Problem Statement- American Express using Quality Management to Excel in a Highly-Competitive Niche Market. Business Executive Exclusive Perks Card from U.S. Express (The BEEP Card) – Do we launch with current levels of Business commitment in the field?

Organizational Background – American Express is a diversified global financal services company that was founded just prior to the American Civil War. It is best known for its business line of charge cards, traveler’s checks, and in fact, holds about 25 percent of the total credit card transactions in United States, largely because of its perks and programs focusing on American business (Chenault, 2009). American Express does not really sell “anything tangible.” Yes, they have some merchandise, but their primary focus for the consumer is to get as many American Express cards into the hands of qualified customers as possible. Money is generated through the fees charged to retailers and credit card clearing houses. But, American Express is essentially branded as a service-oriented business – topnotch service that customers receive in their interaction with all U.S. Express staff (Bihlmier, 2002).

One of the reasons American Express has been so successful to date, despite the ups and downs of the economy, is its focus on customer experience and branding that experience into something that feels tangible, even though it is not tangible. They have done this through enhancement of the customer experience from initial contact through final payment, tagging celebrities for endorsements, and branding the experience (McCarthy, 2005; Davis, 2010; americanexpress.com).

Thus, for many businessmen, American Express is more of an experience – they can call the company 24/7, 365 days per year in an emergency, have funds delivered or charges authorized by phone; they can received discounts on hotels, car rentals, meals, and even special events. Being an American Express member “has its perks.” And, with the new BEEP card, specifically designed for that upper echelon of corporate executive, the experience offered will be even more customized and special.

Literature Review – Even with billions in global assets, however, American Express’s business model is tied to the economic pulse of the business world. As one of the top rated “charge” cards for business and corporate use, the fiscal crises of the last few years has negatively impacted the company, and in November 2008, American Express won Federal Reserve System approval to covert its operation to a bank holding company, which made it eligible for government subsidies under the Troubled Assets Relief Program, which, at that time consisted of over $127 billion (Lanman, 2008). This troubling trend was serious enough for the Fed to waive its typical 30-day waiting period, and was the result in credit-card holders failure to repay loans at almost twice the rate of 2007. Indeed, one of the major strategic weaknesses of American Express is its tie to the economic health of the global financial markets – American Express following the trends by posting several quarter profit declines even with some segments showing upturns. “Given the continued volatility in the financial markets, we want to be best positioned to take advantage of the various programs the federal government has introduced. We will [also] continue to build a larger deposit base to broaden our funding sources” (CEO Kenneth Chenault, Ibid).

American Express is a large enough company, with core values in banking, financial services, travel, and corporate/personal credit and charge cards. They have a Strategic Planning Group that operates consulting services to management of all its business units, and also services as a conduit for executive level recruiting. (“American Express Strategic Planning Group”).

The business model for American Express consists of several major sections, (See Figure 1) with the top grossing centers: 1) Discount Revenue from card transactions (53%); 2) Interest from card member lending services (revolving charge cards) (13%); 3) Fees from cards, travel, and other holding feeds (23% combined) (“American Express Summary,” WikiInvest).

American Express acknowledged that 2008 was a tough year and that they are tied very closely with the spending patterns of businesses and executive cardholders – in particular, the dismal performance of both the 2007 and 2008 Holiday seasons in luxury goods. Additionally, the impact of the ENRON, Arthur Anderson, and even Automobile Industry issues may force additional oversight and regulation upon American Express’s financial services division. Tactically, the company has instituted several short- and mid-range solutions to improve its financial volatility: 1) Adjust models in lending to reduce high-risk, cancel certain accounts, reduce lines of credit, and limit new cardmembers; 2) Manage risk to improve profits; 3) Enhancing services for businesses and cardmembers experiencing difficulty in order to prevent defaults (“2008 Annual Report,” p. 5).

Strategically, the company has decided on the actions of:

Reengineering – Control of costs, cut back spending in every area of the business; increase efficiency and reduce or eliminate activities that were not supporting the company’s highest priorities, including the elimination of 10% of the global workforce (7,000 jobs). Benefits of $1.8 billion are expected as a result of this reengineering.

Partnerships – Forging new Co-Branded partnerships in key international markets, primarily in the Far East and Australia. Signing 13 new partnerships and launching 130 new products with banks that issue American Express-branded cards globally.

Servicing – Improving servicing aspect and offering more opportunities than competitive products – this resulted in earning the J.D. Power and Associates Customer Satisfaction Award.

