MARKETING MANAGEMENT ASSIGNMENT ON: American Express

Executive Summary:

The report is above American Express’ marketing strategy for increasing market share and penetration in key emerging markets of Brazil, Russia, India and China. American Express pursues geographical segmentation (national market based segmentation) and customer based segmentation (business customers, individual customers etc.). American Express is striving to increase its market share in the emerging markets in the wake of the high economic growth that these markets have enjoyed lately.

The report looks into the 7Ps (Product, Price, Place, Promotions, People, Physical Infrastructure and Processes) of the marketing mix of American Express for the emerging markets. The marketing mix looks good enough to enable American Express to achieve its objectives.

In the last section of the report a few recommendations have been made. American Express can make its marketing strategy more effective if it incorporates these recommendations into its marketing strategy. Customization of promotions, products and services according to the characteristics and needs of the local markets is one such recommendation.

Introduction

American Express is a multi-national credit card products and travel-related services company. It is headquartered in Manhattan, New York City.  American Express provides innovative payment, travel and expense management solutions to its customers. It is the largest credit and debit card issuer in the world by purchase volume (Newman, Peter C,1990).

American Express processes millions of transactions per day. These transactions are carried out by the millions of customers around the world who use American Express cards. American Express’ expertise lies in providing commercial payment tools and in processing of payments for its customers.

Besides this, American Express also offers marketing and information management services to businesses that use its commercial payment tools. It also provides customer loyalty management and rewards management services to customers. American Express is in the process of honing its competency in the loyalty management business (Peter Z. Grossman, 1987).

American Express also operates the world’s largest travel network serving customers and businesses. American Express operates in markets and countries around the world. The macro-economic environment and the micro-economic environment influence the marketing strategy of American Express.

American Express’ complete range of products and services include:

i)                    Expense management products and services.

ii)                  Charge and credit card products.

iii)                Consumer business and travel services.

iv)                Stored-value products such as Travelers Cheques and other prepaid products.

v)                  Network services for processing of credit card and other charge payments.

vi)                Merchant acquisition and processing, servicing and settlement, and point-of-sale, marketing and information products and services for merchants and businesses.

vii)              Other fee based consulting services like marketing and trend analyses, consulting services, fraud prevention services, customization of customer loyalty and rewards programs.

American Express’ customers include individual customers, small businesses, medium enterprises and large corporations. The products and services of the company are sold through various channels like direct mail, on-line applications, in-house sales force, third party sales force and direct response advertising (Newman, Peter C,1990).

The biggest portion of revenues comes from discount revenue. This revenue comes from fees charged to businesses when customers use their American Express cards to buy goods and services at the businesses using American Expresses’ payment network.

American Express earns revenues also from net card fees. This is the revenue earned from the card holders who pay an annual subscription fee. Revenues from travel commission and fees have increased over the years. American Express also earns revenues from commission on foreign exchange commissions.

Market Segments in which American Express operates currently:

American Express has presence around the globe. One of the ways it segments its business is on the basis of geography or national markets. Traditionally the main focus segments of American Express have been the developed nations (Peter Z. Grossman, 1987).

The recent economic emergence of erstwhile developing countries like India and China has made them very lucrative markets for credit card and financial service companies.

Market Segment which American Express is now targeting:

American Express is now targeting to increase its presence significantly in emerging economies. The market segment of emerging economies is likely to grow significantly in the coming years. If the company misses on this opportunity then it will lag behind competitors like Visa and MasterCard in the coming years.

American Express has devised a new strategy for these emerging markets. The objective of this marketing strategy is to increase the market share and market penetration of American Express in emerging economies. In the first phase of the strategic implementation of this marketing strategy American Express is focusing on the following emerging economies: Brazil, Russia, India and China.

Micro-Environment and Macro-Environment in Emerging Markets:

The macro-environment in emerging markets has stabilized over the years on the back of economic liberalization and globalization. The financial crisis of 2008 affected emerging economies too, but to a much lesser degree than developed economies.

