Andrew Clos

Founded by Henry Wells and William G. Fargo in 1850 as a
delivery service company


International company that operates in more than 130 countries
but headquartered in New York
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
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Quickly evolved into a traveling expenses company with the Traveler’s
Cheque and later, travel charge card
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


Issued the first widely accepted plastic charge card in 1958

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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
Market share of the four largest credit card companies worldwide
Kenneth Chenault
named CEO in 2001

Government Regulations
 The Credit Card Accountability, Responsibility and Disclosure
(CARD) Act

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

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

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

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

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

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

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

Factor
Political
Trend
Evaluation
(O=Opportunity
; T=Threat)
Impact
(1 = low;
5 = High)
T
4
O/T
4
T
4
Unemployment Rates
T
3
Economic Recession
T
5
O/T
3
T
4
Contact-less Payment
O
1
Mobile Applications
O/T
3
Government
Regulations
Fed’s Open Market
Policy
Rank in terms of
importance
2
Security Concerns
Economic
Social
Trends in Payment
Means
Perception of Debt
Technological
1
3
4


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.
Buyers
Individual Consumers
Small Businesses
Corporations
Competitors
Visa
MasterCard
Discover
Suppliers (Funds)
Federal Reserve
Banks
Substitutes
Paying for products using:
1.
Cash
2.
Checks
3.
Debit Cards
4.
Small loan from a bank
Do not purchase as many goods/services
Factor
Degree of Power
Number of Buyers
High
Purchases volume
Low
Product Differentiation
Medium*
Vendor Switching Costs
Low
Degree of backward integration
High
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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
Factor
Switching costs
Degree of Power
Medium
Suppliers offer differentiated products
Low
Number of substitutes available
High
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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
Power
Number of competitors
Industry Growth
Exit Barriers
Degree of Power
High
Medium
High
Nature of Threat of Substitutes
Quality of substitute
Buyers’ willingness to substitute
Extent of Threat
High
Medium
Relative performance of substitutes
High
Costs of switching to substitutes
Low
Nature of Barrier
Extent of Barrier
Capital Requirements
High
Incumbency advantages independent of size
High
Customer-switching costs
Low
Unequal access to distribution channels
High
Restrictive Government Policy
High
There is also brand loyalty associated with all the major players in the credit services industry
Factor
Evaluation
Buyer Power
Strong Force
Supplier Power
Benign Force
Intensity of Rivalry
Strong Force
Threat of Substitute Products
Strong Force
Threat of New Entrants
Weak Force



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

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


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.


AMEX has produced profits because they earn so much per swipe
compared to the competition because of the big spending individual
and business cardholder.


Technology has minimal impact on the industry relative to other factors
but has been an increasing recently over the recent past.
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.
Company
Headquarters
American Express
New York, NY
Visa
San Francisco, CA
Mastercard
Purchase, NY
Discover
Riverwoods, IL
Activity
Credit Payment Card Services
American Express Visa Mastercard Discover
x
Debit Payment Card Services
Prepaid Cards
Contactless Payment
x
x
x
x
x
x
x
x
x
x
x
x
American Express
Discover
Mastercard
Visa
Market Cap
55.5 billion
13.54 billion
33.73 billion
53.59 billion
Employees
61,000
10,300
5,600
6,800
Sales Growth
23.4%
71.9%
10.7%
14.2%
Profit Margin
15.84%
22.16%
33.33%
37%
Revenue
25.61 billion
3.45 billion
5.54 billion
8.34 billion
Net Income
4.01 billion
667.94 million
1.84 billion
3.09 billion
Stock Price
37.13 – 46.29
12.11 – 24.90
191 – 269.22
64.90 – 97.19


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
Company
Product Diversity
American Express
Personal , Small Business,
Corporate, and Prepaid Cards
Visa
Mastercard
Discover
Personal and Business Cards;
Debit and Prepaid Cards
Personal and Business Cards;
Debit and Prepaid Cards
Cashback Cards, Miles Cards,
Business Cards, Student
Cards, and Debit Cards
Reach of Sales
Marketing Focus
Global
Recent focus has been on
travel/entertainment, rewards,
and security on cards.
Global
Focus has been on the
debit/check card and the wide
acceptance of their card by
merchants
Global
Over the past few years the
focus has been on the
“Priceless” campaign and how
a person can buy almost
anything with their card
Global
Focus has been on superior
service and rewards
comparatively
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
Company
Objectives
American Express
Wants to make it easier, safer, and more rewarding for
consumers and businesses to purchase the things they
need
Visa
Wants to make it easier to pay and be paid from both the
consumer and merchant prospective
Mastercard
Wants to be a driving force in worldwide commerce
Discover
Wants to strive to be the best in customer service and
reward programs
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
Each competitor offers a product that is attractive to
cardholders in these ways:
Comparable fees
Reward
Programs
Security/Service
•The fees need to be comparable to all the
other major competitors
•Must offer rewards that people would want
•Differentiation of rewards can also brand a
company toward a particular type of reward
•The card needs security measures so
fraudulent charges are avoided, which ties
into high quality service
Company
Number of Countries that Accepts Card
American Express
130+
Visa
200+
Mastercard
210+
Discover
185+

