Golf in the morning. A lazy afternoon at the spa – maybe a massage or pedicure. A few purchases from the boutique. Dinner at the five-star French café. Drinks afterward against the backdrop of the spectacular ocean sunset.
Cost of the sunset? Free. And the rest? Also free.
People value those customer-oriented fruits of the American Express Membership Rewards program, which has helped promote loyalty and led to the company’s record 2004 net income of $3.4 billion.
While not the biggest charge and credit card nameplate, American Express confidently calls itself and its loyalty program the best. American Express, a 155-year-old brand name, offers a variety of cards globally geared to consumers, small business owners and corporations. Often partnering with major retailers, airlines and hotels or co-branding with financial institutions, American Express enjoys a bottom line that keeps growing and may reach record levels again in 2005.
American Express uses what it calls a “spend-centric” business model, where revenue is derived from charges to merchants for transactions with 67.3 million American Express card members, and, to a lesser degree, from finance charges and fees. The finance charges result from revolving credit balances (American Express uses a mix of cards – charge cards paid off monthly and credit cards carrying a balance) and customer fees, the annual cost to a consumer to have a specific card.
The company has a competitive edge on the spending component of its revenue stream because, on average, its U.S. card members enrolled in rewards programs spend four times as much on American Express cards as they do on other cards in their wallets. The result: more payments from merchants and more incentives for merchants to accept an American Express card.
IT’S ALL ABOUT RELATIONSHIPS
Relationship building is a core value of American Express Membership Rewards and has been critical to the company’s success. As members accumulate points – typically one-point-per-dollar purchase plus double-point promotions – they can select from a variety of rewards with specific appeal to their interests.
“We increase the value of our business by increasing the value of the program to our card members. For us, that means continuing to expand the range of our redemption options.”
“We don’t do transactions, we focus on relationships,” Andretta continues. “Simply trading points just leaves a program and consumers hollow. We want to be closer to the customer than that.”
American Express nurtures this relationship through its customer service. American Express places an emphasis on communication with customers and quickly addresses problems. When customers dispute charges, for example, the company quickly removes inaccurate charges.
Prompt and helpful communication also extends to Membership Rewards, which has a dedicated “concierge staff.”
“When they call us, the customer isn’t a commodity, but a member of our family,” Andretta says. “We want them to know that we are here to help them plan their reward. You want to improve your golf? We’ll find you a golf camp.”
Concierge specialists make suggestions, provide advice, research options and make all the arrangements for a reward that fits the member’s point balance. Dream rewards have included instruction in rock climbing and polo, season tickets for major league baseball and – for 100,000 points – the chance to bring home a personal chef who will teach professional food preparation and make a culinary feast for about 10 people.
The combination of American Express’s focus on customer service and the loyalty program – along with successful mail-based communication – is paying off. More than 60 percent of consumer and small business American Express cardholders are rewards members, a 100 percent increase in just over five years. American Express statistics from 2003 showed 4 million U.S. enrollees in Membership Rewards and more than 9 million worldwide.
From a business standpoint, it is significant that credit card spending is gaining greater acceptance. Over the past several years, American Express has expanded its strategy and moved into everyday spend categories, such as supermarkets and mass merchandisers, while still maintaining a strong position in travel and entertainment.
