Current Situation
In the year 2008, it became apparent for Jud Linville (CEO of the American Express Company, also known as Amex) that the commercial enterprise in question needed to adjust its corporate philosophy to be fully consistent with the contemporary realities in the US market of financial services. Among the main driving factors behind Linville’s realization in this respect was the increased role of informational technologies within the operational framework of the economy’s banking sector, the rapid expansion of the ‘open-loop’ payment networks (both conventional and web-based), and the growing popularity of retail spending with cardholders. While planning to expound on the issue at length during his meeting with Ken Chenault (Chairman) and Al Kelly (President), Linville decided to make a point in proposing that the would-be implemented strategy for addressing the situation must take into account the Company’s foremost competitive advantages, such as being in the position to practice ‘data-based marketing’ and capitalize on having established a particularly loyal customer base. This paper aims to provide some analytical clues as to the discursive significance of the described corporate challenge, on the part of Amex, and outline the most circumstantially appropriate approaches for tackling it.
Key Issue
As one can infer from the assigned article, the years 2007-2008 marked the emergence of many objective prerequisites for Amex to consider applying adjustments to what then used to represent this company’s business model. In its turn, this development appears to have been fostered by the outbreak of the 2007-2008 financial crisis – something that caused Amex to discontinue its B2B ‘franchising’ partnership with commercial banks. The development’s yet another consequence had to do with the Company’s decision to diversify the line of its products and services while making sure that their commercial appeal would be reflective of the post-2008 specifics of the economic climate in the US. As the Company’s Senior Vice President Michael O’Neill pointed out, “(In 2008) we narrowed the business and broadened the brand” (Labatt and Quelch, 2008, p. 15). Given the fact that the mentioned competitive moves, on Amex’s part, imply the eventual modification of its currently deployed business model, it will only be logical to expect that the Company’s corporate reputation would be strongly affected as well. This specific suggestion can be discussed in terms of the article’s key issue. The reason for this is apparent – there is just too much uncertainty about what may account for the anticipated scenario’s long-term discursive implications. The article’s key issue will appear especially noteworthy if assessed in conjunction with the fact that the brand name American Express has always been known for its close affiliation with the notions of ‘exclusivity’ and ‘prestige’, “Unlike its transaction-oriented competitors, Visa and MasterCard, the American Express card always emphasized an aspirational lifestyle” (Labatt and Quelch, 2008, p. 90). Along with outlining this specific issue, the article contains many valuable insights into the SWOT-related specifics of the Company’s competitive positioning. These specifics will be discussed at length in the paper’s next sub-chapter.
SWOT Analysis
Strengths
Being concerned with the principle of ‘spend-centeredness’ (financial term), the Company’s business model enables the enactment of at least three parallel revenue flows (from customer spending, lending, and charging cardholders with different service fees. In its turn, this contributes towards increasing the measure of Amex’s operational resilience.
The Company’s brand name has a strong emotional appeal to it as such that is being easily recognized throughout the world – as of 2007, the number of Amex’s charge and credit cards in the worldwide circulation amounted to 86 million. This will provide Amex with yet another competitive advantage within the context of how it may go about trying to expand its customer base.
The Company proved extremely efficient at launching different ‘niche-oriented’ and ‘data-based’ marketing campaigns.
Weaknesses
Just as it is being the case with just about any other company that specializes in providing financial services, Amex is bound to remain strongly affected by the specifics of the macroeconomic situation in the US, “In the second half of 2007, a U.S. housing downturn and credit crunch slowed U.S. economic growth. American Express issued a profit warning in early 2008” (Labatt and Quelch, 2008, p. 15).
In its turn, this commonly results in preventing the Company’s interest rates from being considered particularly attractive by most cardholders.
As it appears from the article, Amex does not provide customers with the option to apply for a debit card, which weakens the Company rather substantially in its competition with MasterCard and Visa.
Amex continues to invest much effort in ensuring the supreme quality of the conventional line of its financial products, such as Travelers Checks. However, there are a number of reasons to believe that as time goes on, the Company’s commitment to doing this will be deemed increasingly unfeasible. After all, the very realities of post-industrial living in America presuppose that there is no way to prevent this type of financial product from falling out of favor with more and more people.
Opportunities
Amex should benefit from adopting the strategy of aggressive international expansion. The rationale behind this suggestion has to do with the founding of the Company’s Global Network Services (GNS) subdivision in 1997 – the development that resulted in making it possible to reduce the amount of the would-be required financial investments had Amex’ top-executives decided in favor of this specific competitive strategy.
Amex will be able to become much more competitive as a commercial entity if it remains committed to the policy of investing heavily in research and development while fostering the integration of information technologies into the very core of its operational paradigm. The validity of this suggestion can be illustrated with respect to the Company’s most recent accomplishments on the way of reaching a new level of organizational cost-efficiency. As the authors pointed out, “By 2008, 38% of American Express applications, payments, and reward redemptions had migrated to the Web at cost rates 53%, 84%, and 86% lower, respectively, than offline” (Labatt and Quelch, 2008, p. 12).
