American Express Company

views updated Jun 08 2018

American Express Company

American Express Tower
World Financial Center
New York, New York 10285
U.S.A.
(212) 640-2000

Public Company
Incorporated: 1965
Employees: 100,188
Assets: $142.7 billion
Stock Index: New York Boston Midwest Pacific London Zurich Geneva Basel Dusseldorf Frankfurt Paris Amsterdam Toronto Tokyo

The American Express Company, a multi-billion-dollar holding company whose subsidiaries provide travel and financial services worldwide, traces its roots to a New York express business founded by Henry Wells in 1841. Throughout its history, American Express has enjoyed a reputation for innovation, profitability, and integrity. Today, American Express dominates in the premium card and traveler’s check markets and is among the leaders in financial services.

Henry Wells began his career as an expressman as an agent for William Harnden, who had founded the first express company in the United States in 1839. Express companies were in the business of transporting money and other valuables safely. Wells was an ambitious man who repeatedly proposed expanding the business westward—to Buffalo, New York, the Midwest, and the far West. When Harnden refused to leave the East Coast, Wells struck out on his own, organizing Wells & Company in 1841.

At first Wells and his associate, Crawford Livingston, served only New York City and Buffalo, then an arduous route by five rickety shortline railroads and wagon or stagecoach for the last 65 miles into or out of Buffalo. A few years later, Wells and William G. Fargo launched an express service from Buffalo to major midwestern cities. Although appreciated by the midwestern business community, the new express service simply did not pay. In 1846, Wells decided to retrench and focus his energies on the growing routes serving New York City, Buffalo, Boston, and Albany, leaving the express business west of Buffalo to Fargo’s company, Livingston, Fargo & Company.

In 1849 John Butterfield, a wealthy and experienced transportation mogul, entered the express business with Butterfield, Wasson & Company, a direct competitor to Wells & Company on New York state routes. Later that year, Butterfield proposed that he, Fargo, and Wells eliminate their wasteful competition by joining forces. On March 18, 1850, the three companies consolidated to form the American Express Company, a joint-stock company with initial capital of $150,000. Wells was elected the new company’s first president; Fargo became vice president.

Under Wells’s leadership American Express was immediately and unexpectedly profitable, expanding rapidly and acquiring small competitors in the Midwest, negotiating contracts with the first railroads, and running packet boats on the Illinois Canal to connect Ohio, Illinois, and Iowa with steamship lines on the Illinois River. In 1851, American Express reached an amicable agreement with its major rival, Adams & Company (reorganized as Adams Express Company in 1854). American Express was to expand north and west of New York while Adams was free to grow south and east. This agreement was kept and renewed over the next 70 years, buying American Express time to establish its business solidly.

Despite their agreement with Adams & Company, Wells and Fargo still distrusted their rival and feared it would gain a monopoly in the California gold fields. When Wells proposed his old dream of a transcontinental express service to the American Express board of directors, they rejected his idea. But in 1852 Wells and Fargo got the board’s blessing to launch an independent venture, Wells Fargo & Company, to provide express and banking services in California.

In 1854, trouble developed with the New York, Lake Erie & Western Railroad (American Express’s link to the Midwest) when Daniel Drew, the railroad’s owner, became outraged that American Express had picked off the Erie’s most profitable freight business by shipping light, high-rate freight on the Erie under its express contract. Drew was determined to award the express rights to others. In response, American Express created an affiliate and presented it as a bona fide competitor. American Express loaned the funds to start a new company to Danforth Barney, then president of Wells Fargo. Barney’s new company, United States Express Company, then acquired the Erie express rights from Drew and split the lucrative midwestern business with American Express.

American Express’s first decade saw two other noteworthy accomplishments. In 1857, American Express launched the Overland Mail Company as a joint venture with Wells Fargo, Adams Express Company and United States Express Company. The Overland Mail (later controlled by Wells Fargo) won the first transcontinental mail contract from the United States Postal Service, which led to its involvement in the Pony Express. Also, James C. Fargo, William’s younger brother, proposed the establishment of a fast, bulk-freight express service for merchants. Merchants Dispatch, created in 1858, proved immediately successful.

The Civil War was enormously profitable for American Express, as it was for the express industry generally. American Express shipped supplies to army depots, took election ballots to soldiers, and delivered parcels to parts of the Confederacy taken by Union forces. During this period, American Express distributed huge dividends to its shareholders.

After the war, the express industry attracted the attention of financial raiders. The first raid, by National Bankers Express Company in 1866, was thwarted at relatively low cost. American Express quickly reached an agreement with Adams Express and United States Express to neutralize the threat by giving National Bankers Express shares of the established companies and a seat on the American Express board of directors.

The second raid had much more serious consequences. Late in 1866, a group of New York merchants established Merchants Union Express Company, to both get into the express business and destroy the three largest express lines—Adams, American, and United States. Merchants Union first hired away the older companies’ experienced agents, and then invaded their territories. American Express suffered such losses in 1867 that for the first and only time in its history it failed to pay a dividend. On December 21, 1868, the four express companies reached a peace agreement, dividing the express and fast-freight business, and pooling and distributing net earnings. American Express got the worst of the deal; Merchants Union acquired rights on railways that had been its bread-and-butter lines (the Hudson River and New York Central railroads) and lost its supremacy in the express business. In 1868, American Express was forced to merge with Merchants Union to form the American Merchants Union Express Company (shortened in 1873 back to the American Express Company). Also in 1868 Henry Wells retired and was replaced as president by William Fargo.

William Fargo’s tenure saw the beginning of two trends that would later prove significant. First, Fargo’s brother, James, expanded Merchants Dispatch Express operations to Europe. Soon Merchants Dispatch was transporting more than half the first-class tonnage from New York City to over a dozen European cities, making international operations a lucrative sideline for American Express. Second, high express rates set after the Panic of 1873 created public demand for a government-operated parcel post. In 1874, the U.S. Postal Service began to deliver packages at a new, low rate. The following year, Congress set the parcel rate at a half-cent per ounce, far below cost. This cut deeply into express-company profits. Express-industry lobbying and the post office’s substantial operating loss soon persuaded Congress to raise rates to a more reasonable level, but the precedent for governmental involvement in the express business had been established.

William Fargo’s death in 1881 and James’ succession to the presidency began a new era for American Express. Although James Fargo was often described as autocratic, aloof, and old fashioned, he was also remarkably innovative. During his term of office, American Express first diversified into the financial-services industry with the introduction of two instruments—the American Express Money Order in 1882 and the American Express Travelers Cheque in 1891.

The post office first introduced the postal money order in 1864. This immediately threatened the express industry because it reduced banks’ and merchants’ demand for the transport of money and other valuables. The postal money order, however, had a serious flaw: its face value could be altered without detection. Although American Express directors had discussed introducing a money order since the end of the Civil War, it took James Fargo to galvanize the company into action. At his direction Marcellus Berry, an American Express employee, designed a safer money order. American Express’s money order was an immediate hit; it could be used to settle charges on express shipments, was more readily available than the postal money order, and was simpler, cheaper, and easier to negotiate. Not only did the money order provide a new source of revenue (over 250,000 were issued the first year), but for the first time American Express had a credit balance (or “float”—funds from instruments that had been paid for but were not yet cashed) that could be safely invested to bring in additional income.

The traveler’s check filled a similar financial niche. Before 1891, tourists and business travelers could transfer funds from the United States to Europe only via a letter of credit, a time-consuming and cumbersome method: only specified correspondents of the issuing United States bank could negotiate letters of credit, and then only during banking hours and after an appreciable delay. Fargo, annoyed by his own experience with the procedure, again directed Marcellus Berry to find a solution. The American Express Travelers Cheque was a marked improvement over the letter of credit in several respects: its simple signature and counter-signature provision made the instrument very secure; it could easily be converted into foreign currency at any American Express freight office; and, if lost or stolen, American Express would refund the owner’s money. The value and convenience of the traveler’s check was recognized at once, and its popularity again provided American Express with additional revenues and float.

After the traveler’s check was introduced in 1891, travelers began making American Express freight offices their informal headquarters—places to convert funds, to seek information about hotels and travel arrangements, and simply to congregate. American Express officers saw the opportunities offered by the travel industry and urged diversification in that direction. James Fargo, however, was absolutely opposed to the idea. He allowed American Express agents to offer travel information purely as a service to customers, but drew the line there. American Express’s official entry into the travel industry, which became one of its best-known and most lucrative businesses, was delayed until after Fargo’s retirement in 1914.

After the turn of the century, the express industry came under attack from a number of quarters. The railroads had steadily eroded express profits by raising their rates from 40% of gross receipts to more than 55% by 1910. Also in 1910, long-overdue government regulation of the express industry began with passage of the Mann-Elkins Act, which made express companies common carriers subject to the scrutiny of the Interstate Commerce Commission (ICC). In 1912, New York express-company drivers and their helpers went on strike for higher wages and fewer working hours (they were underpaid and overworked, even in an era of low pay and long hours), exciting highly unfavorable press and public reaction. In 1913, the U.S. Post Office again expanded parcel-delivery services at reduced rates, while the ICC set express rates that the industry feared were prohibitively low.

When George C. Taylor, a longtime American Express employee, was elected the company’s fourth president on Fargo’s retirement in 1914, the end of the laissez-faire express industry was in sight. Taylor’s first actions, to expand foreign remittance operations and to officially inaugurate travel services by opening a travel department in 1915, saved the company when its domestic express division was nationalized in 1918 and became part of the American Railway Express Company as a wartime measure. Another of Taylor’s accomplishments was to establish the American Express Company, Inc. This wholly owned subsidiary was created in 1919 primarily to expand international banking operations (which had been conducted sporadically through foreign remittance offices since 1904). Although American Express was slow to gain a foothold in Europe, its international banking operations flourished in Asia during the 1920s and 1930s, especially in Hong Kong and Shanghai.

In the late 1920s, American Express again changed hands. The express industry was targeted for takeovers during this period because most express companies had been organized prior to antitrust legislation, raising the possibility of their exemption from antitrust regulations. American Express was especially attractive because its net income had more than doubled in the six years ending in 1928. In 1927 Albert H. Wiggin, chairman of the Chase National Bank, started buying American Express stock through dummies. By July, Wiggin had acquired two seats on the board and 42% of the stock, at a bargain price. In 1929, Chase Securities Corporation, an affiliate of Chase National, acquired control of American Express in a stock exchange and Wiggin was elected first chairman of the American Express board.

In May, 1930 Chase National merged with the giant Equitable Trust to become the largest bank in the world. John D. Rockefeller supplanted Wiggin as largest shareholder and Winthrop W. Aldrich, Rockefeller’s brother-in-law, became chairman of both the Chase Securities and the American Express boards.

This was a difficult time for American Express management, headed by Frederick P. Small (who became president on Taylor’s death in 1923). Not only were the directors preoccupied with their power struggles, but the financial climate was steadily worsening. Then the Great Depression hit. Between 1930 and 1932, roughly a third of all American banks failed. In early 1933, President Franklin D. Roosevelt announced a national bank holiday to allow banks to recover from the panic. The bank holiday brought commerce to a virtual standstill. During this period American Express, since it was not a bank and thus not required to close, enjoyed a tremendous advantage: it remained open and redeemed traveler’s checks, providing the only financial services available to individuals and merchants while the nation’s assets were frozen. The traveler’s check business ultimately allowed American Express to remain profitable throughout the Depression and World War II.

In 1944 Ralph T. Reed replaced Small as president. Under Reed’s management, the late 1940s and the 1950s were a period of expansion, primarily in the booming travel industry. Within seven years the number of American Express offices increased by 400% and international operations surpassed their prewar level.

When Diners Club introduced the first credit card in the mid-1950s, American Express executives proposed investigating this new line of business. Reed, who thought the company should improve existing business and feared a credit card would threaten its traveler’s check business, opposed the proposal. In 1958, Reed reversed himself and the American Express travel-and-entertainment card (the American Express green card) was introduced virtually overnight. The company had 250,000 to 300,000 applications for cards on hand the day the card went on the market, and 500,000 cardmembers within three months. Introduction of the green card began an era of unprecedented growth: earnings rose from $8.4 million in 1959 to $85 million in 1970.

A new era of management began when Howard L. Clark was elected president and CEO on April 26, 1960. Clark transformed American Express from a renowned but fairly small company to a corporate giant with diverse interests. Clark’s goal was to establish a balanced earnings base dependent on multiple sources and thus more resistant to economic fluctuations. His strategy was to expand American Express’s business within its areas of expertise—travel and financial services.

But before Clark could put his plan in operation, the company had to be streamlined and modernized. Management had long been centralized and the chain of command obscure. Clark gave each division room to innovate and made each directly responsible for its own performance. Also, the company had had no uniform identity. The now-famous “blue box” logo was developed at Clark’s direction and adopted by all the divisions.

Next, the company’s accounting system had to be overhauled, since the system then in place was obsolete and unable to handle the high volume of charge card transactions. Moreover, the travel division (the glue that held the various divisions together and gave the company its identity) had to improve its profitability. By the time the jet-airline industry made an impact on commercial travel, American Express was ready.

