Andrew Clos. Founded by Henry Wells and William G. Fargo in 1850 as a delivery service company...
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Transcript of Andrew Clos. Founded by Henry Wells and William G. Fargo in 1850 as a delivery service company...
AMERICAN EXPRESSAndrew Clos
PEST & INDUSTRY ANALYSIS
Snapshot Founded by Henry Wells and William G. Fargo in 1850 as a
delivery service company Quickly evolved into a traveling expenses company with the
Traveler’s Cheque and later, travel charge card International company that operates in more than 130
countries but headquartered in New York Sales come from many countries because AMEX continually works
with international merchants on accepting their credit card so sales are growing internationally
Credit issued in US, Canada, Australia, Mexico, Italy, Japan, and many more
Employees a total of 60,500 people as of 2010 Average cardholder spent $11,213 per year
This is 2 to 4 times higher than competitors Shows heavy card use for business cardholders rather than
individual consumer cardholders
Snapshot Issued the first widely accepted plastic charge card in 1958
Credit card sector became one of their most profitable branches within a decade Target market: high net worth/big spending individuals and businesses Sales (TTM) are 27 billion dollars
Kenneth Chenault named
CEO in 2001Market share of the four largest credit card companies worldwide
PEST - Political
Government Regulations The Credit Card Accountability, Responsibility and Disclosure
(CARD) Act Restrictions on interest rate increases 45 day notice before changing interest rates Restrictions on fees that can be charged Requirements for more disclosure Limits on the ability of people under the age of 21 to obtain cards
These regulations could result in less transactions, transaction amounts, and a negative impact on earnings because of increased rates and decrease on credit extended
Proposed regulation that could limit interchange fees to just 12 cents per transaction This would not affect companies that have a direct relationship with cardholders
The Federal Reserve’s open market policy of buying or selling securities affects interest rates
Political unrest could cause security concerns in countries Potential to reduce traveling abroad
PEST - Economic
Unemployment rates The FED does not see unemployment rates dropping
dramatically in the foreseeable future Causes individual consumers to have less money to spend
Economic recession Consumers would limit spending, especially on credit cards Cause individuals/businesses to save the money they do
have, rather than spend Individuals/Businesses may be more likely to pay off credit
card balances Could potentially hurt small business more so, than
corporations because they do not have the same availability of funds during economic downturns
Businesses would limit expenses on international travel
PEST - Economic
PEST - Social
Consumer trends in payment means Consumers started spending more on credit cards than
cash/check in 2006 Spending on credit cards has reduced since then though
but back on the rise Debit card usage has doubled over the past few years
This has reduced the market for the use of credit cards Perception of debt after the credit crisis
Debt is perceived as major factor of economic meltdown
PEST – Technological
Contact-less payments that eliminates swiping the card through a machine Cardholder just taps the machine instead of sliding the
card through so just saves time Mobile applications that can keep track of a
person’s account Applications that show the status and balance of
cardholders’ accounts Applications that serve as a virtual wallet, could replace
the physical card if it catches on with consumers and businesses
PEST - SummaryFactor Trend Evaluation
(O=Opportunity;
T=Threat)
Impact (1 = low; 5 = High)
Rank in terms of importance
Political Government Regulations
Fed’s Open Market Policy
Security Concerns
T
O/T
T
4
4
42
Economic Unemployment Rates
Economic Recession
T
T
3
51
Social Trends in Payment Means
Perception of Debt
O/T
T
3
4 3
Technological Contact-less Payment
Mobile Applications
O
O/T
1
3 4
Credit Card Industry Overview
The credit services industry is an industry that gains profit from an interchange fee charged to merchants with every transaction as well as interest payments and fees from the cardholder.
Credit card companies provide loans, in a basic sense, for their costumers to buy goods and services. The credit card company pays the merchant and the customer pays the balance of the “loan” at a later date. So it is a financial service that provides a convenience for the consumer to buy products without having the funds at the time of transaction.
