Sunday, August 16, 2009

My Life. My Card. My Reduced Marketing Budget.


According to a recent story on Bloomberg, American Express slashed its marketing and promotion spend by $311 million in the second quarter of this year. That's a 47% reduction compared with the same period in 2008. A company spokeswoman, Joanne Lambert, said these cuts “were appropriate given the economic environment.” And she may be right - Amex's shares are up by 69% so far this year. But some analysts, including Macquarie Capital USA, warn that Amex "runs the risk of becoming a run-of-the-mill type credit-card lender" if it doesn't keep the brand fresh and top-of-mind. So what would you do if American Express were your brand? What story should you be telling in Q3 and Q4 given that you've been mostly silent so far this year? Please share your thoughts...

35 comments:

  1. Just came from the PGA where AMX drove the bus with regard to branding anhd PR. With the exception of Nike, AMX owned that event from a PR standpoint. The marketing was interactive -- everyone got an AMX branded ear piece and lanyard for play-by-play broadcasting on each hole. If you spent $150 in the gift shop, you received a GREAT PGA sling bag. It was a huge successs and a great partnership with PGA. Event marketing is a good strategy and I think AMX knows what they are doing. AMX also launched a huge partnership with Delta (world's largest airline) earlier this year. They replaced VISA as the official credit card for earning Delta perks. I'm a big fan of targeted marketing, so I applaud them. Now, if they would just drop the annual fee - I'd like them even more.

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  2. Should keep existing cash cow customer happy. For new customer, I echo with Barbara - target marketing. These two basic tasks I should continue. Check every angle of budget, media, channel and try to measure effectiveness of each variable that I should continue. Also aware that what about Q3 budget.

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  3. Move budgets to PR, events, and social media. Police the brand like never before to ensure consistent and accurate communications. Keep the consumer news positive and supportive of the brand at all costs in order to keep existing loyalty. Also, look to the internal impact among staff of such a move. Make sure your intentions are clearly understood and staff moral is not damaged. Bad feelings about the company will eventually reach customers and damage the brand.

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  4. Most companies are cutting their marketing budgets - focus on PR and social new media. You obtain more credibility via 3rd party and AmX must have a ton of stories to share with the business media...

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  5. Amex has great marketing data bases.I am sure they could analyze results - or lack of results – and that warranted cuts as their consumers and business customers have reduced expenditures. With all the negative press on credit cards in general and how consumer rates are changed, this is the time Amex could position themselves - once again - as the card to have to show you are managing your money wisely. You use and pay the bill. Stand up for your credit worthiness!

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  6. Celent Analyst Bart Narter made an interesting point in the Bloomberg article about the AmEx budget cuts when he said “You can cheat your brand for a little bit and not lose, but do it for too long and people start forgetting about you.”

    Cutting marketing budgets is all too common of an approach in a challenging economic climate. However, it is usually not the correct approach. There is a plethora of data that indicates that brands that cut their budgets during recessions end up causing more damage to the brand.

    The best approach is not to cut the budget, but rather to optimize the existing budget. Maximizing the effects of the current budget can serve to increase share of voice and share of market.

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  7. Amex is probably one of the few card companies that doesn't 'raise the rate' as you use your card. If I were in charge, I would make certain that my current base is using the card, and reward them for doing so. Mastercard
    is charging good customers up to 30% per month on unpaid balance. People
    don't like using a card that is making that kind of mark up. AMEX is it's own brand, and they need to focus on the customer base, and enlighten those who are unsure about why they should use AMEX instead of Mastercard/Visa.
    This can be done with radio, (staying green) and in statements. TV is too expensive, but the message should be consistant with the AMEX brand.

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  8. David Mitchel - you are so right. Unfortunately, cutting marketing and branding budgets is almost a knee-jerk reaction to difficult economic times. There is ample evidence of the advantage to be gained by maintaining heavy brand presence while the competition cuts back. The advantages of this strategy can be leveraged well into the recovery after an economic downturn.

    Unfortunately I have experience with the effects of budget cutting on this brand - diminishing presence, awareness, ultimately resulting in ceding its leadership position in several European markets. Today AmEx maintains its cachet as the "classy" brand/card based on quality of service and perception of its pioneering role in credit card/travel services.

    Budget optimization via shift to PR and social media to enhance credibility and relevance would appear to be the best way to go. Would be interesting to know target strategy in terms of age and socio-demographics.

    My recommendation: strengthen customer loyalty with reinforcement [feel good factor] and incentives to expand usage and acceptance within core users and/or merchant groups. This in view of the knowledge that an existing customer is more valuable [and less expensive] than acquisition of a new customer.

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  9. The brand and Amex are on the verge of going under all together and unlikely to get a bailout in this market. Its best bet is to borrow mass amounts of money from the gov't at 0 to 1% interest and then loaning it out for credit card account balance transfers from good rated creditors above 720 ratings at low rates like 2.5%. This could raise a huge sum of cash for them until they can figure out how to stay afloat until the market turns.