Business partnerships – Even in a down economy, partnerships with businesses will continue to help American Express grow its revenue – partnering in the B2B aspect will improve the ready income, while continuing to provide greater incentives for additional partnerships. (Ibid, p. 8).

American Express has been through recessionary times before, and has emerged even stronger utilizing its core values and strategies.

Marketing And Advertising – On of the key factors in the improvement of American Express in the market is the continual thrust of its brand. American Express has taken branding to a new level – one who has moved from the outmoded mold of 1960s marketing, humorously described in the III Series MADMEN, [1] to a more centered approach that makes every employee, essentially, a brand manager: American Express. American Express does not actually sell “anything tangible.” Yes, they have some American Express merchandise, but their primary focus for the consumer is to get as many American Express cards into the hands of qualified customers as possible. Money is generated through the fees charged to retailers and credit card clearing houses. But, American Express is essentially branded as a service-oriented business – top notch service that customers receive in their interaction with all American Express staff (“American Express’ Joe Bihlmier – interview,” 2002). American Express has done this with a few simple, yet very powerful, changes to its business paradigm:

Customer Contact – Every step of the American Express experience has been refined to be different and competitive from all other credit and charge card companies. Employees are highly trained, speak English in a professional manner, and rather than take the offensive on certain situations, begin the discussion with the customer as the #1 priority.

Accuracy of Statement – American Express statements are double and triple checked for accuracy, with an ease of back up data available at a moment’s notice. Since American Express realizes that most use is for business, they have organized their statement into categories that make it easier for the employee to report.

Business Cards – American Express wants large businesses, and has made it easier for company employees to receive cards and generate only their receipts back to the company. American Express will customize reports, by employee and category, for larger companies’ accounting management, and for some, even deliver it electronically based on their individual needs.

Ease of Disputing a Charge – Again, American Express assumes the client is right, and with a simple phone call, will act as an advocate for any unauthorized charges (AmericanExpress.com).

Utilizing celebrities as role models – Instead of having a celebrity simply pitch a product, American Express has taken two different views of improving its brand using celebrities. The celebrities actually USE the product, their names are printed on the card, and not only are they shown in their particular field of expertise (e.g. Tiger Woods, Robert DiNero, etc.), but the company has ads that play off popular archetypes (e.g. the movie “CaddyShack,” etc.) (McCarthy, 2005).

Differential Branding – Now, not only does American Express offer the Gold and Green cards, but a blue and red card, with different cards supporting credit customers (as opposed to charge customers), and the Product RED, which supports the fight against Aids, and other environmental causes. For example, one AmEx commercial shows a sexy model near a traditional Masai warrior; the model holds the RED card and says, “It doesn’t make you feel so guilty about spending your money!” (“American Express, 2007).

Thus, for many businessmen, American Express is more of an experience – they can call the company 24/7, 365 days per year in an emergency, have funds delivered or charges authorized by phone; they can receive discounts on hotels, car rentals, meals, and even special events. Being an American Express member, “has its perks (See Appendix A – Examples of American Express Branding). American Express seems to excel at “creating the strategy” from the outside in, rather than the typical product management idea of “inside out” – this strategy has shown an increase in brand recognition, whether or not those consumers utilize the product at present. Thus, that recognition, as the population ages and is able to afford participating in the American Express experience is more of a marketing investment strategy, long-term, than it is a complete short-term blip (Atstiel, 2005).

The Problem/Challenge – The design and conformance quality are both strategic management issues that, for a company with a demographic like American Express, are vital for the success of their product. For a merchant, American Express is significantly more expensive than MasterCard or Visa, takes longer to be reimbursed, and has less flexibility in discount rates. Instead, it is the very design and conformance (value of the product and the degree to which product promises and specifications are realized) in the marketplace that makes it even worthwhile to merchants. In many cases, corporations use only American Express, and thus their employees are motivated to use that card, typically billed directly to the home office, without the same necessity for reimbursement and T&E Expense Reporting. Because American Express already invested in POP materials, already shipped those materials to its list of businesses who accept the card, the key clearly was not whether the marketing folks at American Express had done their job. They had – but only partially – for all the collateral in the world is for naught if it is not posted, thrown away, or put into storage. That being said, the metrics of Six Sigma, and the defined error acceptance helped American Express hone in on the root of the problem regarding POP and the research behind it, as well as a means to mitigate the situation. Simply put, the current research was simply not working in terms of identifying the issues surrounding use of the card in small businesses.