Credit Services Industry
Buyers Suppliers (Funds)
Individual ConsumersSmall BusinessesCorporations
Federal ReserveBanks
Competitors Substitutes
VisaMasterCardDiscover
Paying for products using:1. Cash2. Checks3. Debit Cards4. Small loan from a bank
Do not purchase as many goods/services
Industry - Buyers
Buyers have an abundance of options to choose from that are slightly differentiated *Differentiation occurs in the fees, interest rates, and promotions The basic service remains standard because it is just money a customer can pay back
later
Factor Degree of Power
Number of Buyers High
Purchases volume Low
Product Differentiation Medium*
Vendor Switching Costs Low
Degree of backward integration High
Industry - Suppliers
Factor Degree of Power
Switching costs Medium
Suppliers offer differentiated products Low
Number of substitutes available High
The product suppliers would be offering credit services companies would be money
Funds could be received from commercial banks, or from the Federal Reserve at lower rates because AMEX converted into a bank holding company to become a Federal Reserve member and receive the benefits from being a member
Rates would slightly vary on the received funds Many possibilities for a company to create more capital
Industry - Competitors
Power Degree of Power
Number of competitors High
Industry Growth Medium
Exit Barriers High
Industry - Substitutes
Nature of Threat of Substitutes Extent of Threat
Quality of substitute High
Buyers’ willingness to substitute Medium
Relative performance of substitutes High
Costs of switching to substitutes Low
Industry – New Entrants
Nature of Barrier Extent of Barrier
Capital Requirements High
Incumbency advantages independent of size
High
Customer-switching costs Low
Unequal access to distribution channels High
Restrictive Government Policy High
There is also brand loyalty associated with all the major players in the credit services industry
Porter’s Five Forces
Factor Evaluation
Buyer Power Strong Force
Supplier Power Benign Force
Intensity of Rivalry Strong Force
Threat of Substitute Products Strong Force
Threat of New Entrants Weak Force
Blue Ocean Strategy
American Express competes in a red ocean Hard to differentiate the product of a loan Would firmly need to entrench itself in a market
segment that the other players do not compete in AMEX would need to continue to capture the “big
spenders” market With their products such as the Centurion (Black) Card and
Green Rewards Business Card The Black Card is a status symbol for rich people
Blue Ocean Strategy Conclusion
The only way AMEX can develop a Blue Ocean would be by: To continue differentiation of rewards Increase the focus on market segments that are not as
competitive Strengthen the already established brand name to high net
worth individuals
Conclusion
American Express competes in a highly competitive industry, where all the major players are firmly established and branded.
The economy and government have a major impact on the company as well as the rest of the industry. Technology has minimal impact on the industry relative to other
factors but has been an increasing recently over the recent past. AMEX has produced profits because they earn so much per
swipe compared to the competition because of the big spending individual and business cardholder. Needs to continue to dominate this niche to produce high profits
They also need to look into acquiring competitors, if possible, which could reduce the intensity of competition and buying power of customers.
COMPETITOR AND MARKET ANALYSIS
Introduction of Key Competitors
Company Headquarters
American Express New York, NY
Visa San Francisco, CA
Mastercard Purchase, NY
Discover Riverwoods, IL
Activity American Express
Visa
Mastercard
Discover
Credit Payment Card Services
x x x x
Debit Payment Card Services
x x x
Prepaid Cards x x x x
Contactless Payment x x
Financial InformationAmerican Express
Discover Mastercard Visa
Market Cap 55.5 billion 13.54 billion 33.73 billion 53.59 billion
Employees 61,000 10,300 5,600 6,800
Sales Growth
23.4% 71.9% 10.7% 14.2%
Profit Margin
15.84% 22.16% 33.33% 37%
Revenue 25.61 billion 3.45 billion 5.54 billion 8.34 billion
Net Income 4.01 billion 667.94 million 1.84 billion 3.09 billion
Stock Price 37.13 – 46.29 12.11 – 24.90 191 – 269.22 64.90 – 97.19 Sales growth is measured quarterly Stock price is a 52 week range
All the companies were near their high except for Visa Amex does not use banks as a distribution channel for their credit card
so that could be a reason for the need of more employees
Strategy Business Groups
Company Product Diversity Reach of Sales
Marketing Focus
American Express
Personal , Small Business, Corporate, and Prepaid Cards
Global
Recent focus has been on travel/entertainment, rewards, and security on cards.