Also, the charge card had yet to show a profit, in large part because American Express had no experience dealing directly with merchants and consumers or with credit controls. Clark brought in George Waters, formerly of IBM and the Colonial Stores supermarket chain, to put the charge card division on a sounder footing. Waters used two simple strategies: first, he raised the card fee and merchant discount; next, he persuaded merchants to think of American Express as their marketing partner by dedicating .05% of gross sales to retail advertising. By the end of 1962 more than 900,000 cards had been issued, and by the end of 1963 the card division had shown a profit.

Finally, marginal operations had to be divested. Ridding the company of one subsidiary, American Express Field Warehousing Company, proved to be a nightmare. When the field warehousing division was sold to Lawrence Warehouse Company in 1963, Clark withheld the two most profitable accounts, Allied Crude Vegetable Oil Refining Company and Freezer House (both owned by Anthony “Tino” De Angelis), pending an investigation of other field warehousing opportunities. Late that year, Clark decided to sell the two accounts to Lawrence Warehouse. An independent audit conducted prior to closing revealed that about 800 million tons of vegetable oil was missing. Holders of some $150 million in security interests and notes (some forged by De Angelis) were understandably upset. The American Express board realized the company’s reputation was at stake and quickly issued a statement to the effect that American Express assumed moral responsibility for the losses caused by its subsidiary. American Express’s assurances did little to appease those defrauded. The “salad oil swindle,” as it was dubbed by the press, involved American Express in complex and protracted litigation that was settled in 1965 (although a final case lingered until 1970) at a cost to American Express of $60 million, excluding attorneys’ fees.

With the salad oil swindle behind it and reorganization of the divisions completed, the late 1960s and early 1970s were good years for American Express. Consolidated net income grew steadily and Clark concentrated on expanding the company’s financial services. In 1966, American Express acquired W.H. Mortion & Company, an investment-banking house with an excellent reputation for underwriting municipal and government bonds. And in 1968, American Express made the most important purchase yet in its diversification strategy: the Fireman’s Fund Insurance Company, one of the largest property and casualty insurers in the nation.

Even the international monetary crisis of 1971, culminating in the devaluation of the dollar and the suspension of almost all dollar transactions, did not phase American Express. The company honored its traveler’s checks at the exchange rate posted before trading was suspended and its card continued to be accepted internationally. American Express extended emergency funds to thousands of tourists caught short abroad and its international-banking subsidiary advised corporate clients on how to protect their foreign assets and import-export payments during the crisis.

During the late 1970s, however, American Express seemed to lose its direction, and its integrity and soundness were challenged on many fronts. In 1975, The Washington Post suggested that American Express was successful only because it was not regulated as banks and other financial institutions were. When Visa and MasterCard started competing in the traveler’s check market, Citicorp, a major issuer of the bank credit cards, took out a full-page advertisement accusing American Express of false and deceptive advertising of its traveler’s checks. American Express also received unfavorable publicity when four acquisition attempts in a row failed.

The last of these attempts, a bid for the McGraw-Hill Publishing Company in 1979, produced the worst repercussions. Roger Morley (who had replaced James D. Robinson III to become American Express’s tenth president when Clark resigned in 1977 and Robinson became chairman and CEO) was a member of the McGraw-Hill board at the time. After American Express bid for the publisher, McGraw-Hill sued the company and Morley, accusing them of breach of trust and corporate immorality.

But in 1981 American Express made the big acquisition it had been looking for when it bought Shearson Loeb Rhoades Inc., one of the nation’s leading brokerage houses, which became an independently operated subsidiary. Shearson in short order acquired Robinson-Humphrey, an Atlanta-based brokerage firm; Foster & Marshall, a well-respected securities firm; and Balcor, the largest real estate syndicator in the United States.

In 1982, American Express was reorganized under a holding company called American Express Corporation; its travel services became a wholly owned subsidiary, American Express Travel Related Services.

Sanford I. Weill, formerly of Shearson Loeb Rhoades Inc., was elected twelfth president of American Express in early 1983. Under Weill, American Express continued to expand. That same year, American Express acquired Ayco Corporation, a financial-counseling firm, and in 1984 it bought Alleghany Corporation’s principal subsidiary, the financial-planning company Investors Diversified Services, Inc. (IDS). Also in 1984, Shearson acquired Lehman Brothers Kuhn Loeb, one of the most respected Wall Street brokerage firms, to form Shearson Lehman Brothers Holdings Inc.

In 1985 American Express announced that it would spin off Fireman’s Fund, the property and casualty insurer it had purchased in 1968. Stiff competition in the insurance industry during the early 1980s had led to price wars, and the subsidiary’s profits had been declining since 1983. In addition, in 1983 and 1984, American Express had had to spend $430 million strengthening Fireman’s reserves. The first public offering of Fireman’s Fund stock was made in October, 1985; by December, 1987, American Express retained only 31% of the company. In 1988 its holding was reduced to 20% and American Express formally exited the insurance business.

Also in 1985 the American Express International Banking Corporation, established in 1919 to help American Express expand internationally, became simply American Express Bank, Ltd. Today American Express is a thoroughly international company; its bank, with a presence in more than 40 countries, completes the range of financial services the company offers, focusing on private banking for wealthy individuals.

1987 was a dramatic—and difficult—year at most financial companies, and American Express was no exception. The stock market crash in October shook Shearson Lehman, and fears about Third World debt forced American Express Bank to add nearly $1 billion to its loan-loss reserves. But American Express’s core business, Travel Related Services, continued to prosper. That year it introduced its Optima Card, American Express’s first credit card (regular American Express cards are charge cards; the balance must be paid in full each month). By late 1989, Optima had garnered some 2.5 million members.

In the 1980s, as competition in the card industry intensified, American Express pursued both an increased customer and increased merchant base. At the beginning of the decade, American Express had 10 million Card-members who had roughly 400,000 places to use their cards. By the end of the decade those numbers had grown to 33 million cardholders around the world whose cards were accepted at 2.7 million places. But sheer size was not the objective: American Express emphatically positions its services as “premium”—its card costs much more than credit cards, like Visa and MasterCard, offered by banks, and it charges merchants a higher percentage of the bills charged to the card than its competitors do. These higher fees to merchants are warranted, the company tells them, by the business its generally high-income cardmembers generate; the higher card dues buy better services. Nevertheless, American Express has run into heavy competition, especially abroad, where its greatest hopes for expansion lie.

At the beginning of 1988, Shearson made another dramatic acquisition when it bought E.F. Hutton and became Shearson Lehman Hutton Inc. Such growth in so short a time added up to a second year of decreased earnings—a 5% drop on top of 1987’s 70% drop. At the end of 1989 Shearson was still struggling to cut costs and raise profits. American Express announced plans, in December, 1989, to pump an additional $900 million into its ailing subsidiary. The recapitalization included $350 million of American Express’s own money. The rest was to come from notes.

Although it is a diversified company, American Express’s businesses do retain a common thread that runs back to the company’s original express business. From the safe transport of valuables it grew naturally into money orders and traveler’s checks; from there its travel-service operations, including its card, also grew naturally, as did the additional financial services American Express offers today, from financial planning through IDS to merger and acquisition advice from Shearson Lehman Hutton. The breadth of the financial services it offers and a ubiquitous international presence dating back a century put the company in a strong position in the increasingly global, and competitive, financial-services industry.

Principal Subsidiaries

American Express Travel Related Services Company, Inc.; IDS Financial Corp.; American Express Bank Ltd.; Shearson Lehman Hutton Inc.

American Express Company

views updated May 21 2018

American Express Company

American Express Tower
World Financial Center
New York, New York 10285
U.S.A.
(212) 640-2000
Fax: (212) 619-9743

Public Company
Incorporated: 1965
Employees: 100,188
Operating Revenues: $14.17 billion
Stock Exchanges: New York Boston Chicago Pacific London Zurich Geneva Basel Diisseldorf Frankfurt Paris Amsterdam Toronto Tokyo Brussels
SICs: 6211 Security Brokers and Dealers; 6221 Commodity Contracts Brokers, Dealers; 6141 Personal Credit Institutions; 6153 Short-term Business Credit; 6020 Commercial Banks; 6311 Life Insurance; 6082 Foreign Trade and International Banks

The American Express Company, a multibillion dollar holding company whose subsidiaries provide travel and financial services worldwide, traces its roots to a New York express business founded by Henry Wells in 1841. From the safe transport of valuables it grew naturally into money orders and traveler’s checks; from there its travel service operations, including its credit card, also grew naturally. In the 1980s, American Express expanded into financial planning through Investors Diversified Services, Inc. (IDS) to merger and acquisition advice from Shearson Lehman Hutton. Faced with intensifying competition and poor public relations in the early 1990s, American Express divested itself from many of the businesses it had acquired in the previous decade. Throughout its history, American Express has enjoyed a reputation for innovation, profitability, and integrity.

Henry Wells began his career as an expressman as an agent for William Harnden, who had founded the first express company in the United States in 1839. Express companies were in the business of transporting money and other valuables safely. Wells was an ambitious man who repeatedly proposed expanding the business westward—to Buffalo, New York, the Midwest, and the far West. When Harnden refused to leave the East Coast, Wells struck out on his own, organizing Wells & Co. in 1841.

At first Wells and his associate, Crawford Livingston, served only New York City and Buffalo, then an arduous route by five rickety shortline railroads and wagon or stagecoach for the last 65 miles into or out of Buffalo. A few years later, Wells and William G. Fargo launched an express service from Buffalo to major midwestern cities. Although appreciated by the midwest-ern business community, the new express service simply did not pay. In 1846, Wells decided to retrench and focus his energies on the growing routes serving New York City, Buffalo, Boston, and Albany, leaving the express business west of Buffalo to Fargo’s company, Livingston, Fargo and Co.

In 1849 John Butterfield, a wealthy and experienced transportation mogul, entered the express business with Butterfield, Wasson & Co., a direct competitor to Wells & Company on New York state routes. Later that year, Butterfield proposed that he, Fargo, and Wells eliminate their wasteful competition by joining forces. On March 18, 1850, the three companies consolidated to form the American Express Company, a joint-stock company with initial capital of $150,000. Wells was elected the new company’s first president; Fargo became vice-president.

Under Wells’s leadership American Express was immediately and unexpectedly profitable, expanding rapidly and acquiring small competitors in the Midwest, negotiating contracts with the first railroads, and running packet boats on the Illinois Canal to connect Ohio, Illinois, and Iowa with steamship lines on the Illinois River. In 1851, American Express reached an amicable agreement with its major rival, Adams and Co. (reorganized as Adams Express Co. in 1854). American Express was to expand north and west of New York while Adams was free to grow south and east. This agreement was kept and renewed over the next 70 years, buying American Express time to establish its business solidly.

Despite their agreement with Adams and Co., Wells and Fargo still distrusted their rival and feared the company would gain a monopoly in the California gold fields. When Wells proposed his old dream of a transcontinental express service to the American Express board of directors, they rejected his idea. But in 1852 Wells and Fargo got the board’s blessing to launch an independent venture, Wells Fargo & Company, to provide express and banking services in California.

In 1854, trouble developed with the New York, Lake Erie & Western Railroad (American Express’s link to the Midwest) when Daniel Drew, the railroad’s owner, became outraged that American Express had plcked off the Erie’s most profitable freight business by shipping light, high-rate freight on the Erie under its express contract. Drew was determined to award the express rights to others. In response, American Express created an affiliate and presented it as a bona fide competitor. American Express loaned the funds to start a new company to Danforth Barney, then president of Wells Fargo. Barney’s new company, United States Express Co., then acquired the Erie express rights from Drew and split the lucrative midwestern business with American Express.

American Express’s first decade saw two other noteworthy accomplishments. In 1857, American Express launched the Overland Mail Co. as a joint venture with Wells Fargo, Adams Express Co., and United States Express Co. The Overland Mail Co. (later controlled by Wells Fargo) won the first transcontinental mail contract from the United States Postal Service, which led to its involvement with the Pony Express. Also, James C. Fargo, William’s younger brother, proposed the establishment of a fast, bulk freight express service for merchants. Merchants Dispatch, created in 1858, proved immediately successful.

The Civil War was enormously profitable for American Express, as it was for the express industry generally. American Express shipped supplies to army depots, took election ballots to soldiers, and delivered parcels to parts of the Confederacy taken by Union forces. During this period, American Express distributed huge dividends to its shareholders.

After the war, the express industry attracted the attention of financial raiders. The first raid, by National Bankers Express Co. in 1866, was thwarted at relatively low cost. American Express quickly reached an agreement with Adams Express and United States Express to neutralize the threat by giving National Bankers Express shares of the established companies and a seat on the American Express board of directors.

The second raid had much more serious consequences. Late in 1866, a group of New York merchants established Merchants Union Express Co., to both get into the express business and destroy the three largest express lines—Adams, American, and United States. Merchants Union first hired away the older companies’ experienced agents and then invaded their territories. American Express suffered such losses in 1867 that for the first and only time in its history it failed to pay a dividend. On December 21, 1868, the four express companies reached a peace agreement, dividing the express and fast-freight business and pooling and distributing net earnings. American Express got the worst of the deal; Merchants Union acquired rights on railways that had been its bread-and-butter lines (the Hudson River and New York Central railroads) and lost its supremacy in the express business. In 1868, American Express was forced to merge with Merchants Union to form the American Merchants Union Express Company (shortened in 1873 back to the American Express Company). Also in 1868 Wells retired and was replaced as president by William G. Fargo.

