SBHD: American Express has used the detailed information on its customer database to concentrate on its existing customers. Through its Membership Rewards scheme loyalty rewards are being tailored to customers’ individual needs.
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American Express is determined to get under your skin. No longer content with being a card you should not leave home without, it now has plans to become the card that will seriously enhance your lifestyle and that you could not possibly leave home without.
At the centre of this vision is American Express’s loyalty programme, Membership Rewards. Initially launched as Membership Miles in November 1993, the renaming of the scheme late last year was the first indication of its desire to be more than just another air miles wannabe.
In the face of increasing scepticism about tactical loyalty programmes, American Express has always maintained that not only is its programme strategic, it is also the best.
Proving that it is the best may be a little difficult, but there is no doubt that American Express’s customer loyalty drive was born out of a trend that emerged in the US in the mid-Eighties when US companies found themselves floundering in the face of Japanese competition.
Vice-president of customer loyalty Mark Stevens says: “In the mid-Eighties we discovered we were so fixed on growth, that we were ignoring our existing customers. Most large US companies realised that the acquisitive framework was creaking. At the same time a lot of business schools were saying that it was three times more effective to keep an existing customer than to get a new one.
“By the start of the Nineties, American Express took a conscious decision not to concentrate on acquisition, but to channel our efforts into existing card members.”
American Express approached the loyalty game in the same scientific way that it had dealt with acquiring customers. The company set up three standards that it believed defined loyalty: getting members to spend more; ensuring there was less attrition; and encouraging faster payment. Emotion did not enter into the picture.
But as customer loyalty became more sophisticated, American Express developed a different set of standards to keep its customers happy: relevance (are customers getting the product they want); rewards; and recognition – the hallmark of Amex.
When the original Membership Miles was launched in the US in 1991, it was purely an airline-linked miles scheme for frequent travellers. Given the plethora of other airline schemes, the success of the American Express programme took the company by surprise.
Vice president of Membership Rewards for Europe Barbara Barsa says: “We needed to expand into other markets. We realised that what we were offering in the US was too narrow for the UK and European markets where a lot of people are frequent travellers but who don’t necessarily fly. So we signed up with the Forte hotel group to extend the scheme.”
The Membership Rewards scheme gives a point for every pound spent on the card and offers rewards through partners including airlines and hotel groups. To try to broaden its appeal, currently limited mostly to well-heeled frequent travellers, American Express has signed up a number of restaurants as part of the scheme.
Almost 18 months after the UK launch, there are now more than 200,000 cards enrolled on the scheme, while spend on these cards has increased by over 30 per cent.
The programme also operates in about 20 other countries – more than 600,000 cards are enrolled in Europe and more than 4 million worldwide.
That the American Express rewards scheme includes seven airlines and three hotel groups, Barsa says, gives it the edge over other reward schemes simply in terms of choice.
American Express also researched the market carefully in the UK before the scheme was launched. The company detected high levels of cynicism towards loyalty schemes from respondents who did not really believe that they would see the rewards, or, if they did, that those rewards would be worth very much anyhow.
“The company realised it had to invest in the development of the programme and make sure of the core commitment,” Barsa says. “There are no `use by’ dates on the rewards scheme. We know our customers are busy and can’t pin themselves down.
“Also, if people want to transfer miles from one airline to another, we make sure they can do it within a day. And there is also no two-week waiting period before customers receive their rewards certificate.”
A constant problem for American Express in the UK is the limited number of outlets that accept the card. Although the situation has improved during the past few years, cards such as Visa and Access are still more flexible. But where American Express does score is with its business expense and travel account card – its Corporate Card.
Microsoft issues the Corporate Card to 230 of its employees. Microsoft’s financial controller, Stephen Harvey, says travel costs are an important element of the company’s expenses, but it had not been exercising its purchasing power strongly enough when buying travel.
“Our UK employees spend about £1.3m a year on travel and related expenses, but until five years ago we did not have a consistent approach to travel management and therefore were not getting good travel deals. Our brief to American Express was to turn that situation around,” he says.
It is a little known fact that Amex is the largest travel agent in the world, and business such as Microsoft’s helps the company extend its network and influence.
But though those 230 employees would be listed as new card members, the fact is corporate card holders usually have no choice in the matter.
Neil Marlborough, legal counsel at an international trading firm, says he would not use the card by choice. “The air miles scheme excludes British Airways and as I’m on the BA frequent traveller scheme, I try to fly with them as often as possible. Also, there are a number of places in the UK that don’t accept American Express and when I have asked why not, they say it is too expensive and the company takes too long to pay,” he says.
If he had the choice, Marlborough says he would use Visa for UK and Europe and American Express as a back up in other parts of the world. “Besides, a lot of points I had accumulated had been taken away in my last statement. I’ve asked what the problem was, but have not heard from them,” Marlborough says.
But these quibbles are not likely to ruffle American Express. The company’s core target market is affluent travellers, Mark Stevens says. “That’s where we have been most successful and that’s where the money is.”
Membership Rewards has also given American Express very detailed information on who its customers are and, more significantly, exactly when and what they spend their money on. “In the future we have got to know how to deliver a useful product to 40 million customers on a global basis, but also be able to give them what they want individually. We must repackage the choices and tailor them to individual needs,” Stevens says.
As a first stage in that process, American Express now includes in its billing statements a separate page listing specific offers depending on what purchases that customer has registered during the past months. Not only is this the ultimate in targeting, it also does away with the acres of direct mail that American Express used to churn out every year.
“If we can increase the life-cycle of a customer from five to ten years, we can treble the profit of that customer. And the longer a customer has a product, the more it becomes a habit. This goes beyond simply giving out more and more to the customer. The deal then becomes, we’ll give you more if you give us more back. It becomes two-way loyalty,” Stevens says.
Basra: Membership Rewards gives customers more choice