Visa
Personal and Business Cards; Debit and Prepaid Cards
Global
Focus has been on the debit/check card and the wide acceptance of their card by merchants
Mastercard
Personal and Business Cards; Debit and Prepaid Cards
Global
Over the past few years the focus has been on the “Priceless” campaign and how a person can buy almost anything with their card
Discover
Cashback Cards, Miles Cards, Business Cards, Student Cards, and Debit Cards
Global
Focus has been on superior service and rewards comparatively
Strategy Business Groups
Based upon the marketing of the main competitors in the industry it can be seen that each company brands itself
Even though American Express is late on offering debit cards (because of no bank affiliations), they can not be counted out by the other companies do to the fact of reward alignments with air travel companies which attract businesses and high spending individuals
Competitor Analysis
Company Objectives
American Express
Wants to make it easier, safer, and more rewarding for consumers and businesses to purchase the things they need
VisaWants to make it easier to pay and be paid from both the consumer and merchant prospective
Mastercard Wants to be a driving force in worldwide commerce
DiscoverWants to strive to be the best in customer service and reward programs
How the Industry Competes
Each competitor has to be able to adjust with economic conditions by competitive pricing through rates. They also have to keep up with the technology that save people time and is convenient for cardholders.
Each company also has a strong marketing and advertisement campaign which continues to brand the product to consumers and businesses
Product Scope
Each competitor offers a product that is attractive to cardholders in these ways:
•The fees need to be comparable to all the other major competitors
Comparable fees
•Must offer rewards that people would want
•Differentiation of rewards can also brand a company toward a particular type of reward
Reward Programs
•The card needs security measures so fraudulent charges are avoided, which ties into high quality service
Security/Service
Geographical Scope
Company Number of Countries that Accepts Card
American Express 130+
Visa 200+
Mastercard 210+
Discover 185+
Discover was the first widely accepted card in China which was a major advantage in such a large and growing market
Core Competencies
Company Competency
American Express Number one in customer satisfaction
VisaHalf the credit cards in circulation worldwide are Visa cards
Mastercard The high acceptance rate by merchants
Discover High satisfaction with rewards
Size of the Market
9%
31%
50%
10%
Cards in Circulation Worldwide (Year End 2010)
American ExpressMastercardVisaDiscover
Visa and Mastercard have major distribution advantages concerning card circulation because they use banks to issue their cards
Size of the Market
471.1
951.74
631.4
120.14
Purchase Volume Worldwide (billions) in 2009
American ExpressVisaMastercardDiscover
Key Trends in Credit Services
Trend Result
Global BankingRelatively regional in the United States and need to infiltrate emerging markets such as Africa and Asia
E-Banking3.5 billion people have cell phones with a 10-20% year over year growth and transactions are taking place more and more through cell phones
Self-ServiceCustomers can check the status of their account instantly and have access to available services
Key Trends in Credit Services
Growth
Growth is definitely prevalent in the emerging markets such as China, India, and South Korea
Credit card growth in developed countries is limited because the market is already so saturated with them
Growth can also be seen in revenue in all the major competitors
Target Market
Key Customers: Individual Consumers Small Businesses Corporations
Importance of Social Media
Social media provides a cheap way to reach many potential cardholders. Many businesses are on facebook and twitter so even B2B can be targeted by the credit card companies.
Social media can also point the companies in the right directions to fill job openings.
