American express

1. American express Andrew Clos

2. PesT & Industry Analysis

3. Snapshot • Founded by Henry Wells and William G. Fargo in 1850 as a delivery service company • Quickly evolved into a traveling expenses company with the Traveler’s Cheque and later, travel charge card • International company that operates in more than 130 countries but headquartered in New York • Sales come from many countries because AMEX continually works with international merchants on accepting their credit card so sales are growing internationally • Credit issued in US, Canada, Australia, Mexico, Italy, Japan, and many more • Employees a total of 60,500 people as of 2010 • Average cardholder spent $11,213 per year • This is 2 to 4 times higher than competitors • Shows heavy card use for business cardholders rather than individual consumer cardholders

4. Snapshot • Issued the first widely accepted plastic charge card in 1958 • Credit card sector became one of their most profitable branches within a decade • Target market: high net worth/big spending individuals and businesses • Sales (TTM) are 27 billion dollars Kenneth Chenault named CEO in 2001 Market share of the four largest credit card companies worldwide

5. PEST - Political • Government Regulations • The Credit Card Accountability, Responsibility and Disclosure (CARD) Act • Restrictions on interest rate increases • 45 day notice before changing interest rates • Restrictions on fees that can be charged • Requirements for more disclosure • Limits on the ability of people under the age of 21 to obtain cards • These regulations could result in less transactions, transaction amounts, and a negative impact on earnings because of increased rates and decrease on credit extended • Proposed regulation that could limit interchange fees to just 12 cents per transaction • This would not affect companies that have a direct relationship with cardholders • The Federal Reserve’s open market policy of buying or selling securities affects interest rates • Political unrest could cause security concerns in countries • Potential to reduce traveling abroad

6. PEST - Economic • Unemployment rates • The FED does not see unemployment rates dropping dramatically in the foreseeable future • Causes individual consumers to have less money to spend • Economic recession • Consumers would limit spending, especially on credit cards • Cause individuals/businesses to save the money they do have, rather than spend • Individuals/Businesses may be more likely to pay off credit card balances • Could potentially hurt small business more so, than corporations because they do not have the same availability of funds during economic downturns • Businesses would limit expenses on international travel

7. PEST - Economic

8. PEST - Social • Consumer trends in payment means • Consumers started spending more on credit cards than cash/check in 2006 • Spending on credit cards has reduced since then though but back on the rise • Debit card usage has doubled over the past few years • This has reduced the market for the use of credit cards • Perception of debt after the credit crisis • Debt is perceived as major factor of economic meltdown

9. PEST – Technological • Contact-less payments that eliminates swiping the card through a machine • Cardholder just taps the machine instead of sliding the card through so just saves time • Mobile applications that can keep track of a person’s account • Applications that show the status and balance of cardholders’ accounts • Applications that serve as a virtual wallet, could replace the physical card if it catches on with consumers and businesses

10. PEST - Summary

11. Credit Card Industry Overview • The credit services industry is an industry that gains profit from an interchange fee charged to merchants with every transaction as well as interest payments and fees from the cardholder. • Credit card companies provide loans, in a basic sense, for their costumers to buy goods and services. The credit card company pays the merchant and the customer pays the balance of the “loan” at a later date. So it is a financial service that provides a convenience for the consumer to buy products without having the funds at the time of transaction.

12. Credit Services Industry

13. Industry - Buyers • Buyers have an abundance of options to choose from that are slightly differentiated • *Differentiation occurs in the fees, interest rates, and promotions • The basic service remains standard because it is just money a customer can pay back later

14. Industry - Suppliers • The product suppliers would be offering credit services companies would be money • Funds could be received from commercial banks, or from the Federal Reserve at lower rates because AMEX converted into a bank holding company to become a Federal Reserve member and receive the benefits from being a member • Rates would slightly vary on the received funds • Many possibilities for a company to create more capital

15. Industry - Competitors

16. Industry - Substitutes

17. Industry – New Entrants There is also brand loyalty associated with all the major players in the credit services industry

18. Porter’s Five Forces

19. Blue Ocean Strategy • American Express competes in a red ocean • Hard to differentiate the product of a loan • Would firmly need to entrench itself in a market segment that the other players do not compete in • AMEX would need to continue to capture the “big spenders” market • With their products such as the Centurion (Black) Card and Green Rewards Business Card • The Black Card is a status symbol for rich people