    I don't see them making it another year the way they are going now.

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  10. Marketing is not a cost - it is an investment and an intregal requirement for success - the fact it is called a cost-cutting move is disturbing. They will destroy their brand. What would I do, fire the idiot CFO who undoubtably came up with the stupid idea in the first place. In fact, fire all the CFO's at Amex, replace them with Quicken, and reinstate all the marketing directors and staff so this sorry mess of a recssion can come to an end!!

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  11. American Express is a unique model and the slashing of their marketing budget may be an opportunity to recapture and target market to their core client i.e. affluent individuals and business entities. It seems Amex has diluted their branding and associated prestige via The Blue Card. Thus, allocate the marketing budget to taret the core client as mentioned prior.

    While the Plum Card may be a success due to its flexible repayment option and bonus for early payment, Amex may wish to reign in the multiple products on the marketplace. It is a risky proposition as the zeitgeist of the marketplace has changed. Amex may wish to stress their credit cards are the ultimate in fiscal responsibility via payment due in full at end of billing cycle.

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  12. Maybe we should change the approach to this information. Why not evaluate what they did with their new budget (what kind of strategies and tactics were used) and what kind of results did they get and then compare with the performance of their competitors in the same period. I'm not justifying their cut, but after this crisis everybody must show exactly what wanna get and how gonna do it and if you don’t have a good answer your MKT budget may be your smaller problem. Don’t forget its better a good strategic planning then a good budget.

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  13. I agree with Joesph. AmEx diluted its brand considerably by trying to get into the more general credit card market with the Blue Card. I believe they've also got lots of bad debt now as a result, as well as a diminished image that will be difficult to recover. Anyone old enough to remember when Cadilac tried to market a small, less expensive car called the Cimmeron? Or if you're really old, when Packard, the premier U.S. car of its time (and a car that significantly outsold Cadilac at the time), entered the mid-priced market. Sales went up for a while, but then they became like any other mid-range brand and were out of business a few years later. I don't know if AmEx will fall that far, but they definitely have some challenges ahead that will require smarter strategic decisions and some super marketing.

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  14. I used to work at Amex. A decision like this wouldn't have been made without understanding the implications. I agree with Thiago's thinking. Before making any evaluation, it'd be useful to understand exactly what aspects of marketing were cut. And just because the budgets are cut, doesn't mean that performance is "expected" to decline. Amex is really big on continually looking for improvements and getting a bigger bang for the buck. I'm sure while this will be a painful exercise for those in marketing, there will be some excellent solutions that emerge. Amex has and will continue to have a world-class brand and I have no doubt that maintaining brand equity is always top of mind.

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  15. I agree with John on this one. AmEx needs to focus on their key points of difference compared to their competition, marketing directly to their target audience (loyalists) whom they have turned away from in order to try to appeal to the masses. What are the privileges of membership? Make this clear and exclusive to members only. Otherwise, convince me why I should keep this card in my wallet.

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  16. Slashing a budget by 42% in one quarter is not enough information to say that as a result they have a "short sighted lack of brand investment". There are too many other variables that go into play. Thiago's point is a good one, what are they doing differently with lower spending? Are there other opportunities that they are trying to take advantage of? Cutting spending albeit for one quarter on a brand as strong as Amex is not something I think would be done without having a plan in place for the future.

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  17. I agree that you need to know more about their plan, but I suspect the bottom line is a significant reduction. Savvy competitors will take advantage and gain openings they might not have had otherwise. For more commentary on this topic, you might want to see my latest blog posts under the title, "Are You Creating the Right Recession Impression" at http://mondobeat.wordpress.com

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  18. I completely agree on several counts with what others have said.

    Certainly, AmEx has diluted their brand in the past several years by coming down to play in the sandbox with the more proletarian credit cards. I always believed this was a mistake, that they should have remained in their niche and retained the aura of exclusivity. I'm sure at the time they were seeing the vast numbers of additional customers they could add ~ and receive interest from ~ by introducing true "credit" cards. But they traded their platinum image for a plastic Bic pen, imho.

    As for the recent marketing cut, Thiago has it right that strategy is the key. If the cut was made after in-depth strategic assessment, thoughtful discussion and development of creative alternative approaches, then the 43% cut could be leveraged into a successful power move. If they have indeed made this move strategically and the big cut is part of a re-emphasis, optimizing and maximizing their spending, as David suggests, then all may be well.

    I'd like to think that the leaders at AmEx aren't foolish enough to rest on their laurels, per David's quote from Bloomberg. Yet as Sue points out based on her time inside, we cannot assume that the decision was made this way,

    The bottom line is that only time will tell. We don't know what they're doing except for the headline. And as we know from media relations experience, the headline, especially as written by someone else, is not necessarily the whole story.

