels and low levels of diversifications had a lower improvement in performance. The firms that scored the highest were those that had just enough diversification to remain relevant while maintaining the company image in all of the products (Ramírez Alesón and Espitia Escuer, 2002).

Segmentation, targeting and positional strategies by American Express

There are two ways in which marketing is approached, Mass Marketing, where all the members of the population are treated as being homogenous, i.e. completely the same and Target Marketing, where the population is divided and marketing is targeted at specific needs within the market (Kotler, 2002). It is target marketing that makes use of market segmentation. A market segment is a subgroup of people or organizations sharing one or more characteristics that cause them to have similar product and/or service needs (Determan.net, 2008). This can also be said to be the separation of the most likely customers versus the least likely to purchase the company’s offering (Miklos and Anita, 2005). There are many structures and influences that should be put into consideration when you wish to establish a market segmentation policy, but will only concentrate on the ones that were considered by American Express, and suggest any which might have been excluded. Currently, American Express has the following product segmentation structure: The complete range of cards are separated into Personal and Business cards. The personal cards are then further separated into general personal cards and travel oriented cards. There are also further divisions of the personal cards into gift cards and shopping cards. The business cards on the other hand are divided into three, the Merchant cards, the Small business cards and Corporate cards. As above, the business category of cards are also segmented into sub-categories such as business travel expenses and foreign exchange payments. There are basically two way in which market segmentation maybe segmented for individual consumers, i.e. functionally and emotionally (American Express, 2003). As for the personal cards, the main driver in the segmentation is the functional outlook as can be seen from the division between general personal cards and travel cards, the functional difference being travel and non – travel. The business cards also exhibit this strategy, considering such functions as business travel, foreign exchange payments etc. As far as targeting is concerned, American Express has had a change in the target of their business promotions over a few years (Virtual Advisor, 2004). At the beginning, the primary target was the affluent, drawing on the emotional attachment segmentation technique. This however was forced to change because of fierce competition from Visa., Master Card and other big players in the credit card market. American express therefore had to develop a system through which they could maintain the emotional appeal of its cards while at the same time increasing their market by including the average income generating individuals. This was achieved by creating some separations in the cards that were on offer based on income/spending patterns to establish the credit limit, the logic being that the more well to do people would spend a lot and therefore could be granted a larger credit limit than the average earners. Variations under this classification include the American Express Green card, Gold card, Gold Plus card and the Platinum card, which is the most prestigious card on offer. Thus their products became greatly differentiated as American Express tried to provide a relevant card for each segment of the market.

Other segmentation factors that affect the characteristics of each segment such as gender, age etc have bee left out of our analysis because they are not applicable to credit cards. American express has tried to position itself as a premium card among its competitors, where in the majority of the people to whom its cards were marketed were the wealthy, an appeal to the emotional component that was discussed above. Although this strategy did not work well enough to guarantee the long term survival of the company, after it was changed some elements of it were still maintained as is evident in such cards as the platinum card and the business platinum and executive cards. The initial strategy was primarily pegged on the emotional attachment, and whether or not the market is willing to pay for the same attachment is yet to be seen.

References

  1. Business link (2005). Practical Advice For Businesses.
  2. American Express (2008). American Express. Web.
  3. American Express (2006). Customers complaints and reviews. Web.
  4. Alex Moskylaluk (2006). The Us Credit card market share.
  5. Blueprint for financial prosperity (2007). Why do merchants dislike American express? Web.
  6. American Express (2003). Employee code of conduct.
  7. Executive Business Executive Lifestyle (2004). Diversification success stories.
  8. Ideamarketers.com (2008). How to diversify the products sold in your niche.
  9. Determan.net, (2008) Marketing – planning, strategies, targeting, niches.
  10. International Herald Tribune (2008). Market times may need to rethink positions.
  11. Tenonline (2006). Marketing basics.
  12. Miklos S and Anita E, (2005). Market Segmentation, Target Market Selection, and Positioning. Harvard Business Publishing
  13. Kotler, P (2002). Principles of marketing. Oxford; Oxford University press.
  14. Virtual Advisor, Inc. (2004) Targeting Your Market.

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