PESTLE Analysis of the Macro-environment of emerging economies

Political situation: Political stability has improved considerably in emerging market economies in the past two decades. Many of these economies are now full-fledged democracies.

Economic situation: The economic situation in emerging countries has improved considerably with the advent of globalization and economic liberalization. Per capita incomes are increasing steadily and standards of living are becoming comparable to those in developed economies. The ownership and usage of credit cards have increased considerably over the years.

Social situation: Emerging market economies are progressing socially. The demographics of many of these emerging market economies reveal that a significant portion of their population is relatively young.

Technological situation: Globalization has facilitated the transfer of technology from developed countries to developing ones. The technological infrastructure in emerging market economies is sophisticated enough to support modern businesses.

Legal Situation: The legal situation in emerging market economies in not as good as in developed economies. It is often difficult to enforce contract laws and court room battles can be a long drawn process.

Environmental Situation: Environmental laws in emerging economies are lax when compared to those in developed economies.

The micro-environment in one emerging economy can differ significantly from that in another one. There are also some characteristics which is common to all emerging market economies. One such characteristic is that customers in these economies are most cost-conscious and value-conscious than their counterparts in developed economies (Porter, Michael,1998).

Market Segmentation of American Express:

The segmentation of American Express is according to countries and according to the nature of customers. At the macro-level the segmentation is according to the national markets. So, American market represents one market segment for American Express while Indian market represents another.

At the micro-level the segmentation is done on the basis of customers. So within the American markets the market is segmented among individual customers, small businesses, medium enterprises and large corporations. Segmentation strategy of American Express uses both macro-segmentation (segmentation on the basis of national markets) and micro-segmentation (segmentation on the basis of customers) (Peter Z. Grossman, 1987).

 Marketing Mix of American Express:

The marketing strategy of American Express revolves around the 7Ps of service marketing. The 4Ps of product marketing are product, price, place and promotions. For service marketing the three additional Ps which make up the seven Ps are: processes, people and physical infrastructure (Lenskold, James D.,2003). The business of American Express has a strong service component. Therefore its marketing strategy involves both product marketing and service marketing. The 7Ps of American Express’s marketing strategy are:

Product:

The product aspect focuses on elements like product variety, quality, design, features, brand name, packaging, services, warranties, returns etc (Ries, Al; Jack Trout,2000). American Express’ offers a variety of products in the financial services sector. These include charge and credit card products, expense management products and services, consumer business & travel services, stored value products, network services products, and other payment processing related consulting services.

American Express’ core competency is built around its products and services. However over the years it has transformed itself into more of a customer oriented company which strives to cater to all the customers’ needs related to payment processing.

Now American express is targeting the emerging market economies. Its existing product portfolio is well suited for this segment. It may have to tweak or customize its products and services a bit to meet the slightly different needs of the different emerging market countries.

American Express’ product strategy in emerging markets is to leverage its core competencies and existing portfolio of products and services for creating value for customers in emerging and developing countries. Its core competencies and products and services can be duplicated across markets.

American Express already has a presence in many emerging markets. Its marketing objective now is to increase its market share through market penetration.

Pricing:

The pricing aspect of marketing mix focuses on the pricing strategy. List price, discounts, allowances, payment period and credit terms are covered under the pricing strategy. Pricing strategy will be important in emerging markets (Masi, R. J.; Weidner, C. K, AS,1995). The customers in these economies are more price and value conscious. American Express’ competitors like Visa and MasterCard are more successful in many emerging markets because of their better pricing strategy.

The pricing strategy that American Express is likely to follow for increasing its market in these markets share is one that is high volume- low margin. It should cut down the fee it usually charges to lower its margins. Many emerging markets have large populations. The loss in volume can be covered by larger volumes due to higher market share.

The biggest portion of American Express’ revenues comes from the fee charged from businesses when purchases are made through American Express Cards. It is already charging a lower fee than it charges from businesses in many emerging economies. This strategy will encourage businesses to use American Express processing tools. One problem is that many businesses in emerging economies like India do not accept American Express cards. This discourages buyers from using or holding American Express’ credit and debit cards.