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  19. Just to spice up the conversation, I'll throw in some food for thought as it regards Amex's movement into the more 'mass credit card space'. The primary revenue stream from credit cards is the finance charge. If the cardmember can't revolve the company can't charge interest. Amex's heritage is fee-based charge (vs credit) cards that need to be paid in full each month. So think about the business situation where new entrants are not charging a fee, not charging a penalty for pay-in-full and capturing interest from those that revolve. Now put that into context about whether or not Amex should've diversified.

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  20. Still tough to do without tarnishing your brand image. Maybe they shoud have tried to buy a company like Discover where there is already a brand established in that space that might have further growth potential. Like I said, it rarely works out for high-end brands to start offering mid- or lower-level products.

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  21. If AmEx wanted to enter the "mass credit card space", would it have made more sense for them to do something along the lines the Toyota-Lexus connection?

    Although Lexus is a part of the Toyota organization, the brand is kept quite distinct from the main Toyota brand. I think that has been vital to Lexus' success in the luxury car market.

    American Express might have been able to create a distinct credit card brand in the company's portfolio without damaging the brand equity of the original AmEx card.

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  22. David you make an interesting point - you made me also think of Gap diversifying to Old Navy for the more price sensitive customer. If I recall correctly, the Optima was launched in the mid 80's - I don't know why it was chosen to be a line extension vs a separate brand. More recently however, Amex launched the invitation only BLACK card which I believe was successful - and it is much more like the 'original' core product. You all have me curious about the definition and metrics around brand equity dilution -- it'd be super if anyone can share examples, are we talking stock price, market share, customer experience? I got my amex when I started college and the reason was that I heard their customer service was the best. In fact I had to get a mastercard/visa soon after only because of the amex acceptance issues. But that gave me the opportunity to experience customer service from both sides and clearly amex was superior - but that was then. The issuing banks have certainly improved customer service over time. So from my personal customer perspective the customer experience/service is how I'm evaluating the brand.

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  23. I think the AmEx people might now be managing the Obama healthcare initiative.

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  24. I would devote a portion of my spend on a customer acquisition strategy using micro targeted email with video. One firm, dvmail.biz has more than 120 opt-in email addresses with dozens of lifestyle and demographic selects available. For around 1 cent per email you can directly influence a lot of people who are likely targets.

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  25. Martyn - Great topic and thread.

    I scanned most comments but Sue obviously offers some great insight into AMEX. They also do an amicable job of 'member only' services - though I'm sure they've taken it on the chin lately and are scaling back.

    Did AMEX take any TARP Funds? If so, reducing marketing expenses ~ 50% would be a prudent exercise so as not to incur the wrath of John Q. Public. Likewise, their brand is too strong to not leverage going forward. One could argue the arrow is simply being drawn backward.

    Larry B. - It's my belief Cadillac failed with the Cimarron due to poor design and quality - not the fact the car was small. If they'd gotten Paninfarina to design a body, stuffed a turbo V6 under the hood, kept rear wheel drive and offered a drop-top model, they might be competing for all the 3-series BMW business that's all over the place. (US quality issues notwithstanding).

    However, they've redeemed themselves with the success of the Escalade (after a slow start) but showed what happens when you deliver what a 'Brand Promise' has conditioned customers to expect. Cadillac... a truck? Who'd a thunk!

    PS - Packard failed mostly on an ill-timed merger with Studebaker and not a questionable model strategy.

    My apologies to the group for turning this into a car discussion.

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  26. Matthew-

    I didn't say Cadillac failed because they offered a small car. They tried to offer a less expensive car that was built on the Chevrolet Cavalier base and in no way delivered on the brand expectation of Cadillac. It was their attempt to try to expand business in a lower-range market.

    And I completely diagree with your assessment of why Packard failed. They were already well on ropes at that point. The game was over. Their demise came from offering less expensive cars that damaged their brand perception with their core luxury customers. Packard become just another car.

    I think AmEx did take TARP money, but I won't swear to it. And if they did take TARP money, I'm sure it was a result of over extending credit to their new clientle, not their old. AmEx did a lot of things well for a lot of years, but why is it so hard to believe they blew this one? It seems pretty clear that they did. Now we'll see if they have enough left to right the ship. Not an easy task.

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  27. Larry,

    Better re-read your first post.

    If AMEX did take tarp money, reducing marketing expenses ~ 50% is a wise move - especially given the public microscope financial companies are under in the press.

    I'll agree with your Packard reply and stand corrected. The Depression, followd by WWII, forced all car makers to start tinkering with model positioning. Their lower priced models were sold under the Packard name. In hindsight, they should have introduced a new value-brand to sell under. GM with their Olds, Buick and Chevrolet brands could protect the brand integrity of Cadillac. The merger with Studebaker is what finally killed the the Packard name plate in 1959.

    As far as AMEX goes, I see it as a good PR move. Lie low for a while. It's the prarie dog that raises its head that gets shot.

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  28. Matthew,

    "Less expensive" is the operative phrase. You chose to focus on "small."

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