Fargo’s tenure saw the beginning of two trends that would later prove significant. First, Fargo’s brother, James, expanded Merchants Dispatch operations to Europe. Soon Merchants Dispatch was transporting more than half the first-class tonnage from New York City to over a dozen European cities, making international operations a lucrative sideline for American Express. Second, high express rates set after the Panic of 1873 created public demand for a government operated parcel post. In 1874, the U.S. Postal Service began to deliver packages at a new, low rate. The following year, Congress set the parcel rate at a half-cent per ounce, far below cost. This cut deeply into express company profits. Express industry lobbying and the post office’s substantial operating loss soon persuaded Congress to raise rates to a more reasonable level, but the precedent for governmental involvement in the express business had been established.

William Fargo’s death in 1881 and James’s succession to the presidency began a new era for American Express. Although James Fargo was often described as autocratic, aloof, and old-fashioned, he was also remarkably innovative. During his term of office, American Express first diversified into the financial services industry with the introduction of two instruments—the American Express Money Order in 1882 and the American Express Travelers Cheque in 1891.

The post office first introduced the postal money order in 1864. This immediately threatened the express industry because it reduced the demand by banks and merchants for the transport of money and other valuables. The postal money order, however, had a serious flaw: its face value could be altered without detection. Although American Express directors had discussed introducing a money order since the end of the Civil War, it took James Fargo to galvanize the company into action. At his direction Marcellus Berry, an American Express employee, designed a safer money order. American Express’s money order was an immediate hit; it could be used to settle charges on express shipments, was more readily available than the postal money order, and was simpler, cheaper, and easier to negotiate. Not only did the money order provide a new source of revenue (over 250,000 were issued the first year), but for the first time American Express had a credit balance (or “float”—funds from instruments that had been paid for but were not yet cashed) that could be safely invested to bring in additional income.

The traveler’s check filled a similar financial niche. Before 1891, tourists and business travelers could transfer funds from the United States to Europe only via a letter of credit, a time-consuming and cumbersome method: only specified correspondents of the issuing United States bank could negotiate letters of credit, and then only during banking hours and after an appreciable delay. Fargo, annoyed by his own experience with the procedure, again directed Marcellus Berry to find a solution. The American Express Travelers Cheque was a marked improvement over the letter of credit in several respects: its simple signature and countersignature provision made the instrument very secure; it could easily be converted into foreign currency at any American Express freight office; and, if lost or stolen, American Express would refund the owner’s money. The value and convenience of the traveler’s check was recognized at once, and its popularity again provided American Express with additional revenues and float.

After the traveler’s check was introduced in 1891, travelers began making American Express freight offices their informal headquarters—places to convert funds, to seek information about hotels and travel arrangements, and simply to congregate. American Express officers saw the opportunities offered by the travel industry and urged diversification in that direction. James Fargo, however, was absolutely opposed to the idea. He allowed American Express agents to offer travel information purely as a service to customers, but drew the line there. American Express’s official entry into the travel industry, which became one of its best-known and most lucrative businesses, was delayed until after Fargo’s retirement in 1914.

After the turn of the century, the express industry came under attack from a number of quarters. The railroads had steadily eroded express profits by raising their rates from 40 percent of gross receipts to more than 55 percent by 1910. Also in 1910, long-overdue government regulation of the express industry began with passage of the Mann-Elkins Act, which made express companies common carriers subject to the scrutiny of the Interstate Commerce Commission (ICC). In 1912, New York express company drivers and their helpers went on strike for higher wages and fewer working hours (they were underpaid and overworked, even in an era of low pay and long hours), exciting highly unfavorable press and public reaction. In 1913, the U.S. Post Office again expanded parcel delivery services at reduced rates, while the ICC set express rates that the industry feared were prohibitively low.

When George C. Taylor, a longtime American Express employee, was elected the company’s fourth president after Fargo’s retirement in 1914, the end of the laissez-faire express industry was in sight. Taylor’s first actions, to expand foreign remittance operations and to officially inaugurate travel services by opening a travel department in 1915, saved the company when its domestic express division was nationalized in 1918 and became part of the American Railway Express Co. as a wartime measure. Another of Taylor’s accomplishments was to establish the American Express Co. This wholly owned subsidiary was created in 1919 primarily to expand international banking operations (which had been conducted sporadically through foreign remittance offices since 1904). Although American Express was slow to gain a foothold in Europe, its international banking operations flourished in Asia during the 1920s and 1930s, especially in Hong Kong and Shanghai.

In the late 1920s, American Express again changed hands. The express industry was targeted for takeovers during this period because most express companies had been organized prior to antitrust legislation, raising the possibility of their exemption from antitrust regulations. American Express was especially attractive because its net income had more than doubled in the six years ending in 1928. In 1927 Albert H. Wiggin, chairman of the Chase National Bank, started buying American Express stock through dummies. By July, Wiggin had acquired two seats on the board and 42 percent of the stock, at a bargain price. In 1929, Chase Securities Corp., an affiliate of Chase National Bank, acquired control of American Express in a stock exchange and Wiggin was elected first chairman of the American Express board.

In May of 1930 Chase National merged with the giant Equitable Trust Co. to become the largest bank in the world. John D. Rockefeller supplanted Wiggin as largest shareholder and Winthrop W. Aldrich, Rockefeller’s brother-in-law, became chairman of both the Chase Securities and the American Express boards.

This was a difficult time for American Express management, headed by Frederick P. Small (who became president on Taylor’s death in 1923). Not only were the directors preoccupied with their power struggles, but the financial climate was steadily worsening. Then the Great Depression hit. Between 1930 and 1932, roughly a third of all American banks failed. In early 1933, President Franklin D. Roosevelt announced a national bank holiday to allow banks to recover from the panic. The bank holiday brought commerce to a virtual standstill. During this period American Express, since it was not a bank and thus not required to close, enjoyed a tremendous advantage: it remained open and redeemed traveler’s checks, providing the only financial services available to individuals and merchants while the nation’s assets were frozen. The traveler’s check business ultimately allowed American Express to remain profitable throughout the Depression and World War II.

In 1944 Ralph T. Reed replaced Small as president. Under Reed’s management, the late 1940s and the 1950s were a period of expansion, primarily in the booming travel industry. Within seven years the number of American Express offices increased by 400 percent and international operations surpassed their prewar level.

When Diners Club introduced the first credit card in the mid-1950s, American Express executives proposed investigating this new line of business. Reed, who thought the company should improve existing business and feared a credit card would threaten its traveler’s check business, opposed the proposal. In 1958, Reed reversed himself and the American Express travel-and-entertainment card (the American Express green card) was introduced virtually overnight. The company had 250,000 to 300,000 applications for cards on hand the day the card went on the market, and 500,000 cardmembers within three months. Introduction of the green card began an era of unprecedented growth: earnings rose from $8.4 million in 1959 to $85 million in 1970.

A new era of management began when Howard L. Clark was elected president and CEO on April 26, 1960. Clark transformed American Express from a renowned but fairly small company to a corporate giant with diverse interests. Clark’s goal was to establish a balanced earnings base dependent on multiple sources and thus more resistant to economic fluctuations. His strategy was to expand American Express’s business within its areas of expertise—travel and financial services.

But before Clark could put his plan in operation, the company had to be streamlined and modernized. Management had long been centralized and the chain of command obscure. Clark gave each division room to innovate and made each directly responsible for its own performance. Also, the company had no uniform identity. The now famous “blue box” logo was developed at Clark’s direction and adopted by all the divisions.

Next, the company’s accounting system had to be overhauled, since the system then in place was obsolete and unable to handle the high volume of charge card transactions. Moreover, the travel division (the glue that held the various divisions together and gave the company its identity) had to improve its profitability. By the time the jet airline industry made an impact on commercial travel, American Express was ready.

Also, the charge card had yet to show a profit, in large part because American Express had no experience dealing directly with merchants and consumers or with credit controls. Clark brought in George Waters, formerly of IBM and the Colonial Stores supermarket chain, to put the charge card division on a sounder footing. Waters used two simple strategies: first, he raised the card fee and merchant discount; next, he persuaded merchants to think of American Express as their marketing partner by dedicating .05 percent of gross sales to retail advertising. By the end of 1962 more than 900,000 cards had been issued, and by the end of 1963 the card division had shown a profit.

Finally, marginal operations had to be divested. Ridding the company of one subsidiary, American Express Field Warehousing Co., proved to be a nightmare. When the field warehousing division was sold to Lawrence Warehouse Co. in 1963, Clark withheld the two most profitable accounts, Allied Crude Vegetable Oil Refining Co. and Freezer House (both owned by Anthony “Tino” De Angelis), pending an investigation of other field warehousing opportunities. Late that year, Clark decided to sell the two accounts to Lawrence Warehouse. An independent audit conducted prior to closing revealed that about 800 million tons of vegetable oil was missing. Holders of some $150 million in security interests and notes (some forged by De Angelis) were understandably upset. The American Express board realized the company’s reputation was at stake and quickly issued a statement to the effect that American Express assumed moral responsibility for the losses caused by its subsidiary. American Express’s assurances did little to appease those defrauded. The “salad oil swindle,” as it was dubbed by the press, involved American Express in complex and protracted litigation that was settled in 1965 (although a final case lingered until 1970) at a cost to American Express of $60 million, excluding attorneys’ fees.

With the salad oil episode behind it and reorganization of the divisions completed, the late 1960s and early 1970s were good years for American Express. Consolidated net income grew steadily, and Clark concentrated on expanding the company’s financial services. In 1966, American Express acquired W. H. Morton & Co., an investment banking house with an excellent reputation for underwriting municipal and government bonds. And in 1968, American Express made the most important purchase yet in its diversification strategy: the Fireman’s Fund Insurance Company, one of the largest property and casualty insurers in the nation.

Even the international monetary crisis of 1971, culminating in the devaluation of the dollar and the suspension of almost all dollar transactions, did not phase American Express. The company honored its traveler’s checks at the exchange rate posted before trading was suspended and its card continued to be accepted internationally. American Express extended emergency funds to thousands of tourists caught short abroad, and its international banking subsidiary advised corporate clients on how to protect their foreign assets and import-export payments during the crisis.

During the late 1970s, however, American Express seemed to lose its direction, and its integrity and soundness were challenged on many fronts. In 1975, the Washington Post suggested that American Express was successful only because it was not regulated as banks and other financial institutions were. When Visa and MasterCard started competing in the traveler’s check market, Citicorp, a major issuer of bank credit cards, took out a full-page advertisement accusing American Express of false and deceptive advertising of its traveler’s checks. American Express also received unfavorable publicity when four acquisition attempts in a row failed.

The last of these attempts, a bid for the McGraw-Hill Publishing Co. in 1979, produced the worst repercussions. Roger Morley (who had replaced James D. Robinson III to become American Express’s tenth president when Clark resigned in 1977 and Robinson became chairman and CEO) was a member of the McGraw-Hill board at the time. After American Express bid for the publisher, McGraw-Hill sued the company and Morley, accusing them of breach of trust and corporate immorality.

But in 1981 American Express made the big acquisition it had been looking for when it bought Shearson Loeb Rhoades Inc., one of the nation’s leading brokerage houses, which became an independently operated subsidiary. Shearson in short order acquired Robinson-Humphrey, an Atlanta-based brokerage firm; Foster & Marshall, a well-respected securities firm; and Balcor, Inc., the largest real estate syndicator in the United States.

In 1982, American Express was reorganized under a holding company called American Express Corp.; its travel services became a wholly owned subsidiary, American Express Travel Related Services.

Sanford I. Weill, formerly of Shearson Loeb Rhoades Inc., was elected the twelfth president of American Express in early 1983. Under Weill, American Express continued to expand. That same year, American Express acquired Ayco Corp., a financial counseling firm, and in 1984 it bought Allegheny Corporation’s principal subsidiary, the financial planning company Investors Diversified Services, Inc. (IDS). Also in 1984, Shearson acquired Lehman Bros. Kuhn Loeb, one of the most respected Wall Street brokerage firms, to form Shearson Lehman Brothers Holdings Inc.

In 1985 American Express announced that it would spin off Fireman’s Fund Insurance Company, the property and casualty insurer it had purchased in 1968. Stiff competition in the insurance industry during the early 1980s had led to price wars, and the subsidiary’s profits had been declining since 1983. In addition, in 1983 and 1984, American Express had to spend $430 million strengthening Fireman’s reserves. The first public offering of Fireman’s Fund stock was made in October, 1985; by December, 1987, American Express retained only 31 percent of the company. In 1988 its holding was reduced to 20 percent and American Express formally exited the insurance business.

Also in 1985 the American Express International Banking Corp., established in 1919 to help American Express expand internationally, became simply American Express Bank, Ltd. In the mid-1990s, American Express was a thoroughly international company; its bank, with a presence in more than 40 countries, completed the range of financial services the company offered, focusing on private banking for wealthy individuals.

1987 was a dramatic—and difficult—year at most financial companies, and American Express was no exception. The stock market crash in October shook Shearson Lehman, and fears about Third World debt forced American Express Bank to add nearly $1 billion to its loan-loss reserves. But American Express’s core business, Travel Related Services continued to prosper. That year it introduced its Optima Card, American Express’s first credit card (regular American Express cards are charge cards; the balance must be paid in full each month). By late 1989, Optima had garnered some 2.5 million members.

