IILM Institute for Higher Education

PGP (2009-11)
End-Term Examination, Term - VIII
Course Title: Consumer Behaviour
Nature of Examination: Closed Book Exam
Reference Material:No

Duration: 2 hours Max. Marks: 60

American Express Co launched its charge card in 1958 expecting to free American wallet from the
large number of debit cards contained therein.The cards have acheived tremendous success with
more than 35 million of them around the world today. American Express had become one of the
best known brands among consumer businesses.

American Express’s strategy: focus strictly on upscale vendors in top-line establishments. However,
as its cardholders level off a new strategy has been to get current customers to use theur cards more
frequently. It is now being used in not only top end hotels but also at not so top end family
restaurants. Not only are above average salaried cardholders welcome, but also college students
who have potential for greater earnings.

American Express has carefully built its image over a period of time by stressing five factors
affecting its prestige: high quality, limited supply, higher qualifications and exclusive reference
groups. The card has been priced far higher than competitive bank cards. Thus because the AmEx
card is priced far higher than the competition there is a high prestige value attached to it around the
globe. However, the challenge is to be expensive enough to be profitable and pereived as exclusive,
but low enough to be attainable by appropriate segments. While AmEx claims its interests are lower
than other cards, some feel that customers don’t understand percentage point rates comparisons, but
respond more directly to fees. Another side of the pricing issue is the fee charged by businesses
which accept the card. This merchant discount or the amount AmEx keeps from the charges
businesses submit, is believed to run from 1.25 percent to 1.5 percent higher than other competitive
cards. This difference can be a significant amount for low-margin or struggling businesses.

The quality issue is closely connected to the pricing question as people reflect on value received for
the price paid. AmEx has pursued a high-quality image based on offering more and better services
than other cards. It provides over 1400 travel service offices throughout the world. Executives do
not apologize for the high cost of the card as they feel the quality is far superior. Accoridign to one
executive at AmEx, their customers want the best product, not the cheapest. Although it may sound
like a cliche , amangement truly insists that the company strive to deliver the highest possible level
of service. The service emphasis exists from the chief executive downwards. The company has a
system for qualtifying quality that measures the time it takes operators to answer service centre
phones (7 seconds) and how long it takes customers reporting lost cards to get replacement cards in
the mail (48 hours). In addition AmEx researches heavily consumer perceptions of the service they
recieve.

While AmEx seeks widespread ownership of its cards, it must be percieved as not accessible by
everyone it is to maintain its prestige. As AmEx braodens its card’s appeal it risks alienating those
who are attracted by its upscale image. Such a move has the potential of endangering the card’s
niche. While helping its profitability, the move may damage its ability to generate future revenues
as its customer base gets eroded.

Will the card be able to retain its “snob appeal”. when the person who uses it to charge at Tiffany’s
(premium location) that across town it is being used at a petrol station to buy petrol, or it is being
used at a MacDonald’s outlet. AmEx managers claim that the card is a badge of distinction and it
doesnt matter how or where it is used. Others feel that the move to broaden its uage can help profits
but hurt the American Express image.

Advertising for American Express has reinforced the exclusive image of AmEx cards and has also
broadened it through successive campaigns. Ads also stress service and try to minimize concern
about qualifications by encouraging prospects to apply, even offering an 800 number to facilitate the
process. Effectie advertising has made the brand extremely recognizable. During the 1970s AmEx
ran the “Do You Know Me?” campaign which showed unknown ordinary people being given
importance when they used the American Express card. The promise was that the ordinary user
would be accorded prestige when they used the card. In the long running “Membership has its
Privileges” campaign cardholders are shown enjoying the many benefits of the card’s services. In
all these campaigns, consumers are encouraged to think of being members of an exclusive club, not
one with 34 million participants.

Perhaps the best area for credit card growth is in the foreign market but AmEx lags far behind its
competitors in Japan and Europe. The eventual foreign target market consists of 100 million more
people. One problem slowing expansion will be the merchant discount which some merchants say
differe by 4% from that charged by competitive cards. Another element that could restrict the
grwoth of AmEx cards globally is the company name. Politically the name could be a problem in
many countries around the world. In France, Germany and Britain the card market is mature,
therefore competing against established brands would be a huge challenge for AmEx in these cross
cultural countries. In the Japanese market the card has been able to grow rapidly as a niche player
riding on the affiinity of the Japanese for designer label brands. However, the AmEx upscale image
is being scaled down somewhat as evidenced by application forms that are found even in the back
seats of New Delhi radio taxis.

The ultimate competitor to AmEx is not another credit card but cash. It is estimated that in in most
countries around the world only 15% of the goods that can be credit card charged are actually
charged to a credit card. Mostly people use hard cash.

AmEx has been successful by being able to discern what its present and potential customers want,
and by carefully refining and test marketing new ideas. The company has learned just how card
“enhancements” (such as automatic car rental insurance) are really important to customers and don’t
cost too much to make available. The company maintains a profile of 450attribute and purchasing
patterns on all card holders that is updated weekly. AmEx segments card owners by lifestyle and
income and then aims services appropriate for each group such as extra trael insurance for senior
citizens with security or a special students’ magazine. AmEx then uses the customer database to sell
other items to receptive buyers.. By carefully targetting direct marketing efforts to card holders only
for for products and services that are relevant to them, the company tries to avoid harming the client
relationship.