Travel and tourism is booming in emerging markets on the back of higher per capita income. American Express is likely to rationalize the pricing of its stored-value products like traveler’s cheques.

Promotions:

The promotion aspect of marketing mix covers sales promotion, advertising, sales force, public relations and direct marketing. American Express’ promotional strategy relies on advertising, in-house sales force, third-party sales force and public relations. American Express is increasing its advertising budget in emerging market economies. The objective of advertising is to increase the brand recall and brand visibility of American Express in these markets.

Direct Marketing efforts through in-house sales force should also be given a thrust. Promotions will play a very important role in the future success of American Express in emerging markets.

Place:

The place aspect of marketing mix covers distribution channels, coverage, assortments, locations, inventory and transport. Distribution strategy in case of American Express will be the extent of the coverage of its networks of credit card services in emerging economies. The most crucial aspect of American Express’ marketing strategy in emerging economies is to increase its presence by enabling more and more businesses to accept American Express Cards.

American Express is focusing on increasing up tie-ups with banks so as to increase the issuance of cards to its customers. Both Visa and MasterCard have gained success through strategic tie-ups with major banks in these economies.

The distribution of American Express payment processing tools and cards should increase in the businesses and customers respectively of developing countries. In this business revenues are directly linked to reach of distribution.

American Express has tweaked its target segment strategy for emerging markets. It is now targeting customers in lower income groups because of the large middle class population in these markets. It is not limiting itself to affluent and higher income group customers only.

People:

The people aspect is very important for American Express’ marketing strategy in emerging markets. It is people who are going to implement the marketing strategy in these markets. American Express will succeed in leveraging its core competency effectively only if it is successful in recruiting and employing the right type of employees in emerging markets.

The employees act as the interface of the company with the customers (Patterson, Laura 2008). American Express’ customers include businesses as well as individual customers. A lot of the company’s promotions take place through the in-house sales force. The sales force needs to be trained so that they can effectively negotiate the value proposition of the company to prospective customers.

Service is part of the product offering of American Express. Employees deliver the service to customers. .Effective and efficient service creates satisfied customers.

Processes:

American Express’ core competencies are created around its processes. The company has duplicated the processes that it uses in developed markets in emerging markets. It is striving to make its processes more efficient because of the cost factor in these markets. Processes should be successful in delivering the value proposition that American Express promises to its customers. They should also be able to deliver value at lowest possible costs.

Processes should be so designed that they are able to support the strategic objectives of the organization. A process-oriented organization succeeds in achieving its objectives.

Physical Infrastructure:

Physical infrastructure is important in service marketing because infrastructure is used for delivery of services and products. Infrastructure also serves as evidence of the service company and plays a crucial role in branding.

American Express enjoys tremendous physical infrastructure. It needs to create the kind of infrastructure that it has in developed markets in developing markets too. The right physical infrastructure will enable it to achieve its marketing goals and objectives.

Recommendations for improvement of marketing efforts of American Express:

American Express can improve its marketing efforts by devising a promotional strategy that combines standardization with customization. It should customize its promotional campaigns according to characteristics of the specific emerging markets, while keeping a standardized brand appeal. It can take a cue from the promotional campaign of McDonald’s. McDonald’s has customized its promotional strategy according to local characteristics. At the same time McDonald’s has succeeded in ensuring that its global brand image and appeal are not diluted because of this customization (Philip Kotler, Kevin Kohler, 2000).

American Express should also customize its product offerings according to local needs or demands. For instance debit cards are more widely used than credit cards in a country like India. So American Express can customize its card offerings and offer those types of products which are more in demand.

Charging lower fee from customers can enable American Express to increase its market share quickly. There are still many untapped market segments in these markets. The potential for market penetration in emerging markets is immense. American Express should focus on identifying these hitherto untapped customer segments and cater to them.

The marketing strategy of American Express for emerging markets looks good. It should incorporate the recommendations of this report to make it more effective in achieving its objectives.

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