Case study

The American Express international loyalty programme

American Express is one of the best-known and most respected brand names in the world. In the 1960s and 1970s it enjoyed a dominant role in the global credit-card market. However, from the 1980s onwards it has had to respond to an unprecedented growth in competition in all the territories it serves. In the face of such competition, the company has had to work hard to earn the loyalty of customers and build lasting relationships. American Express has fought back in recent years, and has invested heavily in new products, expanded its rewards and loyalty programmes, and strengthened its servicing capabilities to meet the needs of its customers better. As a result, in 2004 it attracted some 5 million new cards-in-force and achieved record spending of more than $416 billion – a wide lead over its competitors in terms of average spending per card.
In sharp contrast to many of its rivals, American Express has generated most of its growth organically, rather than by mergers and acquisitions. Through this approach, the company has grown its card-in-force base to 65.4 million.
American Express first introduced a customer loyalty programme in its home US market in 1991. During the course of the next few years the model proved its worth and was rolled out to many other markets around the world. By 2006, the international Membership Rewards Programme (MRP) had expanded such that it is now operating in 50 separate countries and encompassing some 13 million card holders. In outline, the scheme is as follows.

● Relatively high-value customers are invited to become members of the programme. Value is based upon characteristics such as annual credit drawn down and number of American Express products held by the customer.

● Successful applicants pay an annual membership fee which varies from country to country, roughly in a range from $15 to $50.

● Once enrolled in the programme, the member earns points on the basis of the monetary value of each transaction registered on their card.

● The points accumulate in the member’s personal ‘bank account’, and they can be redeemed for a wide range of goods and services via the Internet or telephone call-centres located locally.

The local American Express management is responsible for promoting the programme to card holders in their respective countries, for negotiating local partnership arrangements with providers of goods and services listed in their member catalogue and for organizing the fulfilment service.
Overall business management of the programme takes place in London to ensure that it is achieving its goals and that the brand is being managed in a consistent fashion. The central function is also responsible for driving new reward innovations that keep the programme evolving, negotiating supplier relationships with major strategic partners such as major airlines and international hotel groups, and ensuring that the common systems platform and infrastructure provide the necessary functionality and access to the programmes being operated across the territories that comprise the MRP.

Partnerships

Some 1300 partners in total provide the goods and services that MRP members enjoy in exchange for the points they have accumulated. They include brands such as Canon, Panasonic, Dunhill, Montblanc and Antler, as well as companies such as Hertz, Eurostar and the De Vere Hotels group. Airlines represent particularly important partners, and American Express has partnership arrangements with almost 30 of them, including Virgin Atlantic, Cathay Pacific and Singapore Airlines.
Through becoming a partner with American Express, a company benefits in a number of ways. First, it receives the value of the goods that the member receives in exchange for his or her points from American Express. Secondly, it provides the partner with access to highly desirable customers – currently some 13 million in the markets covered by the MRP. American Express has coined the term ‘double-dipping’ to describe the phenomenon by which the member spends money with the partner company over and beyond the value of the points that have been redeemed. For example, a member might redeem sufficient points with, say, Air France to receive a return flight from Paris to Cairo, and might purchase a further three tickets on his own account for the remainder of the family to travel with him.
A third benefit that partners gain is access to data about the spending behaviour of the 13 million MRP members. American Express carries out an enormous amount of data interrogation to generate insights into how its card holders consume goods and services. Such analysis examines not only what is bought, but also through which merchants. Notwithstanding the limitations occasioned by the various pieces of data protection legislation, partners are able to inform their individual marketing strategies and programmes by using the behavioural insights they get from American Express.

Results

Highlights of its corporate financial performance in 2004 are as follows:

● A record net income of $3.4 billion, up 15 per cent on the previous year

● Diluted earnings per share up 17 per cent to $2.68

● Record revenues of $29.1 billion, up 13 per cent

● A return on equity of 22 per cent, compared with 20.6 per cent a year ago.

Currently, the international MRP has 2.2 million enrolees in Europe, 1 million in Latin America and 2.6 million in the Japan/Asia Pacific region. These are in addition to the 8 million-plus enrolees in North America. Recent analysis with airline partners demonstrates that the yield of MRP members to an airline is, on average, in the order of 35–60 per cent higher than that of the airline’s average non-MRP customer. In 2004, the MRP received a Freddie Award for the ‘Best International Affinity Credit Card Loyalty Programme’. In 2006, it was named the ‘Best Credit Card Rewards Programme’ by Business Traveller Magazine for the seventh consecutive year.