Discover was the first widely accepted card in
China which was a major advantage in such a
large and growing market
Company
Competency
American Express
Number one in customer satisfaction
Visa
Half the credit cards in circulation
worldwide are Visa cards
Mastercard
The high acceptance rate by merchants
Discover
High satisfaction with rewards
Cards in Circulation Worldwide (Year End 2010)
10% 9%
31%
50%
American Express
Mastercard
Visa
Discover

Visa and Mastercard have major distribution
advantages concerning card circulation because
they use banks to issue their cards
Purchase Volume Worldwide (billions) in 2009
120.14
471.1
631.4
American Express
Visa
951.74
Mastercard
Discover
Trend
Result
Global Banking
Relatively regional in the United States and need to
infiltrate emerging markets such as Africa and Asia
E-Banking
3.5 billion people have cell phones with a 10-20% year
over year growth and transactions are taking place more
and more through cell phones
Self-Service
Customers can check the status of their account instantly
and have access to available services
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

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

Key Customers:



Individual Consumers
Small Businesses
Corporations
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.
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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

Each competitor tries to align itself with
something different such as:
Best service
 Differentiated Rewards
 Most Widely Accepted Card


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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
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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
2006
2007
2008
2009
2010
% Change
Revenue (in
millions)
25,900
27,731
28,365
24,523
27,819
13%
Net Income
3,707
4,012
2,699
2,130
4,057
90%
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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


Amex gushes cash at the moment, which
allows the firm to return capital to investors
They did suffer during the financial distress

Segmented into three main businesses


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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
Asset
2008
2009
2010
% Change last two years
Cash and cash
equivalents
8 billion
11 billion 16 billion 45%
Receivables
37 billion
38 billion 40 billion 5%
Investments
25 billion
24 billion 14 billion 41%
Loans
40 billion
30 billion 53 billion 76%
Property and
equipment
3 billion
3 billion
3 billion
0%
Resource
Explanation
Benefit
Global distribution
Their card is accepted in 130
countries
The card has shown
promise in those countries
and can continue to try and
penetrate other emerging
markets
Historic Brand
First company to issue a plastic Helps to be synonymous
charge card
with credit cards


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

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
Strengths
•
•
•
•
•
•
•
Large amount cash on hand at the
•
moment
Brand name
•
One of the top global market leaders •
Customer Loyalty
Unique Financial Products
Cost saving systems
Diversified revenues through
customer spending, lending, and fees
Weaknesses
Depends on securitization market to
fund credit card loans
Lack of debit cards
Declining Traveler’s check business
Opportunities
•
•
•
•
Global expansion/emerging markets
Acquisitions
Financial innovations
New financial technologies
Threats
•
•
•
•
•
•
•
The U.S. unemployment rate may
remain high for a prolonged period
Credit market crisis
Political risk in other countries
Changing spending habits
Government regulations
Intensely competitive industry
Credit card write offs in bad
economic times
Generic
Strategy
• Differentiation Focus
Grand
Strategy
• Disposals/ Acquisitions
Strategic
Clock
• High perceived services benefit
• Differentiated product
Competitive Scope
Narrow
Broad
Comparative Advantage
Low Cost
Higher Cost
Overall Cost
Leadership
Differentiation
Cost focus
Differentiation focus


American
Express does not
compete in low
rates such as
other companies
like Visa. So
they focus on
differentiation
themselves from
the competition.
They do not try
to appeal to
everyone. They
have more of a
focus on the big
spenders.
High
Differentiation
Hybrid
Focused
Differentiation
Perceived
Service
Benefits
Low
Price
American Express
provide customers
with high perceived
service benefits and a
differentiated product
but at a higher price.
They have had this
same strategy since it
first pioneered the
credit card industry
No Frills
Strategies
Destined for
Failure
Low
High
Price
Recently divested American Express International Deposit Corporation and
American Express Bank
•This signified a greater focus on their core business – credit cards
•Would free up money to make investments in the credit card area



Amex should
consider both market
penetration and
product development
Use the market
penetration for
emerging markets
Product
development, such as
debit cards, in the
United States
Scope
Focus
Segment
Main focus is on small business and high spending individuals
Geographic
Main focus right now is to get their card accepted by as many
locations as possible worldwide


The focus on segment alludes to the fact that they
want their card swiped as many times as possible
for large amounts of money
Amex is trying to get on the same level as Visa and
Mastercard in terms as being the most widely
accepted card worldwide



The credit card market as a whole still remains
relatively strong
The high cash on hand should be a very
positive aspect of American Express
They can use that cash on hand to continue
along with their current strategies that are in
place



Continue to use the concept of a differentiated
product to benefit the company
Also continue to focus on market segments that
benefit the company most
Do not waste the investment dollars available
on marketing or acquisitions, that do not fit
with the current business model