In the 1980s, as competition in the card industry intensified, American Express pursued both an increased customer and increased merchant base. At the beginning of the decade, American Express had 10 million cardmembers who had roughly 400,000 places to use their cards. By the end of the decade those numbers had grown to 33 million cardholders around the world whose cards were accepted at 2.7 million places. But sheer size was not the objective: American Express emphatically positions its services as “premium”—its card costs much more than credit cards, like Visa and MasterCard, offered by banks, and it charges merchants a higher percentage of the bills charged to the card than its competitors do. These higher fees to merchants are warranted, the company tells them, by the business its generally high-income cardmembers generate; the higher card dues buy better services. Nevertheless, American Express has run into heavy competition, especially abroad, where its greatest hopes for expansion lie.

At the beginning of 1988, Shearson made another dramatic acquisition when it bought E. F. Hutton and became Shearson Lehman Hutton. Such growth in so short a time added up to a second year of decreased earnings—a 5 percent drop on top of 1987’s 70 percent drop. At the end of 1989 Shearson was still struggling to cut costs and raise profits. American Express announced plans, in December of 1989, to pump an additional $900 million into its ailing subsidiary. The recapitalization included $350 million of American Express’s own money. The rest was to come from notes.

American Express toppled from its perch as the preeminent charge card due to a number of serious problems in the early 1990s. The flagship charge card suffered fading customer loyalty, intense competition from lower-priced bank cards, and loss of service establishments accepting the card because of high fees to the merchants. Some observers blamed advertising for a public relations fiasco that damaged the company’s image. But the company’s 1991 revelation that its Optima revolving credit card—which analysts and investors had previously regarded as one of American Express’s biggest successes—lost $300 million in write-offs, also eroded its credibility. At the same time, the Travel Related Services unit was battered by competition from no-fee bank cards and debit cards. As a recession deepened, merchants dropped the high-fee American Express card in droves. Profits dropped from $1.16 billion in 1989 to $461 million in 1992.

In 1993, Harvey Golub advanced to American Express’s chief executive office upon the resignation of Robinson, who had served in that capacity since 1977. He instituted several recovery strategies at the firm, including retrenchment to core businesses, new product launches, cost-cutting, and brand-building.

Part of American Express’s recovery strategy involved aggressive brand promotion, launching what were derisively called “guerrilla” or “ambush” marketing campaigns. In response to a Visa advertising campaign tied to the 1988 Olympic Games, American Express engaged in a campaign in which it ran television and space ads featuring those cities where the Olymplcs were held, trying to affiliate itself with the games without directly sponsoring them. American Express also launched a legal battle with Visa, claiming that the rival’s “But they don’t take American Express” commercials implied broader exclusivity than existed. Visa retorted that its ad claims were valid, and that American Express was simply using legal maneuvers, public relations, and newspaper ads to blunt its advertising effectiveness. Early in 1994, Gary Levin, of Advertising Age, declared that “neither is entirely blameless, and both are unlikely to surrender.” In 1994, American Express’s promotional efforts were extended internationally, with a global advertising campaign targeting Italy, Germany, Japan, and the United Kingdom. The company planned to take sixty new ads to thirty countries around the world.

American Express’s new products included Cheques for Two, introduced in 1992; a Senior Member card featuring special services and benefits; and a corporate purchasing card. American Express hoped to capture a significant share of the prospective $300 billion market segment, only 1 percent of which had been put on plastic by 1994. In 1993, American Express won the federal government’s travel and transportation payment system contract—the largest corporate card account in the world. Some industry analysts interpreted the introduction of these new products as a sign of “renewed vigor” at American Express.

Golub aimed to cut $1 billion in costs by 1995, and planned to use those savings to finance the rate cutting necessary to attract the nearly 200,000 new merchant locations he expected to sign up. He also made several divestments that brought funds to the company and helped refocus on core businesses. Early in 1993, American Express sold its Shearson brokerage operations to Primerica Corp.’s Smith Barney, Inc. for $859 million in cash and about $275 million in Primerica stock. American Express netted $1.1 billion on the 1993 sale of 32 million shares of First Data Corp. to the public. And in January of 1994, American Express announced that it would contribute over $1 billion to Lehman Brothers, then spin the subsidiary off to shareholders. The capital injection enabled Lehman Brothers to sustain an “A” credit rating as an independent venture.

Credit Card Management magazine named American Express its “1993 Turnaround of the Year,” praising Golub’s recovery plan. That year, American Express’s worldwide charge volume increased 5.5 percent to $117.5 billion, discount revenues from merchants increased 3.2 percent and merchant locations grew 4.5 percent. American Express’s net income made a dramatic comeback as well, tripling from $461 million to $1.48 billion.

Principal Subsidiaries:

American Express Travel Related Services; Investors Diversified Services, Inc.; IDS Financial Corp.; Leo Aircraft Leasing Ltd.; Broadgate International Fund Management Co.; American Express Bank, Ltd.; American Express Bank S.A. (France); AMEX Gestion S.A.; American Express Bank International; American Express Leasing Ltd. (UK); AMEX Asia Ltd.; American Express Middle East Development Company S.A.L.; AMEX Nominees Private Ltd.; American Express Nominee Ltd.; Argentamax S.A.; AMEX do Brasil Emprindimentos e Participacoes Ltd.; INAF, Inc.; AMEX Capital Investments Ltd. (UK); AMEXNET Ltd.; A.E.B. plc (UK); AMEX Nominees Pte Ltd. (S); A.E.B. Asset Management A.G.; AMEX Bank Nominee Hong Kong Ltd.; American Express Ltd. (Poland); Sociedad Gestinver de Fundos de Pensiones; Far East Leasing Ltd.; Geneva Nominees Ltd.; J.O.S. Leasing; American Express Bank S.A.; Acuma Financial Products Ltd.; Ainwick Corp.; Alair Holdings Inc.; American Express Asset Management Holdings, Inc.; American Express Cable Franchise, Inc.; American Express Corp.; American Express Receivables Financing Corp.; Amexco Risk Financing Holding Co.; Brighton Corp.; National Express Co., Inc.; Re-xport, Inc.; Ava Co.; Umpawaug I Corp.; Umpawaug II Corp.; Umpawaug III Corp.; Umpawaug IV Corp.; WGT Leasing Corp.

American Express Company

views updated Jun 27 2018

American Express Company

COMPETITIVE CAMPAIGN
DO MORE CAMPAIGN
SEINFELD CAMPAIGN

World Financial Ctr.
200 Vesey St.
New York, New York 10285
USA
Telephone: (212) 640-2000
Web site: www.americanexpress.com

COMPETITIVE CAMPAIGN

OVERVIEW

In June 1996 American Express Company launched a $200 million global marketing campaign to emphasize its strong brand presence and also to introduce new products and services. As competition in the credit card market intensified, American Express (AmEx) had suffered declining revenues in the early 1990s. At the same time AmEx lost market share as the company made a failed attempt at becoming a financial services supermarket by purchasing several brokerage firms, investment banking companies, and real estate businesses.

American Express hoped that its "Do More" campaign, which consisted of both print and television ads, would lure consumers with the company's historic brand image of reliability and prestige. Once interest was captured, AmEx planned to inform consumers of its wide variety of services and programs, with the belief that consumers would take advantage of the offers because they trusted and respected AmEx. John Hayes, the company's executive vice president of global advertising, explained, "Our advertising used to be about a limited number of products and services, and was often defined by the people who used them. This campaign stresses our growing number of services and what American Express can do for you."

The "Do More" campaign continued into 1997, spreading information about the American Express collection of charge cards, credit cards, investment products, travel services, and more. In January AmEx also launched the "Competitive" campaign, which was part of the "Do More" effort yet focused exclusively on addressing the faults of its competitors' services. The campaign primarily targeted longtime rival Visa International, which had a history of attacking American Express in its ad campaigns.

HISTORICAL CONTEXT

The competitive portion of the "Do More" campaign was a reaction to continual onslaughts from Visa's marketing. Since the mid-1980s Visa had deliberately pitted itself against American Express, producing numerous television commercials that pointed out AmEx's alleged shortcomings as a credit card provider. James Desrozier, vice president of MasterCard International's advertising division, said in a 1992 Newsday article, "Visa went against American Express without mentioning MasterCard. It was the two of them and it just knocked us out of the game. It was a brilliant strategy."

American Express generally ignored Visa's attacks, although battles occasionally arose. Prior to the 1994 Olympics in Lillehammer, Norway, agreement had been reached between the two companies to refrain from attacking one another in Olympic-related advertising. In addition, because Visa was an official sponsor of the Olympics, AmEx was not to use images or shots from the events in its ads or to imply an affiliation with the Olympic Games. When the Olympics began, however, the agreement crumbled. Visa objected to AmEx television ads that claimed, "So if you're traveling to Norway, you'll need a passport, but you don't need a visa." The play on words could be confusing, it was charged, and Visa accused AmEx of suggesting that it was connected with the Olympics by emphasizing its history with and presence in Norway. Visa then countered with television ads using its standard anti-AmEx slogan, "And they don't take American Express."

American Express had long been marketed as a charge card that exemplified prestige and status, and its fees could pack a wallop. In 1995, for example, the standard green card commanded a $55 annual fee. An older marketing campaign embraced the tag line "Membership has its privileges," which hinted at AmEx's exclusive reputation. Its promises of privileges and perks, however, were not enough to sustain customer loyalty. Time magazine reported that in the early 1990s more than 2 million AmEx cardholders chose to cancel their membership. Other credit card companies such as Visa and MasterCard offered low interest rates and fee-free cards to consumers, and they garnered a lower usage fee from merchants, which made them more attractive to retailers. In 1977, for example, Visa reportedly took a 2 percent fee from purchases, whereas AmEx still took 2.74 percent, down from 3.22 percent in 1990. In 1995 H. Eugene Lockhart, MasterCard's chief executive officer at the time, told Fortune, "The consumer today simply doesn't see the need to pay fees for a card that gives them no greater functionality than anything we or Visa would give them." It appeared that the card of prestige had become the card of the privileged few rather than that of the masses, and, according to Fortune, AmEx's share of the domestic card market declined from close to 25 percent in 1990 to 16 percent in 1995.

TARGET MARKET

American Express's clientele had traditionally included those who were financially established and for whom "membership ha[d] its privileges." AmEx had long been embraced by business travelers and corporate clients, and, according to Time, AmEx customers were "big spenders who charged an average of $6,000 on their cards in 1996, in contrast to some $3,200 for charges per Visa card." Business charges and travel expenses accounted for the bulk of this spending, however, and customers used AmEx cards infrequently for personal purchases. To remedy this situation and to increase its market share in the competitive credit card arena, AmEx needed to appeal to a broader market. The company thus expanded its target clientele to include not only the upscale crowd but also the credit card-carrying masses. To compete with Visa and MasterCard, AmEx promoted its Optima credit card, which allowed the cardholder to pay off a percentage of the balance each month rather than the entire balance, as with the traditional AmEx charge card.

For the "Competitive" campaign American Express took aim at non-AmEx cardholders to inform them of its numerous incentive programs and premiums. While companies such as Visa and MasterCard had long offered a slew of cards and rewards to its cardholders, including discounts on purchases and free airline miles, AmEx had generally refrained from such programs and stuck with its traditional card offerings. But the company learned a lesson, reported Time, during a focus group session in the early 1990s when the holder of a competing card that offered free airline miles stated, "I want to go with you guys, but you guys are so stupid that you're not offering this product to me." In a company survey AmEx learned that its cardholders would use their AmEx cards for more purchases if the spending rewarded them with travel, food, and merchandise perks. AmEx thus expanded its small airline mileage program in 1995 to offer a wide-ranging rewards program. The Membership Rewards program allowed cardholders to earn points by using their AmEx cards, which could later be exchanged for travel rewards, merchandise, gift certificates, and more. AmEx also began to offer a wider variety of cards, including some with no annual fee and some co-branded with other companies, and solicited retailers to increase the number of outfits at which the card could be used. As AmEx president Kenneth Chenault told U.S. News & World Report, "If our customer wants to use the American Express card at a hot dog stand, we want to be there."

HE SAID, SHE SAID

The Better Business Bureau had dealt with American Express and Visa on numerous occasions throughout the 1990s. However, until Visa cried foul over AmEx's Visa-bashing "Paris" spot, AmEx had been doing all of the complaining.

COMPETITION

Although American Express faced competition from credit card companies, major banks, and other financial service providers, Visa provided the most visible rivalry. According to RAM Research findings reported in Advertising Age, the ubiquitous Visa card dominated the credit card market with a share of 50.5 percent during the first half of 1996. MasterCard followed with 26.4 percent, AmEx with 15.9 percent, and Discover with 7.3 percent. Similar reports by SMR Research in USA Today indicated that AmEx's share dropped from 20.4 percent in 1992 to 16.4 percent in 1996. Visa's market share, on the other hand, rose from 45.1 to 49.2 percent, while MasterCard's share remained essentially steady at 27.6 percent.

