432 Part 3: Strategic Actions: Strategy Implementation
Strategic Focus
What Explains the Lack of Innovation at American Express?
Is It Hubris, Inertia, or Lack of Capability?
The lack of innovation and entrepreneurial focus at American
Express may be becauseof hubris, inertia, and lack of capability.
American Express (AmEx) had a terrible year in 2014. It lost two
major partnerships, and lost a major court case, all of which are
likely to have negative effects on its revenues. The executives at
AmEx must think so as well because they are cutting costs and
plan to layoff as many as 4,000 employees.
AmEx lost its partnership as the exclusive co-branded
credit card with the major retailer Costco in 2014. This rep-
resents a major problem for AmEx as that business generated
approximately eight percent of AmEx’s total revenues in 2014.
Interestingly, card holders used the AmEx card for many other
purchases outside of Costco, as about 70 percent of the reve-
nue generated by the card came from its use in other venues.
AmEx also lost its partnership with Jet Blue in the same year.
In addition, AmEx lost a major court case. AmEx charges
each merchant higher fees when a customer uses its card to
make a purchase than do other major credit card companies
such as Visa and MasterCard. AmEx has a contract with each
merchant using its card that does not allow the merchant to
recommend to the customer to use a different card or to offer
discounts favoring other cards. A federal judge ruled that this
requirement by AmEx was in ‘restraint of trade’ and, therefore,
violated antitrust laws. This is important because AmEx may
have to reduce its fees charged to merchants, and if so, it may
have to decrease the rewards paid back to customers. In turn, it
could lose some customers if the rewards become equal to or
less than competitors’ cards.
AmEx has not advanced its purchasing technology in
some time, advances such as facilitating customers’ car rentals
or restaurant reservations. It has been considered to be the
“most prestigious” card and thus built a brand image. It also
has been respected because it captured and held the most
wealthy clientele. However, it has begun to lose some of its
wealthiest clients. One such client has been a long-time user
of the AmEx card. However, he recently changed because the
“rewards” received with other cards are better. In fact, because
he uses the cards for almost all of his purchases, he stands
to receive thousands of dollars more in rewards with the
other cards.
AmEx recently announced a renewed focus on affluent cus-
tomers and more benefits for those holding (and using) the ‘Gold
Card.’ It will offer double points for restaurant purchases and a per-
sonalized travel service. The annual fee for the ‘Premier Gold Card’
also increased by a little more than 11 percent. The fee increase
for the regular Gold Card was about 28 percent. Although, AmEx
executives stated that they continue to target growth goals, most
analysts believe that AmEx revenues are likely to fall over the next
year or two. Innovation and a new strategy are needed.Sources: E. Dexheimer, 2015, AmEx is losing its millionaires, BloombergBusiness, http://www.
bloomberg.com, February 12; J. Davidson, 2015, Why American Express users should
be worried about their rewards, Money, http://www.money.com, February 20; H. Stout,
2015, With revamped gold cards, bruised American Express returns focus to affluent,
New York Times, http://www.nytimes.com, February 26; J. Kell, 2015, Visa replaces American
Express as Costco’s credit card, Fortune, http://www.fortune.com, March 2; H. Tabuchi, 2015,
Amex to ask for stay of ruling prohibiting merchants from promoting other cards, New
York Times, http://www.nytimes.com, March 25; J. Carney, 2015, American Express struggles
to keep up, Wall Street Journal, http://www.wsj.com, April 6; 2015, Stronger dollar drives reve-
nue down at American Express, New York Times, http://www.nytimes.com, April 16.American Express.PNG
Will the new American Express Gold Rewards Card help the
firm to regain its competitive position in tthe industry?Both strategies can be successful if implemented effectively.^119 Yet, some mergers can
insulate firms, especially large ones with significant market power, because an acqui-
sition may provide an almost monopoly on a particular type of technology. This type
of acquisition may focus the firm on path-dependent knowledge development and
incremental innovations. It may also discourage new firms from entering the market,
thereby reducing entrepreneurial activity in the industry.^120