Amex Facing New Tastes, Competition
Phillips Petroleum executives charged with checking out the company’s rural oil fields nowadays are leaving home without what was once standard equipment: the American Express card. After nine years, the Bartlesville, Okla.-based company dumped American Express in favor of Visa--it’s not only cheaper, but accepted more often by the roadside diners and motels that dot the Southwest.
For American Express, the loss of Phillips and its 5,000 corporate cardholders was a blow but not a catastrophe. It won over its share of corporations last year, including consumer products giant Procter & Gamble.
But the rising tide of defections is worrisome to American Express because it signals that large numbers of coveted business travelers have concluded that they don’t need its card.
Banks that issue Visa and MasterCard are making inroads into the sought-after business travel market with gold cards that offer travel insurance and other extras once provided only by American Express.
The banks’ gold cards may lack the veneer of prestige attached to American Express cards. But, in the eyes of many consumers, the bank cards offer a better deal: Annual fees are lower, and they are accepted at more places than the American Express card.
Los Angeles businessman Jack Small said he dropped his American Express card after 28 years because the $75 annual gold card fee was more than double what he paid for his Visa card. “There is no reason to have it, none at all,” Small said.
A growing number of people appear to share Small’s opinion. Last year, for the first time in its history, American Express suffered drops in outstanding cards and charge volume. But Visa and MasterCard said they gained in those two categories. American Express’ slide is expected to continue as bank cards step up their efforts to win upscale consumers and coveted corporate customers.
MBNA Corp., for example, has come out with a “California Series” Visa gold card that is a direct assault on the American Express gold card. In solicitation letters mailed to consumers, the Delaware-based banking firm compares its new card to American Express point by point, and boasts its card is so superior “you’ll never settle for first-class again.”
First Bank System of Minneapolis sent sales teams to knock on corporate doors and has won over Phillips, Pillsbury and several other big firms. “All we’re doing is imitating what American Express has done well, and doing it better,” said Fred O. Gumbel, president of card services for the bank.
Over the weekend, AT&T; upped the ante by announcing a new offer of a no-fee Visa card, a move that is likely to put pressure on fees charged by its bank-card competitors, as well as by American Express.
With competition intensifying, “it would be a miracle if we did not lose some accounts,” said Roger H. Ballou, president of the American Express unit responsible for the card.
But he expects American Express to gain more accounts than it loses because it has a global network of offices that can offer cardholders faster and more personal service than the bank card issuers.
Ballou also said that over time, banks issuing Visa and MasterCard will lose money on corporate accounts because they won’t be taking in interest on balances--a key source of income for Visa and MasterCard issuers. While American Express does not earn interest income, it charges higher fees to merchants for processing purchases on the card.
The competitive threat is a serious one for parent American Express Co. because the card has been a major moneymaker amid troubles at the firm’s Shearson Lehman brokerage and former Fireman’s Fund insurance unit.
For a card built on prestige, the low-key 1990s represent a special challenge. Consumers are turning their backs on many of the status symbols of the 1980s: designer clothes, prestige stores, luxury hotels and gold cards. In the wake of the recession and layoffs, “a humility is sweeping the nation . . . as a symbol of spiraling aspirations, the American Express card has lost some of its edge,” said Princeton, N.J., marketing consultant Hank Shannon.
The decline is leading to some soul-searching at a company not known for public introspection. At a meeting with American Express travel agents last month, President Harvey Golub posed a question unthinkable only a few years ago: “Will card members continue to keep and hold the card?”
The answer he offered was a predictable “yes.” Others are not as certain.
Noting that banks’ gold cards match the services provided by American Express cards, credit card market researcher Robert McKinley said: “For the average person, who does very little travel abroad, it is hard to find a reason for having the American Express card.”
Even companies that regularly send employees overseas are finding that they don’t need American Express. One reason why Phillips Petroleum chose Visa was because it was accepted at 10 times the locations in Asia as American Express, Phillips spokesman Rob Phillips said. And while American Express has a network of travel offices ready to assist cardholders, Phillips Petroleum concluded that Visa’s network of automated teller machines was handier for employees who run into a cash pinch while on the road.
According to McKinley, publisher of the credit card survey firm Ram Research, another of the American Express card’s key features--no credit limit--has diminished in importance. Today’s bank gold cards have a fairly high credit limit of $5,000 or more. Though the bank cards charge interest on unpaid balances, people who pay down balances monthly can escape interest payments, McKinley said.
The competition has caused American Express to shift its strategy. Moving to shed its snobby image, American Express dropped its trademark “membership has its privileges” slogan and the parade of wealthy celebrity endorsers. In its new batch of commercials, the card becomes a celebrity that turns up in places where mostly wealthy people go: a balmy golf course, a quaint French-style village, an art gallery.
Some marketing consultants say American Express hasn’t changed enough. The message, said consultant Carol Moog, is “luxury-based upscale materialism” at a time when consumers are cutting back. American Express-style indulgence “doesn’t fit with how people want to see themselves in the ‘90s.”
American Express is also changing its mind about who it wants to cater to. Rather than add cardholders, American Express plans to get its big-spending cardholders to spend even more by showering them with freebies and special offers. For example, American Express is now offering holders of its platinum card a free round-trip companion ticket to Spain on Iberia Airlines.
At the same time, American Express, once a leader in credit card enhancements, has moved to match benefits offered by its bank card competitors. Last year, American Express came out with a program that allowed heavy card users to obtain free airline tickets to stave off competition from popular Visa cards that allow users to earn tickets on United Airlines and American Airlines. More recently, American Express introduced a “corporate travelers check,” designed for use at places that don’t accept the American Express card.
While some on Wall Street believe that the strategy may work, others question whether American Express’ focus on free-spending consumers makes sense. Richard H. Koppes, general counsel for American Express shareholder California Public Employees Retirement System, said the pension fund expressed reservations about the card company’s strategy at a meeting with American Express Chairman James D. Robinson III two weeks ago.
Dale M. Hanson, CalPERS chief executive, “was a little skeptical that there are really enough people, whether that market is large enough,” Koppes said.
Marketing consultant Shannon sees a role for American Express as the “Cadillac” of credit cards--still upscale, but not as lofty as it once was. “People will always want their prestige toys--it will always mean something--but whether they can maintain the high level of prestige is the question.”
Slowing Down
After years of growth, the American Express card lost steam in 1991, recording a drop in the number of outstanding cards and flat charge volume.
Number of cards (in millions): 1987: 21.45 1988: 22.61 1989: 24.40 1990: 25.63 1991: 25.38 Charge volume 9in billions of dollars): 1987: 75.24 1988: 88.86 1989: 99.94 1990: 111.46 1991: 111.46 Source: Company reports