American Express's market share could not match Visa's, but AmEx showed signs of improvement in 1996 when it finally reversed a decade-long decline in its share of the credit card market. Advertising Age reported that spending on AmEx cards went up 15.6 percent in 1996 from 1995, while Visa's purchase volume increased 15.5 percent. And according to U.S. News & World Report, 41.5 million AmEx cards were in circulation in 1996, an increase of 8 percent from the previous year. Carl Pascarella, CEO of Visa U.S.A., was not impressed, however, as he told Time: "They haven't changed much…. Over the past eight or nine years, consumers have been pulling out their Visa card significantly more often than their American Express card." AmEx indeed had a long way to go to catch Visa. There were almost 600 million Visa cards in distribution, and Visa was accepted by more than 14 million retailers globally. Although AmEx had been signing up more businesses to accept its cards and had more than 5 million merchant partners, this was still a far cry from Visa's 14 million.

MARKETING STRATEGY

The primary purpose of the American Express "Competitive" campaign was to point out the shortcomings of its competitor Visa. The "Do More" campaign of 1996 had laid the groundwork by introducing AmEx's numerous new services and programs, while also capitalizing on its image of reliability and downplaying its snobbishness. As the company's Hayes explained in Advertising Age, "We're reshaping the American Express brand to fit a wide variety of uses in the next century—we want to have long-term, meaningful relationships with people and we're going to build them through marketing."

The "Competitive" campaign consisted of a print effort and of three television spots that aired on the national networks during prime time. The first spot, "Paris," began airing in January of 1997 during the National Football League play-offs and implied that many of Visa's alleged services were nonexistent or unreliable. The spot featured a Visa cardholder embarking on a vacation to Paris. The cardholder had intended to use the free airline miles he had accumulated on his Visa card but discovered at the airport that his miles had expired. He then attempted to charge the plane ticket on his Visa card, only to be told that he had reached his credit limit. The cardholder was forced to pay cash for his ticket, and his troubles did not end there. Upon reaching France, the traveler encountered problems entering the country. He then contacted Visa for traveler assistance but was turned down. Other obstacles lay in wait as well, for when the traveler injured himself and also was arrested for mistakenly declaring himself a spy in French, he was unable to use his Visa's free medical or legal services. The message AmEx intended to send was that the traveler would not have had such problems had he used an AmEx card.

American Express timed its aggressive campaign to begin shortly after many airlines had cleared out a large number of free airline miles, many of which had accumulated on credit cards. An AmEx spokesperson told Credit Card Management, "There are a lot of inconsistencies in Visa programs because they vary from issuer to issuer…. We feel it is important to set the record straight. And with many frequent-flier miles having just expired, we felt it was a good time to remind people of the benefits of Membership Rewards." AmEx's free airline miles came with no expiration date.

The print effort, which began in February, declared, "Visa says they're everywhere, but isn't it more important to have a card that helps you with just about everything?" One of the print ads showed an American Express card next to a Visa card. The ad listed mocking descriptions of Visa's services, including "No medical referrals, but rounded corners for safety."

A second television spot, "Grand Canyon," featured another unlucky traveler. This Visa cardholder was on his way to Las Vegas to see Steve Lawrence and Eydie Gorme but en route encountered problems in the Grand Canyon. He lost his wallet, dropped his camera into the canyon, and then crashed his rental car into a billboard as Lawrence and Gorme passed by on their tour bus, uncorking a bottle of champagne. In this spot American Express challenged Visa's purchase protection plans, rental car insurance services, and lost card assistance, implying that its own services in these areas were superior.

The spot "Virtual Reality" featured a male, played by the unlucky traveler from the Grand Canyon, standing in a store and wearing a virtual reality headset. In his fantasy he danced with a beautiful woman, but just as they were about to kiss, he was jarred from his dream by a store clerk who informed him that he was over the spending limit on his Visa card and thus could not continue with his virtual reality session. A struggle over the headset ensued, and the police arrived. This ad questioned Visa's credit limits, in turn emphasizing that American Express cards had no preset spending limits.

OUTCOME

Visa obviously was not pleased with the American Express "Competitive" campaign and in July 1997 filed a complaint with the National Advertising Division (NAD) of the Better Business Bureau, hoping to put a stop to the airing of the ads. Visa claimed that the AmEx spots were misleading because the advertising implied that Visa did not offer any of the services discussed in the campaign. Visa argued that many of its cards offered various services, including medical and legal referrals, purchase protection, and airline mileage programs. David Sandor, a Visa spokesman, told American Banker, "Millions of Visa cards offer the enhancements AmEx claims Visa doesn't have." Advertising Age indicated that 85 million Visa Gold cardholders received free medical and legal services as opposed to 40 million AmEx cardholders who benefited from similar programs.

The NAD reviewed Visa's complaints and determined that American Express needed to change only a few words that could be considered confusing. AmEx was required to make it clear that some Visa classic cards did offer medical and legal services and that some cards also offered mileage programs in which the airline miles had no expiration date. AmEx spokesperson Emily Porter indicated to American Banker, "We are pleased that we just have to make some minor changes…. We see this as a victory." Another AmEx spokesperson downplayed Visa's complaints and explained to Credit Card Management, "We are not surprised Visa is uneasy with the spot…. Visa is not providing its members with products and services consumers want. We want to make it clear that we would like to provide those products to their members."

Viewers were not as unhappy as Visa about the "Competitive" campaign. The "Virtual Reality" spot was nominated for a best commercial Emmy Award for 1997, and "Paris" won an award at the 1997 Cannes International Advertising Festival. One cardholder, a victim of the purge of airline miles, said that the American Express "Paris" spot was especially effective. The cardholder told Credit Card Management, "Losing miles after spending years to build them is a maddening situation…. The ad also correctly points out that Visa issuers do little for their cardholders when it comes to travel services." Other viewers may also have been swayed, for, according to Time, AmEx saw its market share increase from 18.3 to 18.9 percent during the first half of 1997, while Visa's share dropped from 48.88 to 48.85 percent. AmEx stock shares had increased fourfold since 1993, and profits were on the rise.

DO MORE CAMPAIGN

OVERVIEW

The American Express Company (AmEx) was long associated with the celebrities whose appearance in print campaigns was meant to position "membership" in its credit-card brand as the domain of a privileged few. But AmEx's elitist brand image became a serious hindrance in the 1980s and 1990s. Rivals such as Visa U.S.A. and MasterCard International had been using their own marketing to exploit the fact that their card brands were accepted more universally than AmEx, and by 1996 their gains had significantly eroded AmEx's market share. The launch of a new umbrella advertising campaign tagged "Do More" was not just the debut of new creative concepts; it marked a concerted attempt to reposition the AmEx brand.

Created by ad agency Ogilvy & Mather, "Do More" aimed to convey all the advantages AmEx could offer, ranging from its numerous charge and credit cards to travel services and financial-planning assistance. "We want consumers to see American Express as more than a charge card company," John Hayes, AmEx's head of global advertising, told USA Today. The company also used "Do More" to broaden its consumer base, employing celebrities, such as Tiger Woods and Jerry Seinfeld, who appealed to consumers across demographic and income boundaries. The umbrella effort had various incarnations and encompassed several individual campaigns through 2001. AmEx typically spent between $170 million and $200 million on U.S. credit-card advertising during these years.

AmEx gained market share in the first two years that "Do More" ran. Difficulties in later years were reversed by the introduction of a new card appealing to young adults, a product whose existence itself was a measure of the evolving nature of the AmEx brand. "Do More" did a great deal to bring about and to publicize this evolution, and many of the hallmarks of this repositioning campaign—including the continued participation of Tiger Woods and Jerry Seinfeld—were visible in the advertising that followed its discontinuation in 2002.

HISTORICAL CONTEXT

American Express had built its reputation as a prestigious charge card. In 1976 the company began its famed "Do You Know Me?" campaign in which celebrities ranging from dancer Mikhail Baryshnikov to puppeteer Jim Henson appeared in ads that pictured them and an AmEx Green Card bearing their names. In 1987 the "Portraits" campaign followed a similar formula. By aligning the brand with stars, AmEx cultivated the notion that carrying one of its cards was more akin to joining an elite country club than making a financial transaction. As later ads sniffed, "membership has its privileges."

In the 1980s, however, AmEx's careful positioning began to backfire. According to Brandweek, while AmEx "clung to its old, elite ways," the credit card industry went through monumental changes. With so many cards vying for consumers' attention, Visa and MasterCard (specifically, the member banks that comprised the Visa and MasterCard consortia) began to cross-market with various businesses so they could offer incentives to consumers. For instance, by teaming up with airlines, Visa and MasterCard could entice consumers to charge purchases with the promise of frequent-flier miles. Moreover, companies such as AT&T and GM allied themselves with the Visa and MasterCard brands and began to peddle cards that tied in to phone service or car purchases. But while the entire industry became hyper-segmented, AmEx continued to sell itself on its reputation alone and lost market share as a result. Also damaging was Visa's 1987 launch of an attack campaign that stressed Visa's global acceptance by featuring countless businesses that declined to take American Express. Further limiting AmEx's appeal was the fact that the company continued to charge its hefty $55 membership fee, while Visa and MasterCard offered fee-free cards and low interest rates. Taken together these factors weakened AmEx considerably. In fact more than 2 million AmEx cardholders canceled their memberships in the early 1990s, and the company's share of the domestic credit card market sank from nearly 20 percent in 1990 to 16 percent in 1995, according to Fortune.

In 1995 AmEx began to explore new ways to stanch the flood of cardholders abandoning AmEx and to persuade existing cardholders to use AmEx more often. After negotiating an agreement with Delta Airlines, AmEx was able to offer a frequent-flier program like those of its rivals. The company also debuted its Membership Rewards program, which gave consumers points for each AmEx purchase made. These points could then be redeemed for bonuses such as gift certificates, travel vouchers, or car rentals at an array of participating businesses. AmEx also introduced the Optima card, a revolving credit account similar to Visa and MasterCard in that consumers could carry a balance on it from month to month rather than having to pay it in full at the close of each billing period (as the Green Card required). Moreover, AmEx pushed more retailers to accept its cards. This effort was punctuated by the inauguration of the "Do More" campaign in June 1996. "This company has had a great history of reinventing itself," Hayes told American Banker. "This is the next logical step."

TARGET MARKET

Because AmEx wanted to use "Do More" ads to gain new cardholders, the company crafted individual ads to appeal to distinct groups, especially those that it had not targeted in its previous advertising. One of the key approaches AmEx used to broaden its customer base was to employ spokespeople who counteracted the company's image as "a stodgy, premium brand that caters to older customers," according to the Wall Street Journal. In 1997, for instance, AmEx signed Woods, who had won the Masters Tournament that year. As a 21-year-old phenomenon of mixed race, Woods provided AmEx an opportunity to reach younger consumers as well as African-American consumers. It was essential to AmEx's future that it garner younger consumers because they "tend to stick with the first credit card they use," explained USA Today. Furthermore, Woods was able "to cross every demographic line … and appeal to an audience that makes $250,000 a year as well as an audience that makes $25,000," an industry analyst told American Banker.

Seinfeld, who pitched the Green Card in spots that aired during such high-profile events as the Super Bowl, was another figure that transcended the traditional AmEx audience. "The Seinfeld advertising has attracted a new and younger group to the franchise and has also helped promote everyday usage, which is key," Hayes told Brandweek. While AmEx was typically associated with the travel and leisure retail sector, the company wanted to increase the routine purchases consumers charged each month to their AmEx cards. Instead of presenting Seinfeld in the same sort of glamorous settings that permeated "Portraits" or "Do You Know Me?" AmEx showed Seinfeld wielding his Green Card at grocery stores and gas stations. One commercial paired Seinfeld with the animated figure of Superman and portrayed Seinfeld (rather than the caped hero) rescuing Lois Lane at a grocery store by pulling out his AmEx card. (She had forgotten her wallet; Superman's costume had no pockets; Seinfeld paid for the food.)

Similarly, in the 1998 series of spots for AmEx's Small Business Services division, the company focused on African-American, Latino, and female entrepreneurs. "We have represented the three groups who represent the strongest growth in new business starts," an AmEx spokesperson told Brandweek. In the 1998 ads that did present wealthy and prominent businesspeople, AmEx chose the likes of Jake Burton, a snowboarding pioneer, and Earvin "Magic" Johnson, a basketball hall-of-famer who had been diagnosed with HIV, both of whom Hayes classified as "people who have challenged the status quo and appreciated the service we give … [They are] not just those that fit the traditional view of success."

Despite AmEx's desire to broaden its consumer base, it was careful not to "move downscale," as Hayes described it in Brandweek. The company had considerable brand equity rooted in AmEx's reputation for superior service, and it did not want to alienate its core group of affluent card users. "Creating the balance where the brand becomes accessible, yet … remains special at the same time, is a real challenge," Hayes said. AmEx relied on its spokespeople's ability to walk this tightrope. Though Woods was young, he was nevertheless a golfer, a player of a sport popular among businessmen. Moreover, Woods was not a rebellious upstart. Though barely out of his teens, he was one of the best golfers in the world. Similarly, Seinfeld's hit sitcom was watched by a huge audience. Popular with many viewers, Seinfeld was not exclusively a Generation X hero, and the commercials featuring him also appealed to AmEx's older cardholders as well.