Opportunities/Recommendations – American Express hired a research vendor to call on businesses to uncover what POP materials were being used, why or why not, and how these materials could translate into an increase value relationship for the consumer and business. Unfortunately, the data uncovered by the research vendor was fraught with inaccuracies: from poor call rates to a disconnect in research opportunities that, in fact, worked contrary to the needs of the company in providing a service to its business clients.

American Express uncovered two primary causes for this disconnect by shadowing the vendor and putting principles of Six-Sigma into place to find a potential set of solutions. The two primary causes for the unacceptably high uncallable rate for American Express’ research were a disconnect between time of research and store hours and the ability of the research to identify individual businesses that were in compliance with American Express’ POP requirements. Both resulted in a loss of time and money, an unacceptable error rate, and considerable redundancy (returning to recheck). However, the research vendor was given the list by American Express. When the business signed up with American Express, they not only listed the type of business (e.g. retail, restaurant, etc.) but also their hours and days of operation. A simple Boolean search would have provided the research firm a sort of appropriate businesses and an adjustment of hours. Six Sigma already asks for statistical checks to be made when viewing data, had the methodology been in place within the marketing research area, the initial disconnect would not have occurred. It was not incumbent upon the vendor to “know” details about the client beforehand. Further, operating in a Six Sigma manner would have put a more robust vetting upon the research project prior to placing it into the field. In addition, the research protocol should have been written so that the purpose of the visit was plain to the vendor – analysis of POP. If the analysis was possible without actually visiting the business (e.g. viewing the POP on the door or register), redundancies would have been eliminated (Hayler and Nichols, 2007, 55-9).

Still, Six Sigma is a tool, it is not an edict. Like many tools, it is dependent upon two things: 1) How it is used, and 2) The quality of the data. Six-Sigma was originally designed for use by Motorola in the early 1980s. It was put in place in order to not only uncover, but to solve, certain manufacturing processes that were not working appropriately. It improved the company by defining a clearly focus on measurable issues that could be quantified and linked to profitability. It also increased an emphasis on management’s commitment to utilizing the strategic planning system to actually implement a cause-effect relationship within the manufacturing model. However, when all the bells and whistles come off, and all the statistical data and measurement are broken down, the model is really a quality improvement template. It is not designed for any subjectivity and often fails to take into account that margin of error is different on divergent products and services (e.g. a surgical instrument or medical device should have a lower rate of error than a new hardback novel). Further, some of the standards are arbitrary and force management to plug in data (as in the American Express market research). That being said, it is both possible to overanalyze certain ineffectual data; in other words, making certain Six Sigma data more important than it really is to ROI. However, it does effectively help management identify areas of needed improvement, of inefficiency, and of redundancy (Prasad, 2009, 32-40).

Conclusions – Such market gurus as Warren Buffet continues to invest in American Express and believe that it is a solid company with a solid business plan. American Express does have weaknesses, but because the do not offer tangible products, their success or failure in the marketplace is a result of their continual ability to get consumer’s and businesses to use their products. They have established a global service sector, they have established an extremely strong brand, they have established recognition that is top within its industry, and almost top in the era of advertising; the perception of the card remains positive; but the company is faced with an uncertain few years while the economic downturn changes globally. Luckily, the company is well-positioned to handle the slowdown, stakeholders seem patient to allow the company to restructure and refocus, and the strategic plan remains solid (Hagstrom, 1997; Evans, 2005). ? Six Sigma is a tool, it is not an edict. Like many tools, it is dependent upon two things: 1) How it is used, and 2) The quality of the data. Six-Sigma was originally designed for use by Motorola in the early 1980s. It was put in place in order to not only uncover, but to solve, certain manufacturing processes that were not working appropriately. It improved the company by defining a clearly focus on measurable issues that could be quantified and linked to profitability. It also increased an emphasis on management’s commitment to utilizing the strategic planning system to actually implement a cause-effect relationship within the manufacturing model.

However, when all the bells and whistles come off, and all the statistical data and measurement are broken down, the model is really a quality improvement template. It is not designed for any subjectivity and often fails to take into account that margin of error is different on divergent products and services (e.g. a surgical instrument or medical device should have a lower rate of error than a new hardback novel). Further, some of the standards are arbitrary and force management to plug in data (as in the American Express market research). That being said, it is both possible to overanalyze certain ineffectual data; in other words, making certain Six Sigma data more important than it really is to ROI. However, it does effectively help management identify areas of needed improvement, of inefficiency, and of redundancy. In the case of American Express- the Six Sigma model did uncover redundancy and most certainly does point to the need to expand and develop new market segments, thus answering the question of launching a new product piece into the marketplace.