20. Blue Ocean Strategy Conclusion • The only way AMEX can develop a Blue Ocean would be by: • To continue differentiation of rewards • Increase the focus on market segments that are not as competitive • Strengthen the already established brand name to high net worth individuals

21. Conclusion • American Express competes in a highly competitive industry, where all the major players are firmly established and branded. • The economy and government have a major impact on the company as well as the rest of the industry. • Technology has minimal impact on the industry relative to other factors but has been an increasing recently over the recent past. • AMEX has produced profits because they earn so much per swipe compared to the competition because of the big spending individual and business cardholder. • Needs to continue to dominate this niche to produce high profits • They also need to look into acquiring competitors, if possible, which could reduce the intensity of competition and buying power of customers.

22. Competitor and Market Analysis

23. Introduction of Key Competitors

24. Financial Information • Sales growth is measured quarterly • Stock price is a 52 week range • All the companies were near their high except for Visa • Amex does not use banks as a distribution channel for their credit card so that could be a reason for the need of more employees

25. Strategy Business Groups

26. Strategy Business Groups Based upon the marketing of the main competitors in the industry it can be seen that each company brands itself Even though American Express is late on offering debit cards (because of no bank affiliations), they can not be counted out by the other companies do to the fact of reward alignments with air travel companies which attract businesses and high spending individuals

27. Competitor Analysis

28. How the Industry Competes Each competitor has to be able to adjust with economic conditions by competitive pricing through rates. They also have to keep up with the technology that save people time and is convenient for cardholders. Each company also has a strong marketing and advertisement campaign which continues to brand the product to consumers and businesses

29. Product Scope Each competitor offers a product that is attractive to cardholders in these ways:

30. Geographical Scope • Discover was the first widely accepted card in China which was a major advantage in such a large and growing market

31. Core Competencies

32. Size of the Market • Visa and Mastercard have major distribution advantages concerning card circulation because they use banks to issue their cards

33. Size of the Market

34. Key Trends in Credit Services

35. Key Trends in Credit Services

36. Growth • Growth is definitely prevalent in the emerging markets such as China, India, and South Korea • Credit card growth in developed countries is limited because the market is already so saturated with them • Growth can also be seen in revenue in all the major competitors

37. Target Market • Key Customers: • Individual Consumers • Small Businesses • Corporations

38. Importance of Social Media Social media provides a cheap way to reach many potential cardholders. Many businesses are on facebook and twitter so even B2B can be targeted by the credit card companies. Social media can also point the companies in the right directions to fill job openings.

39. Conclusions • The credit services industry is highly competitive and dominated by only a few companies • Marketing, branding, and loyalty are crucial parts to all the major players in the credit card industry • Each player is able to survive in the industry by implementing unique strategies

40. Conclusions • Each competitor tries to align itself with something different such as: • Best service • Differentiated Rewards • Most Widely Accepted Card • There is definitely a place for social media in this industry because advertising and marketing are such huge ways that the competitors implement their strategy • Social media provides a cheap way to do so

41. Internal Analysis

42. Business Model • Focuses on satisfying the customer and building loyalty • Operates the most successful closed-loop credit card network in the United States and many other around the world • Spend-centric rather than lend-centric like their competition • Well- respected and widely known brand • Well-managed rewards program

43. Change in Sales and Profits • Revenues have had a steady increase with the exception of 2009 • American Express has reduced expenses in 2010 to reach a five-year high in net income • Percent Change measures the change between 2009 and 2010

44. Past Five Year Performance • Amex gushes cash at the moment, which allows the firm to return capital to investors • They did suffer during the financial distress

45. Distribution of Sales • Segmented into three main businesses • U.S. card services • International card and global commercial services • Global network and merchant services • Had a former financial advisor segment (American Express Financial Advisors) that spun off to shareholder in 2005 and now known as Ameriprise

46. Key Assets

47. Company Resources

48. BCG Matrix • The big four of the industry (Visa, Mastercard, American Express, and Discover) have the majority of the total market share of credit cards • The market for credit cards has been dwindling recently due to the increase use of debit cards and other payment means

49. Value Chain Analysis • The most important activity of Amex when it comes to the value chain would be marketing and sales. In the credit card industry it is very important to be branded which can be accomplished through effective marketing

50. SWOT Analysis