COMPETITION

Industry leader Visa had persisted in its attacks on AmEx since the 1985 launch of its "It's Everywhere You Want to Be" campaign. Although Visa's share of the domestic credit-card market fell to 48.8 percent from 49.2 percent in 1996, it continued to portray businesses, restaurants, and entertainment providers that would not accept AmEx as a way to stress the universality of its own cards. Like AmEx, Visa also addressed specific new markets in its 1998 efforts. Under the umbrella of the "Everywhere" theme, Visa targeted Generation X consumers in "The Attic," a commercial featuring a trendy used-clothing store. In "eToys," a television spot for an online merchant, Visa linked itself to the growing e-commerce sector by presenting itself as the credit card of choice for Internet purchases. With a commercial highlighting Jack Nicklaus's golf school (which only took Visa), Visa tried to reach more affluent cardholders.

A cornerstone of Visa's marketing strategy was its sponsorship of sporting events. In addition to being the official sponsor of the National Football League (NFL), horse racing's Triple Crown races (the Kentucky Derby, the Belmont Stakes, and the Preakness), and NASCAR auto racing, Visa had been an Olympic Games sponsor since 1986. Visa used the 1998 Winter Olympic Games as a platform to reinforce its message of global acceptance. As a Visa executive explained in the January 30, 1998, edition of American Banker, "nothing was better for a brand" than associating itself with the Olympics.

Like American Express, Visa also endeavored to expand its empire—and its name recognition—beyond credit cards. In 1998 Visa continued to promote its debit card, the Visa CheckCard, with big-budget advertisements depicting celebrities being hassled for identification when writing a check. Visa touted its small-business cards as well. According to the October 5, 1998, issue of Advertising Age, Visa's long-term goal was to leverage "its brand equity into different kinds of payment."

"DO MORE" EVERYWHERE

American Express Company's "Do More" campaign truly was a global one, running in 23 different countries simultaneously. Although the same basic ads were used everywhere, the ad agency Ogilvy & Mather changed small details when appropriate. "We've created an overall platform for positioning," John Hayes, the company's head of global advertising, told Advertising Age. "We make modifications and customizations everywhere to make sure what we do is right." Golfer Tiger Woods proved an especially valuable global representative—particularly in Japan, where golf was a passion among a large percentage of the population.

MasterCard, too, vied to be consumers' card of choice. Breaking free from a long period of mediocre advertising and negligible growth, in 1997 the company debuted "Priceless," which "bec[ame] one of the industry's most admired campaigns, creating an almost nonstop buzz … [and] raising consumer awareness and consumer usage of the card," Adweek raved. Using the tagline "There Are Some Things Money Can't Buy. For Everything Else There's MasterCard," MasterCard's agency, McCann-Erickson, made an emotional appeal to its viewers. These print and television advertisements showed scenes of various activities, such as a father and child at a baseball game and an older couple celebrating a wedding anniversary. The voice-over announced the cost of various aspects of these endeavors, and the commercials all culminated in a "priceless" moment (such as "real conversation with 11-year-old son" at the end of the baseball spot), followed by the campaign's tagline. Buoyed by "Priceless," MasterCard's purchase volume rose 16 percent from 1997 to 1998 and its market share remained steady, increasing slightly to 27.8 percent from 27.6 percent, according to Credit Card News.

MARKETING STRATEGY

Because the primary goal of "Do More" was to establish the brand's relevance to diverse consumers, AmEx used a targeted strategy to pair specific messages with specific groups. For instance, the print executions portraying small-business entrepreneurs ran almost entirely in publications such as Success, Entrepreneur, and Forbes. The initial Tiger Woods ads touting American Express Financial Advisors favored major newspapers (especially the Wall Street Journal, the New York Times, and USA Today) and newsweeklies (including Time and Newsweek) over lifestyle publications. AmEx chose to air the Seinfeld commercials on mainstream, high-profile television programming because the company hoped the comedian could connect a mass audience of credit-card users to the Green Card. "Superman" first appeared during NFL playoff games, which reached viewers across demographic lines.

The message of "Do More" was that AmEx—not Visa or MasterCard—could improve one's ventures and that AmEx was a global solution always available to make things better (or easier). Part of the way AmEx delivered this message was by making its ads attention-getters. The spokespeople chosen to represent the various facets of the brand were not only well known but also had a certain renegade charm. Certainly Johnson was one of the greatest basketball players of all time, and his excellence was intended to mirror AmEx's reputation for service and prestige. But Johnson had also shocked the nation when he announced he was HIV-positive. Pundits had decried him, and some fellow basketball players even shunned him. Using him in the AmEx spots was a daring choice and attracted much notice.

Similarly, the "Superman" spot was designed "to break through commercial clutter," Hayes said. Instead of banking on Seinfeld's celebrity, AmEx created a commercial that juxtaposed him with a comic book character and spoofed the notion of any credit card (or personality) being able to "save the day." As he took his AmEx card out of his pocket, Seinfeld spun around in a blur. An onlooker asked, "What's with the spinning?" "He idolizes me," Superman wryly explained. "It's embarrassing." Again, the notion was to twist the genre slightly, to prompt viewers to sit up and take note that American Express was not quite what everyone assumed it to be. In 1999 AmEx extended its association with Seinfeld. One noteworthy spot showed the comedian embarking on a cross-country road trip after observing that he needed to "get some kind of real life." In keeping with his persona, his adventures were simultaneously large-scale and trivial: among other activities, he saw Mount Rushmore, held a cup of coffee that was too hot, had a conversation with an attractive blond woman, and visited the Saint Louis Arch.

American Express updated the "Do More" concept in 2000, adapting the tagline to a subcampaign dubbed "Moments of Truth," the first phase of which consisted of five TV spots featuring ordinary people. Each of these commercials focused on the fact that AmEx offered "more" services than its competitors. For instance, American Express's travel-assistance benefits were touted in one spot that showed a woman waiting fruitlessly at an airport baggage claim. Another spot emphasized American Express's partnership with the bulk-sales supermarket Costco; yet another focused on the company's online-banking offerings via the juxtaposition of a "wired" young woman with her "analog" father, who was paying bills by hand. The tagline's flexibility was further demonstrated by that year's highest-profile and most imaginative spot, which featured Tiger Woods playing an outsized game of golf on the streets of Manhattan. Woods was shown swatting a ball over the Empire State Building and then from Central Park all the way downtown to Wall Street, before sinking a putt in a paper cup positioned on the Brooklyn Bridge. In this case "do more" was intended as a suggestion that American Express could help cardholders realize their most ambitious hopes.

OUTCOME

When AmEx inaugurated "Do More" in 1996, critics predicted that the company would lose its ability to differentiate itself by shedding some of its snobbish image. Ogilvy and AmEx quickly seemed to prove the skeptics wrong, however: the company's 1996 purchase volume rose 15.6 percent, and "after years of decline," its 1997 share of the domestic credit-card market climbed to 17 percent from 16.4 percent, according to Advertising Age. AmEx posted global market share declines in 1998 and 1999, but this was partly a result of the Visa and MasterCard emphasis on debit cards, a product AmEx did not offer. AmEx countered with its most successful product launch in recent memory, the Blue Card, aimed at college-age consumers and other young adults. The ranks of Blue Card holders steadily increased in 2000 and 2001, and AmEx unveiled a Blue Card designed for small-business owners. Although the Blue Card's marketing did not fall under the "Do More" umbrella, it did build on the strategy of democratizing the traditionally upscale AmEx brand image, an approach whose merits were no longer questioned at the beginning of the new century. This change in perception was perhaps a measure of the success of the brand repositioning accomplished through the "Do More" campaign.

The Seinfeld and other "Do More" spots aired through 2001, but AmEx, like many advertisers, struggled to find appropriate ways to promote itself in the somber months after the terrorist attacks of September 11, 2001. AmEx's post-9/11 difficulties were compounded by the fact that the company's headquarters were located at the World Financial Center, adjacent to the Twin Towers, which had collapsed. In early 2002 the "Do More" tagline was dropped in favor of "Make Life Rewarding." Both Seinfeld and Woods continued to be involved with the American Express brand.

SEINFELD CAMPAIGN

OVERVIEW

Although the American Express Company (AmEx) had built its brand on an idea of exclusionary "membership," its elitist image proved a weak spot in the 1980s and 1990s, when competitors such as Visa and MasterCard eroded AmEx's market share by positioning themselves as more convenient alternatives. One of the AmEx marketing moves meant to counteract the company's outdated image was enlisting the comedian Jerry Seinfeld in 1992 as a collaborator on TV commercials that reproduced the observational comedy of his stand-up routine and of his NBC sitcom Seinfeld, which at the time had a devoted but comparatively small viewership. As Seinfeld became increasingly popular, AmEx heightened Seinfeld's role in its marketing. Between 1995 and 2002 the comedian was a centerpiece of the credit-card giant's American marketing efforts.

In one spot Seinfeld was shown foiling, thanks to his AmEx card, a gas-station attendant who wanted to inconvenience him by failing to stop the pump at exactly $20. This focus on humorously trivial acts was characteristic of Seinfeld's comedy, but the tone and content of the commercials represented risky new territory for American Express. Seinfeld's intelligent and accessible persona helped the card-issuer bridge generational divisions and position itself as suitable for use in unglamorous hubs of daily life, such as grocery stores, without undermining the upscale image it had spent so many years creating. The cost of retaining Seinfeld and of running the commercials was not disclosed, but the comedian was, at the peak of his popularity, one of the highest-paid TV stars, and his AmEx spots often debuted on Super Bowl broadcasts, the most expensive of all advertising forums. American Express annually spent about $300 million advertising its credit cards.

The commercials were well received by consumers and ad-industry critics; they were consistently named among Adweek 's monthly Best Spots in the late 1990s, and the "Gas Station" spot won a Silver Lion at the Cannes International Advertising Festival in 1997. Seinfeld was a central part of AmEx's long-term brand repositioning, a project that paid intermittent dividends during the years of the campaign's run. Seinfeld and AmEx further collaborated on a well-received online campaign in 2004.

HISTORICAL CONTEXT

Beginning in the 1960s American Express distinguished itself for two decades with several highly acclaimed campaigns. Advertising Age included two 1970s American Express campaigns ("Do You Know Me?" and "Don't Leave Home without It" featuring Karl Malden) on its list of the "50 Best Commercials." The 1988 print campaign featuring photos of famous card members by Annie Leibovitz was a finalist for the book Advertising's Ten Best of the Decade 1980–1990.

But in 1990 AT&T Corp. disrupted the general-purpose credit-card market by introducing its Universal Card with no annual fees. The move adversely affected American Express, which relied on annual fees for much of its revenue, for two reasons. First, American Express was not a credit card but rather a charge card that had to be paid in full monthly, and so it did not earn interest by extending credit. Second, American Express collected on average 3.22 percent of the transaction, making Visa a much more attractive card for merchants to honor, since it charged about half of this percentage. CEO James Robinson III attempted to salvage American Express by turning it into what Time magazine called "an unwieldy financial supermarket." In 1993 the board of directors replaced Robinson with Harvey Golub, who streamlined the company by severing the brokerage, investment-banking, and life-insurance divisions. Golub's tactics turned the company around in short order. Spending on American Express cards increased by 15.6 percent in 1996, outpacing the 13.4 percent rise for credit cards overall (exclusive of debit transactions and cash advances). And in the first half of 1997 American Express finally reversed its decade-long downward trend in market share, rising from 18.3 to 18.9 percent of the $469 billion credit-card market.

TARGET MARKET

The Seinfeld commercials were part of a larger AmEx effort to counteract a damaging perception that the brand was the elitist province of older, wealthy consumers. To broaden its card-holding base AmEx needed to reach younger consumers, who tended to remain loyal to their first credit-card brand, but it was also important that the company not alienate those who had been drawn to AmEx's long-cultivated aura of prestige. Seinfeld was a key figure in this brand repositioning beginning with his initial involvement with AmEx in 1992. The comic's ironic, urban-inflected sensibility attracted a devoted following among young consumers, but his value to the company became increasingly evident in the following years, as his eponymous sitcom achieved a level of popularity that transcended demographic divisions. Even as Seinfeld became universally known and appreciated, Jerry Seinfeld's hold on younger, hipper consumers remained strong. His persona was that of an intelligent yet accessible and self-effacing everyman. He thus emerged as a spokesperson who fit neatly with the AmEx imperative to broaden the brand's target market without alienating its existing cardholders.

Seinfeld's centrality to AmEx's advertising increased in concert with his celebrity. As of 1995 Seinfeld was well on its way to becoming perhaps the defining TV sitcom of its era, and the comic became one of the chief elements of the wider AmEx marketing effort tagged "Do More," a branding campaign that was intended to extend the ongoing redefinition of the company's image. AmEx's other primary spokesperson during this time, the young golf phenom Tiger Woods, likewise contributed a uniquely inclusive aura to the brand. As a 21-year-old of mixed ethnicity, Woods appealed to young people across ethnic lines, but his overwhelming mastery of a sport closely linked with older, moneyed consumers likewise won him respect from many established AmEx customers.

COMPETITION

While American Express's market share was rising in the first half of 1997, to 18.9 percent, Visa's was falling slightly, from 48.88 to 48.85 percent. Visa nevertheless dominated almost half of the market, with about 600 million cards accepted at more than 14 million locations worldwide. This made American Express pale in comparison, with 42.3 million cardholders able to charge at 5 million locations worldwide. In an attempt to make its numbers more competitive, American Express lowered the average percentage of the fee it charged merchants on each transaction from 3.22 percent in 1990 to 2.74 percent in 1998. The discount increased merchant acceptance of the card. In a 1997 survey cardholders confirmed that they could use their cards at 92 percent of the locations where they wanted to shop, up from 72 percent five years earlier. These statistics substantiated the portrayals in the commercials of Seinfeld charging gas and purchasing single stamps. But Visa still charged merchants a fee of less than 2 percent, allowing the front-runner to claim, "It's everywhere you want it to be."

