A recent article on American Express reportedly having trouble keeping wealthy customers is a piece of a larger struggle for new generations’ minds (and wallets). It also speaks to the unexpected consequences of effective marketing over a period of time. I’m not a high-wealth customer with millions in investable assets, but in reading the article and also thinking about the changing attitudes toward credit – three reasons came to mind as to why American Express is having this problem:
- The power of its traditional brand: American Express has always been known as the “card for rich people”. You always saw famous athletes on TV never leaving home without their American Express, the ones you knew were millionaires. The green look of the card itself even spoke to wealth. Green = money, something these cardholders all had. Not everyone could get an American Express card, even during a time when virtually anyone could get a credit card. The article states over the last several years the company has been trying to tap new markets – namely the millennial market. Considering most millennials aren’t millionaires, and we’ve been ingrained with the message that American Express is for an exclusive clientele, it’s going to make it hard. Reeducation of a brand is hard, especially if you’ve branded yourself well over a prolonged period of time like American Express did. So now when you have Blue Sky cards and other derivatives of its original card open to other target markets, you have to convince them that what they’re getting is better than others, even if the benefits aren’t as great and you can’t use the card in as many places. Millennials also use debit cards much more frequently than they do credit cards, which in some ways is probably good but in some ways short-sighted - regardless, that’s the trend right now. So convincing millennials who are making considerable money for the first time to jump into a credit card, much less an old brand, is challenging.
- The race to the wallet (of consumers): American Express offers its high-wealth cardholders myriad benefits for having the card. That’s great … but now other credit card companies are doing exactly the same thing. Take into account that Visa and other cards are generally taken at more places around the world than American Express, and you have a problem for our increasingly mobile high-wealth individuals. They want confidence that the credit card they have will be taken virtually everywhere. With Visa and MasterCard, you have a better opportunity for that than you do American Express. I’ve experienced that first hand with some of my travels to London, Ireland, and China (and around the United States). So even though high-wealth individuals holding the card can clearly afford the fee they pay for the benefits, even they (or their accountants) will sit down and do a cost/benefit analysis – for what I pay, are the rewards and the convenience worth it? It seems that the answer is increasingly no.
- The race to the wallet (of American Express): American Express is a publicly traded company. Because American Express is a publicly traded company, it has to provide value to its shareholders (you, me, and Warren Buffett). In doing so, it has to continue to improve revenues and earnings quarter over quarter. Otherwise, there’s negative publicity and the share price goes down. If the price of the stock goes down, it’ll cause many shareholders to sell it – which then reduces the overall value cap (worth) of American Express. Let’s be honest – virtually every company has a goal to keep its existing customers and gain net-new customers. That’s how you keep the lights on. The problem with this, especially for established companies like American Express, is deciding which direction you want to take. Where do you want to focus? Do you want to focus on high-wealth no matter what? Or are you going to diversify and hit the masses? American Express is experiencing a dilution in its brand right now – high-wealth individuals increasingly don’t see the value anymore in the exclusivity of an American Express card, while millennials just don’t understand it. Millennials hearken back to their pre-established views of American Express, decide it doesn’t align with where they’re at, and move onto another competitor. When you try to expand your revenue streams, you usually find that you’ll have to sacrifice revenue in one area of your business while you try to grow the additional streams. While it may be a viable long term strategy, the stock market only takes a quarter to quarter, month to month view of things. That’s the tension with being a publicly traded company.
I think that American Express should simplify its message – at the board level, they need to decide who their primary target customer is and go after it hard. They can’t be everything to everyone – no one can. Apple had this problem after they let Steve Jobs go the first time. When he came back, they wiped out most products and focused on just a few. Now they’re the largest company in the world by market cap. They hit a target market, hit it hard, and created raving fans out of them. American Express – and a lot of other companies – would do well to adopt a similar approach.