Conclusions
The credit services industry is highly competitive and dominated by only a few companies
Marketing, branding, and loyalty are crucial parts to all the major players in the credit card industry
Each player is able to survive in the industry by implementing unique strategies
Conclusions
Each competitor tries to align itself with something different such as: Best service Differentiated Rewards Most Widely Accepted Card
There is definitely a place for social media in this industry because advertising and marketing are such huge ways that the competitors implement their strategy
Social media provides a cheap way to do so
INTERNAL ANALYSIS
Business Model
Focuses on satisfying the customer and building loyalty
Operates the most successful closed-loop credit card network in the United States and many other around the world
Spend-centric rather than lend-centric like their competition
Well- respected and widely known brand Well-managed rewards program
Change in Sales and Profits
2006 2007 2008 2009 2010%
Change
Revenue (in millions)
25,900 27,731 28,365 24,523 27,819 13%
Net Income 3,707 4,012 2,699 2,130 4,057 90%
Revenues have had a steady increase with the exception of 2009
American Express has reduced expenses in 2010 to reach a five-year high in net income
Percent Change measures the change between 2009 and 2010
Past Five Year Performance
Amex gushes cash at the moment, which allows the firm to return capital to investors
They did suffer during the financial distress
Distribution of Sales
Segmented into three main businesses U.S. card services International card and global commercial
services Global network and merchant services
Had a former financial advisor segment (American Express Financial Advisors) that spun off to shareholder in 2005 and now known as Ameriprise
Key Assets
Asset 2008 2009 2010 % Change last two years
Cash and cash equivalents
8 billion 11 billion
16 billion
45%
Receivables 37 billion 38 billion
40 billion
5%
Investments 25 billion 24 billion
14 billion
41%
Loans 40 billion 30 billion
53 billion
76%
Property and equipment
3 billion 3 billion 3 billion 0%
Company Resources
Resource Explanation Benefit
Global distribution
Their card is accepted in 130 countries
The card has shown promise in those countries and can continue to try and penetrate other emerging markets
Historic Brand First company to issue a plastic charge card
Helps to be synonymous with credit cards
BCG Matrix
The big four of the industry (Visa, Mastercard, American Express, and Discover) have the majority of the total market share of credit cards
The market for credit cards has been dwindling recently due to the increase use of debit cards and other payment means
Value Chain Analysis
The most important activity of Amex when it comes to the value chain would be marketing and sales. In the credit card industry it is very important to be branded which can be accomplished through effective marketing
SWOT Analysis
Strengths Weaknesses
• Large amount cash on hand at the moment
• Brand name• One of the top global market
leaders• Customer Loyalty• Unique Financial Products• Cost saving systems• Diversified revenues through
customer spending, lending, and fees
• Depends on securitization market to fund credit card loans
• Lack of debit cards• Declining Traveler’s check
business
SWOT Analysis
Opportunities Threats
• Global expansion/emerging markets
• Acquisitions• Financial innovations • New financial technologies
• The U.S. unemployment rate may remain high for a prolonged period
• Credit market crisis• Political risk in other countries• Changing spending habits• Government regulations• Intensely competitive industry• Credit card write offs in bad
economic times
Overview of Amex’s Strategies
•Differentiation Focus
Generic Strategy
•Disposals/ Acquisitions
Grand Strategy
•High perceived services benefit
•Differentiated product
Strategic Clock
Generic Strategy
American Express does not compete in low rates such as other companies like Visa. So they focus on differentiation themselves from the competition.
They do not try to appeal to everyone. They have more of a focus on the big spenders.
Overall Cost Leadership
Differentiation
Cost focus Differentiation focus
Comparative AdvantageLow Cost Higher Cost
Com
peti
tive S
cope
Narr
ow
Bro
ad
Strategic Clock
No Frills
Low Price
Differentiation
Hybrid
Strategies Destined for Failure
Focused Differentiation
Low High
High
Price
Perceived Service Benefits
American Express provide customers with high perceived service benefits and a differentiated product but at a higher price. They have had this same strategy since it first pioneered the credit card industry
Grand Strategy
• This signified a greater focus on their core business – credit cards• Would free up money to make investments in the credit card area
Recently divested American Express International Deposit Corporation and American Express Bank
Ansoff’s Growth Matrix
Amex should consider both market penetration and product development
Use the market penetration for emerging markets
Product development, such as debit cards, in the United States
Competitive Position
Scope Focus
Segment Main focus is on small business and high spending individuals
Geographic Main focus right now is to get their card accepted by as many locations as possible worldwide
The focus on segment alludes to the fact that they want their card swiped as many times as possible for large amounts of money
Amex is trying to get on the same level as Visa and Mastercard in terms as being the most widely accepted card worldwide
Conclusions
The credit card market as a whole still remains relatively strong
The high cash on hand should be a very positive aspect of American Express
They can use that cash on hand to continue along with their current strategies that are in place
Conclusions: Recommendations
Continue to use the concept of a differentiated product to benefit the company
Also continue to focus on market segments that benefit the company most
Do not waste the investment dollars available on marketing or acquisitions, that do not fit with the current business model