American Express edged out its main competition in the corporate and small-business markets, where it controlled a 65 percent share. Consistent with its image, American Express cardholders tended to be bigger spenders, charging on average $6,000 yearly in 1996, compared with Visa's per-card average of $3,200. Consumers tended to use their American Express cards for higher-priced purchases, such as travel and entertainment. They also, however, tended to rack up a much higher volume of charges on competitors' cards on day-to-day spending. The use of debit cards, which drew directly from checking accounts and thus worked well for this kind of spending, increased by 75 percent in 1996. University of Maryland economics professor Lawrence Ausubel predicted that consumer spending would bifurcate between the extremes of immediate payment (debit cards) and extended payment (credit cards), emptying the middle ground of charge cards with monthly payments in full that represented American Express's traditional arrangement. In fact, exclusive agreements with Visa and MasterCard barred major banks from joining American Express to offer debit cards and make other arrangements, a case that was contested in federal courts. Internationally, American Express established relationships with banks that benefited both.

MARKETING STRATEGY

Ogilvy & Mather creative director David Apicella had first noticed Seinfeld as a promising stand-up comic in the 1970s. In 1992, acting on a hunch, Apicella hired Seinfeld to endorse American Express, although the Seinfeld show was still in its infancy and not yet the pop-culture juggernaut that it eventually became. "When we started, he hadn't quite reached the spectacular levels of success," Apicella recalled. "He had kind of a cult following. But I thought he was a nice combination of being Everyman—and appealing to every man—and being insightful in his observations." At first Seinfeld's role was supplemental to the company's brand advertising, and his minimalist spots simply mimicked his stand-up routine, with his material focusing on touting American Express. By 1995 Seinfeld's role at American Express had expanded to include being the spokesperson for the general brand campaign.

KNIX TIX

In an underscoring of American Express Company's affiliation with the New York Knicks, Michael Bay of Propaganda Films directed a 30-second spot titled "Knicks Tickets," in which spokesperson Jerry Seinfeld brandished his American Express card to pursue his lost Knicks tickets from his limo to horseback to inline skates to underwater diving. The final frames, shot outside Madison Square Garden (because it was too expensive to shoot inside), showed Seinfeld in full scuba gear telling his date, "I'd have gone to the moon for these." The spot ended on a two-shot of Seinfeld and film director and Knicks fanatic Spike Lee, in an astronaut's suit, affirming, "Tell me about it." Seinfeld performed his own stunts for the spot—mounting a horse, diving backward off a boat, and even in line skating for just the second time in his life.

The Seinfeld spots that appeared in those years imitated the plots of the eponymous sitcom that had become a part of the collective American consciousness, and like the Seinfeld show, they were crafted via brainstorming sessions, according to participants in the creative process. "We do it much like a sitcom is written," Apicella said. "We just sit around a room for as long as it takes to get a funny commercial … Having spent however many days it takes to get the thing right with Jerry in the room, we're usually pretty together, but we're always changing things on the set." Apicella continued, "Jerry does some ad-libbing, but things are generally scripted. Jerry's commercials are done the way Jerry's show is, which is done the way Jerry's act was—[they are] carefully constructed beforehand."

One well-known spot, "Gas Station," showed Seinfeld filling his car with gas, preparing to stop the pump at exactly $20, presumably because this amount would facilitate the cash payment he wanted to make. When the pump went slightly over $20, the gas-station attendant began to delight in the irritation the error would cause, but Seinfeld responded by giving the pump handle another gratuitous squeeze and victoriously producing his AmEx green card, which made the precise total of his purchase irrelevant. The humorously trivial nature of the comedian's triumph was in keeping with his sitcom character's personality, a necessary element of the campaign from the point of view of the TV show's loyal audience. Additionally, the fact that AmEx was being connected with the commonplace act of purchasing gas was noteworthy. Typically associated with upscale travel and leisure purchases, AmEx had not, prior to the Seinfeld campaign, been regularly promoted as a card to be used for such mundane, unglamorous tasks.

Another prominent spot in the campaign, which made its debut during the 1998 Super Bowl, showed an American Express card being put to a similarly commonplace use, while further deriving humor from the small scale of Seinfeld's personal triumphs. This time, however, the spot—set in a grocery store—literally juxtaposed the comedian's character with that of Superman, who appeared as an animated figure. When Lois Lane, having forgotten her wallet, needed help purchasing her groceries, it was Seinfeld who was able to oblige, thanks to his American Express card. Superman's costume, alas, had no pockets, limiting his ability to save the day.

Although the last episode of Seinfeld aired in May 1998, Seinfeld's relationship with AmEx continued; indeed, in the aftermath of the show's end the public appetite for new Seinfeld material could only be satisfied via AmEx commercials. The Seinfeld campaign was put on hold during 2000 as AmEx relied more heavily on Tiger Woods and a more aspiration-minded iteration of its ongoing "Do More" message. A new batch of Seinfeld spots began appearing on TV with the March 2001 broadcast of the Academy Awards, and the Seinfeld campaign remained an integral part of AmEx's television advertising through 2002.

OUTCOME

Adweek editors consistently included commercials from the "Seinfeld" campaign on their monthly list of the "Best Spots" breaking on broadcast and cable television, and "Gas Station" garnered a Silver Lion at the Cannes Advertising Festival in June 1997. Although AmEx began to make up ground against its rivals in 1997, it was locked out of the debit-card market by an agreement between Visa, MasterCard, and the banks that issued debit cards. Therefore, AmEx lost market share in 1998 and 1999. It reversed the trend by introducing its Blue Cards, which featured a microchip meant to store the consumer's personal information to facilitate online purchasing—a feature that was not fully functional because it required retailers to use special equipment that was not then cost-effective or readily available. The microchip nevertheless effectively positioned the card as a hip, youth-focused accessory, the only credit card of its kind. AmEx attracted millions of new cardholders in this way in 2000 and 2001. The Seinfeld commercials were not used to pitch the Blue Card, but the card's success marked an extension of the ongoing brand repositioning of which the comedian had long been an integral part.

The concept behind the 1998 Seinfeld and Superman commercial was revived in 2004 for a much-publicized pair of "webisodes," five-minute films available for viewing only online. The comedian and the superhero passed their time together in much the same way that Seinfeld and his onscreen friends Elaine, George, and Kramer typically passed their time on Seinfeld. In the first webisode, for instance, Seinfeld and Superman made small talk in a diner, returned a damaged DVD player (thanks to an AmEx policy of replacing faulty merchandise within 90 days of purchase), and attended a lackluster Broadway musical about the state of Wyoming. The second webisode touted, among other AmEx attributes, the company's roadside-assistance service, by showing Superman and Seinfeld stranded on a road in Death Valley. This Web campaign attracted more than 2 million visitors. Although ad-industry observers questioned its practical brand-building and product-promotion benefits, "The Adventures of Seinfeld and Superman" was widely considered one of the most innovative online campaigns of its time. Because of the campaign Adweek named American Express its Interactive Marketer of the Year for 2004.

American Express Company

views updated May 29 2018

American Express Company

American Express Tower
World Financial Center
200 Vesey St.
New York, New York 10285
U.S.A.
Telephone: (212) 640-2000
Fax: (212) 619-9743
Web site: http://www.americanexpress.com

Public Company
Incorporated: 1965
Employees: 88,378
Total Assets: $148.51 billion (1999)
Stock Exchanges: New York Chicago Pacific London Paris
Ticker Symbol: AXP
NAIC: 52211 Commercial Banking; 52221 Credit Card Issuing; 52222 Sales Financing; 52232 Financial Transactions Processing, Reserve, and Clearinghouse Activities; 52311 Investment Banking and Securities Dealing; 52312 Securities Brokerage; 52313 Commodity Contracts Dealing; 52314 Commodity Contracts Brokerage; 52321 Securities and Commodity Exchange; 52391 Miscellaneous Intermediation; 522291 Consumer Lending; 522293 International Trade Financing; 522298 All Other Nondepository Credit Intermediation; 523999 Miscellaneous Financial Investment Activities

American Express Company, a multibillion-dollar holding company whose subsidiaries provide travel and financial services worldwide, traces its roots to a New York express business founded by Henry Wells in 1841. From the safe transport of valuables it grew naturally into money orders and traveler’s checks; from there its travel service operations, including its credit card services, also grew naturally. In the 1980s, American Express expanded into financial planning through Investors Diversified Services, Inc. (IDS) to merger and acquisition advice from Shearson Lehman Hutton. Faced with intensifying competition and poor public relations in the early 1990s, American Express divested itself from many of the businesses it had acquired in the previous decade. Throughout its history, American Express has enjoyed a reputation for innovation, profitability, and integrity.

Westward Expansion in 19th-century America

Henry Wells began his expressman career as an agent for William Harnden, who had founded the first express company in the United States in 1839. Express companies were in the business of transporting money and other valuables safely. Wells was an ambitious man who repeatedly proposed expanding the business westward—to Buffalo, New York; the Midwest; and the far West. When Harnden refused to leave the East Coast, Wells struck out on his own, organizing Wells & Co. in 1841.

At first Wells and his associate, Crawford Livingston, served only New York City and Buffalo, then an arduous route by five rickety shortline railroads and wagon or stagecoach for the last 65 miles into or out of Buffalo. A few years later, Wells and William G. Fargo launched an express service from Buffalo to major Midwestern cities. Although appreciated by the Midwestern business community, the new express service simply did not pay. In 1846, Wells decided to retrench and focus his energies on the growing routes serving New York City, Buffalo, Boston, and Albany, leaving the express business west of Buffalo to Fargo’s company, Livingston, Fargo and Co.

In 1849 John Butterfield, a wealthy and experienced transportation mogul, entered the express business with Butterfield, Wasson & Co., a direct competitor to Wells & Company on New York state routes. Later that year, Butterfield proposed that he, Fargo, and Wells eliminate their wasteful competition by joining forces. On March 18,1850, the three companies consolidated to form the American Express Company, a joint-stock company with initial capital of $150,000. Wells was elected the new company’s first president; Fargo became vice-president.

Under Wells’s leadership American Express was immediately and unexpectedly profitable, expanding rapidly and acquiring small competitors in the Midwest, negotiating contracts with the first railroads, and running packet boats on the Illinois Canal to connect Ohio, Illinois, and Iowa with steamship lines on the Illinois River. In 1851, American Express reached an amicable agreement with its major rival, Adams and Co. (reorganized as Adams Express Co. in 1854). American Express was to expand north and west of New York while Adams was free to grow south and east. This agreement was kept and renewed over the next 70 years, buying American Express time to establish its business solidly.

Despite the agreement with Adams and Co., Wells and Fargo still distrusted its rival and feared the company would gain a monopoly in the California gold fields. When Wells proposed his old dream of a transcontinental express service to the American Express board of directors, they rejected his idea. But in 1852 Wells and Fargo got the board’s blessing to launch an independent venture, Wells Fargo & Company, to provide express and banking services in California.

In 1854, trouble developed with the New York, Lake Erie & Western Railroad (American Express’s link to the Midwest) when Daniel Drew, the railroad’s owner, became outraged that American Express had picked off the Erie’s most profitable freight business by shipping light, high-rate freight on the Erie under its express contract. Drew was determined to award the express rights to others. In response, American Express created an affiliate and presented it as a bona fide competitor. American Express loaned the funds to start a new company to Danforth Barney, then president of Wells Fargo. Barney’s new company, United States Express Co., then acquired the Erie express rights from Drew and split the lucrative Midwestern business with American Express.

American Express’s first decade saw two other noteworthy accomplishments. In 1857, American Express launched the Overland Mail Co. as a joint venture with Wells Fargo, Adams Express Co., and United States Express Co. The Overland Mail Co. (later controlled by Wells Fargo) won the first transcontinental mail contract from the United States Postal Service, which led to its involvement with the Pony Express. Also, James C. Fargo, William’s younger brother, proposed the establishment of a fast, bulk freight express service for merchants. Merchants Dispatch, created in 1858, proved immediately successful.

The Civil War was enormously profitable for American Express, as it was for the express industry generally. American Express shipped supplies to army depots, took election ballots to soldiers, and delivered parcels to parts of the Confederacy taken by Union forces. During this period, American Express distributed huge dividends to its shareholders.

Competition After the Civil War

After the war, the express industry attracted the attention of financial raiders. The first raid, by National Bankers Express Co. in 1866, was thwarted at relatively low cost. American Express quickly reached an agreement with Adams Express and United States Express to neutralize the threat by giving National Bankers Express shares of the established companies and a seat on the American Express board of directors.

The second raid had much more serious consequences. Late in 1866, a group of New York merchants established Merchants Union Express Co., to both get into the express business and destroy the three largest express lines—Adams, American, and United States. Merchants Union first hired away the older companies’ experienced agents and then invaded their territories. American Express suffered such losses in 1867 that for the first and only time in its history it failed to pay a dividend. On December 21, 1868, the four express companies reached a peace agreement, dividing the express and fast-freight business and pooling and distributing net earnings. American Express got the worst of the deal; Merchants Union acquired rights on railways that had been its bread-and-butter lines (the Hudson River and New York Central railroads) and lost its supremacy in the express business. In 1868, American Express was forced to merge with Merchants Union to form the American Merchants Union Express Company (shortened in 1873 back to the American Express Company). Also in 1868 Wells retired and was replaced as president by William G. Fargo.