Threats
The ongoing economic recession predetermines the eventual intensification of the rivalry between Amex and its main competitors – the development that will have a disadvantaging effect on the former. After all, during the time of an economic downturn people’s purchasing behavior becomes much more ‘price-sensitive’. However, whereas Visa and MasterCard do have the means of reaching out to the price-sensitive consumers (because of these companies’ adherence to the ‘open-loop’ principle of operating payment networks), this is far from being the case with Amex.
Most of the Company’s products and services can be substituted with ease. In its turn, this can be partially explained by the growing popularity of web-based payment platforms, such as PayPal and Google Checkout. As a result, Amex is likely to experience a decline in the number of its loyal customers – hence, hampering the Company’s ability to generate profits.
Alternatives
In light of what has been mentioned earlier, the available alternatives for Amex can be conceptualized as follows:
Alternative 1. (Consolidation of Amex’ ‘tangible’ business assets for the purpose of reducing the scope of the affiliated operational costs). The implementation of this particular alternative will contribute towards helping the Company to ensure the availability of its products and services in the conventional segments of the targeted market, without facing the risk of being declared unsustainable.
Alternative 2. (Conceptual rebranding of Amex, as the company specialized in providing the ‘point-of-sale’ payment solutions). I decided to stick with this alternative, Amex will be able to expand its customer base. However, this may only be the case if the Company succeeds in implementing the would-be required organizational change – a rather challenging objective, especially given the fact that up until today Amex has been positioning itself closely affiliated with ‘conservative values’ in banking.
Alternative 3. (Acquisition of smaller rivalries to expand the Company’s share in the targeted market). By choosing to consider this alternative, Amex will be in a much better position while addressing the competitive challenges from Visa and MasterCard.
Critical Issues
When assessed within the discursive framework of the 4 Ps marketing model, Alternative 1 will appear somewhat viable. After all, its hypothetical implementation will allow Amex to focus on making sure that the line of its products and services is in perfect match with whatever may be the applicable quality-related specifications. At the same time, however, it appears that the remaining elements of the marketing mix will be affected in a manner detrimental to the Company’s corporate agenda. Specifically, if Alternative 1 were to be chosen, this would naturally result in driving up the price. Moreover, the Company’s ability to work out the circumstantially sound placing and promotion strategies would be undermined, as well – all due to the fact that the Alternative 1 is primarily concerned with making it possible for Amex to function in the cost-efficient mode. This Alternative’s most apparent advantage is that it takes into account the macroeconomic factors of influence – this makes it particularly suitable for the deployment during the time of economic recession. There are numerous cons to Alternative 1 as well. The main of them has to do with the fact that while affiliated with it, the Company will be effectively prevented from being able to consider expansion.
The adoption of the Alternative 2 by the Company will also yield a number of the essentially ambivalent effects. Nevertheless, there is a good reason to expect that such a would-be development should prove overall beneficial to Amex. After all, in the aftermath of having affiliated itself with Alternative 2, the Company will be able to diversify its products and services. Moreover, it will also realize itself being in the position to provide thoroughly competitive prices while making practical use of many of the previously unavailable promotion strategies. Nevertheless, the outlined beneficial effects can only be realized in the long-term perspective, which makes the Alternative 2 ill-suited for the adoption by Amex. The reason for this is that while coping with the latest economic recession, the Company simply cannot afford to invest in long-term projects.
Alternative 3 appears to be the least viable of all. The reason for this is that it presupposes that Amex would have to invest in alleviating the negative effects of the organizational restructuring process on a semi-continual basis. As the ultimate consequence, there would be some increased risk for each of the 4Ps marketing mix’s segments to end up being wrongly conceptualized by the Company’s top-managers. The suggestion’s logic is reflective of the well-known fact that the prolonged continuation of some restructuring processes within the company is objectively predetermined to undermine the overall measure of its functional effectiveness – something that Amex can ill afford, given the competitive implications of the current socio-economic situation in the US.
Recommendation
In light of the article’s earlier identified the key issue, it will only be logical to recommend Amex to choose in favor of the Alternative 1, as the most circumstantially sound. The reason for this is that out of the three suggested Alternatives, only the initial one will allow the Company to address this issue without having to deprioritize taking care of its short-term commercial objectives. It is understood, of course, that by selecting the Alternative 1, Amex will incur financial losses. At the same time, however, this will allow the Company to preserve its structural integrity while continuing to benefit from practicing the ‘spend-centric’ model of business. If the current economic recession proves a long-lasting one, there will be only a few doubts left as to the full appropriates of the provided recommendation.
Reference
Labatt, J., & Quelch, J. (2008). The American Express card, Harvard Business School Case, 509-027.