Fargo’s tenure saw the beginning of two trends that would later prove significant. First, Fargo’s brother, James, expanded Merchants Dispatch operations to Europe. Soon Merchants Dispatch was transporting more than half the first-class tonnage from New York City to over a dozen European cities, making international operations a lucrative sideline for American Express. Second, high express rates set after the Panic of 1873 created public demand for a government operated parcel post. In 1874, the U.S. Postal Service began to deliver packages at a new, low rate. The following year, Congress set the parcel rate at a half-cent per ounce, far below cost. This cut deeply into express company profits. Express industry lobbying and the post office’s substantial operating loss soon persuaded Congress to raise rates to a more reasonable level, but the precedent for governmental involvement in the express business had been established.

Company Perspectives:

Reinvention. For 150 years, American Express has continuously transformed itself to meet changing customer needs. What began as a rough-and-tumble freight forwarding company in 1850, later became a travel company, and today, a leading global financial and travel services company.

What remains constant are the hallmarks of the American Express brand —trust, integrity, security, quality and customer service.

In many ways, the history of our company and the evolution of the American Express brand over 150 years have shaped the actions we take today. Our commitment to providing extraordinary service to our customers around the world is unwavering and now extends to the Internet.

The attributes on which American Express was built are key competitive advantages that we continue to bring to bear with every product and service we offer.

Late 19th-century Innovations

William Fargo’s death in 1881 and James’s succession to the presidency began a new era for American Express. Although James Fargo was often described as autocratic, aloof, and oldfashioned, he was also remarkably innovative. During his term of office, American Express first diversified into the financial services industry with the introduction of two instruments—the American Express Money Order in 1882 and the American Express Travelers Cheque in 1891.

The post office first introduced the postal money order in 1864. This immediately threatened the express industry because it reduced the demand by banks and merchants for the transport of money and other valuables. The postal money order, however, had a serious flaw: its face value could be altered without detection. Although American Express directors had discussed introducing a money order since the end of the Civil War, it took James Fargo to galvanize the company into action. At his direction Marcellus Berry, an American Express employee, designed a safer money order. American Express’s money order was an immediate hit; it could be used to settle charges on express shipments, was more readily available than the postal money order, and was simpler, cheaper, and easier to negotiate. Not only did the money order provide a new source of revenue (over 250,000 were issued the first year), but for the first time American Express had a credit balance (or “float”—funds from instruments that had been paid for but were not yet cashed) that could be safely invested to bring in additional income.

The traveler’s check filled a similar financial niche. Before 1891, tourists and business travelers could transfer funds from the United States to Europe only via a letter of credit, a time-consuming and cumbersome method: only specified correspondents of the issuing United States bank could negotiate letters of credit, and then only during banking hours and after an appreciable delay. Fargo, annoyed by his own experience with the procedure, again directed Marcellus Berry to find a solution. The American Express Travelers Cheque was a marked improvement over the letter of credit in several respects: its simple signature and countersignature provision made the instrument very secure; it could easily be converted into foreign currency at any American Express freight office; and, if lost or stolen, American Express would refund the owner’s money. The value and convenience of the traveler’s check was recognized at once, and its popularity again provided American Express with additional revenues and float.

After the traveler’s check was introduced in 1891, travelers began making American Express freight offices their informal headquarters—places to convert funds, to seek information about hotels and travel arrangements, and simply to congregate. American Express officers saw the opportunities offered by the travel industry and urged diversification in that direction. James Fargo, however, was absolutely opposed to the idea. He allowed American Express agents to offer travel information purely as a service to customers, but drew the line there. American Express’s official entry into the travel industry, which became one of its best-known and most lucrative businesses, was delayed until after Fargo’s retirement in 1914.

After the turn of the century, the express industry came under attack from a number of quarters. The railroads had steadily eroded express profits by raising their rates from 40 percent of gross receipts to more than 55 percent by 1910. Also in 1910, long-overdue government regulation of the express industry began with passage of the Mann-Elkins Act, which made express companies common carriers subject to the scrutiny of the Interstate Commerce Commission (ICC). In 1912, New York express company drivers and their helpers went on strike for higher wages and fewer working hours (they were underpaid and overworked, even in an era of low pay and long hours), exciting highly unfavorable press and public reaction. In 1913, the U.S. Post Office again expanded parcel delivery services at reduced rates, while the ICC set express rates that the industry feared were prohibitively low.

Key Dates:

1841:: Henry Wells founds Wells & Co.
1850:: Wells, William G. Fargo, and John Butterfield form the American Express Company.
1852:: Wells Fargo & Company is founded.
1868:: American Express Company merges with Merchants Union to form the American Merchants Union Express Co.; Henry Wells retires.
1881:: William Fargo dies.
1891:: The American Express Traveler’s Cheque is introduced.
1910:: Mann-Elkins Act makes express companies subject to the scrutiny of the Interstate Commerce Commission.
1914:: George C. Taylor becomes company president.
1915:: American Express opens its Travel Department.
1919:: The American Express Co. is established to expand the company’s international banking operations.
1958:: The American Express travel-and-entertainment card (the “;green card”) is introduced.
1981:: American Express acquires Shearson Loeb Rhoades Inc.
1982:: American Express is reorganized under American Express Corp.
1987:: The Optima Card is introduced.
1993:: Harvey Golub becomes CEO; American Express wins federal government’s travel and transportation system contract.
1999:: American Express launches Blue, the first “smart card” offered in the United States.

International Growth Between the Wars

When George C. Taylor, a longtime American Express employee, was elected the company’s fourth president after Fargo’s retirement in 1914, the end of the laissez-faire express industry was in sight. Taylor’s first actions, to expand foreign remittance operations and to officially inaugurate travel services by opening a travel department in 1915, saved the company when its domestic express division was nationalized in 1918 and became part of the American Railway Express Co. as a wartime measure. Another of Taylor’s accomplishments was to establish the American Express Co. This wholly owned subsidiary was created in 1919 primarily to expand international banking operations (which had been conducted sporadically through foreign remittance offices since 1904). Although American Express was slow to gain a foothold in Europe, its international banking operations flourished in Asia during the 1920s and 1930s, especially in Hong Kong and Shanghai.

In the late 1920s, American Express again changed hands. The express industry was targeted for takeovers during this period because most express companies had been organized prior to antitrust legislation, raising the possibility of their exemption from antitrust regulations. American Express was especially attractive because its net income had more than doubled in the six years ending in 1928. In 1927 Albert H. Wiggin, chairman of the Chase National Bank, started buying American Express stock through dummies. By July, Wiggin had acquired two seats on the board and 42 percent of the stock, at a bargain price. In 1929, Chase Securities Corp., an affiliate of Chase National Bank, acquired control of American Express in a stock exchange and Wiggin was elected first chairman of the American Express board.

In May 1930 Chase National merged with the giant Equitable Trust Co. to become the largest bank in the world. John D. Rockefeller supplanted Wiggin as largest shareholder and Winthrop W. Aldrich, Rockefeller’s brother-in-law, became chairman of both the Chase Securities and the American Express boards.

This was a difficult time for American Express management, headed by Frederick P. Small (who became president on Taylor’s death in 1923). Not only were the directors preoccupied with their power struggles, but the financial climate was steadily worsening. Then the Great Depression hit. Between 1930 and 1932, roughly a third of all American banks failed. In early 1933, President Franklin D. Roosevelt announced a national bank holiday to allow banks to recover from the panic. The bank holiday brought commerce to a virtual standstill. During this period American Express, since it was not a bank and thus not required to close, enjoyed a tremendous advantage: it remained open and redeemed traveler’s checks, providing the only financial services available to individuals and merchants while the nation’s assets were frozen. The traveler’s check business ultimately allowed American Express to remain profitable throughout the Depression and World War II.

The Card Revolution of the 1950s

In 1944 Ralph T. Reed replaced Small as president. Under Reed’s management, the late 1940s and the 1950s were a period of expansion, primarily in the booming travel industry. Within seven years the number of American Express offices increased by 400 percent and international operations surpassed their prewar level.

When Diners Club introduced the first credit card in the mid-1950s, American Express executives proposed investigating this new line of business. Reed, who thought the company should improve existing business and feared a credit card would threaten its traveler’s check business, opposed the proposal. In 1958, Reed reversed himself and the American Express travel-and-entertainment card (the American Express green card) was introduced virtually overnight. The company had 250,000 to 300,000 applications for cards on hand the day the card went on the market, and 500,000 cardmembers within three months. Introduction of the green card began an era of unprecedented growth: earnings rose from $8.4 million in 1959 to $85 million in 1970.

Diversification in the 1960s

A new era of management began when Howard L. Clark was elected president and CEO on April 26, 1960. Clark transformed American Express from a renowned but fairly small company to a corporate giant with diverse interests. Clark’s goal was to establish a balanced earnings base dependent on multiple sources and thus more resistant to economic fluctuations. His strategy was to expand American Express’s business within its areas of expertise—travel and financial services.

However, before Clark could put his plan in operation, the company had to be streamlined and modernized. Management had long been centralized and the chain of command obscure. Clark gave each division room to innovate and made each directly responsible for its own performance. Also, the company had no uniform identity. The now famous “blue box” logo was developed at Clark’s direction and adopted by all the divisions.

Next, the company’s accounting system had to be overhauled, since the system then in place was obsolete and unable to handle the high volume of charge card transactions. Moreover, the travel division (the glue that held the various divisions together and gave the company its identity) had to improve its profitability. By the time the jet airline industry made an impact on commercial travel, American Express was ready.

Also, the charge card had yet to show a profit, in large part because American Express had no experience dealing directly with merchants and consumers or with credit controls. Clark brought in George Waters, formerly of IBM and the Colonial Stores supermarket chain, to put the charge card division on a sounder footing. Waters used two simple strategies: first, he raised the card fee and merchant discount; next, he persuaded merchants to think of American Express as their marketing partner by dedicating .05 percent of gross sales to retail advertising. By the end of 1962 more than 900,000 cards had been issued, and by the end of 1963 the card division had shown a profit.

Finally, marginal operations had to be divested. Ridding the company of one subsidiary, American Express Field Warehousing Co., proved to be a nightmare. When the field warehousing division was sold to Lawrence Warehouse Co. in 1963, Clark withheld the two most profitable accounts, Allied Crude Vegetable Oil Refining Co. and Freezer House (both owned by Anthony “Tino” De Angelis), pending an investigation of other field warehousing opportunities. Late that year, Clark decided to sell the two accounts to Lawrence Warehouse. An independent audit conducted prior to closing revealed that about 800 million tons of vegetable oil was missing. Holders of some $150 million in security interests and notes (some forged by De Angelis) were understandably upset. The American Express board realized the company’s reputation was at stake and quickly issued a statement to the effect that American Express assumed moral responsibility for the losses caused by its subsidiary. American Express’s assurances did little to appease those defrauded. The “salad oil swindle,” as it was dubbed by the press, involved American Express in complex and protracted litigation that was settled in 1965 (although a final case lingered until 1970) at a cost to American Express of $60 million, excluding attorneys’ fees.

With the salad oil episode behind it and reorganization of the divisions completed, the late 1960s and early 1970s were good years for American Express. Consolidated net income grew steadily, and Clark concentrated on expanding the company’s financial services. In 1966, American Express acquired W.H. Morton & Co., an investment banking house with an excellent reputation for underwriting municipal and government bonds. Two years later, American Express made the most important purchase yet in its diversification strategy: the Fireman’s Fund Insurance Company, one of the largest property and casualty insurers in the nation.

Even the international monetary crisis of 1971, culminating in the devaluation of the dollar and the suspension of almost all dollar transactions, did not phase American Express. The company honored its traveler’s checks at the exchange rate posted before trading was suspended and its card continued to be accepted internationally. American Express extended emergency funds to thousands of tourists caught short abroad, and its international banking subsidiary advised corporate clients on how to protect their foreign assets and import-export payments during the crisis.

During the late 1970s, however, American Express seemed to lose its direction, and its integrity and soundness were challenged on many fronts. In 1975, the Washington Post suggested that American Express was successful only because it was not regulated as banks and other financial institutions were. When Visa and MasterCard started competing in the traveler’s check market, Citicorp, a major issuer of bank credit cards, took out a full-page advertisement accusing American Express of false and deceptive advertising of its traveler’s checks. American Express also received unfavorable publicity when four acquisition attempts in a row failed.

The last of these attempts, a bid for the McGraw-Hill Publishing Co. in 1979, produced the worst repercussions. Roger Morley (who had replaced James D. Robinson III to become American Express’s tenth president when Clark resigned in 1977 and Robinson became chairman and CEO) was a member of the McGraw-Hill board at the time. After American Express bid for the publisher, McGraw-Hill sued the company and Morley, accusing them of breach of trust and corporate immorality.

But in 1981 American Express made the big acquisition it had been looking for when it bought Shearson Loeb Rhoades Inc., one of the nation’s leading brokerage houses, which became an independently operated subsidiary. Shearson in short order acquired Robinson-Humphrey, an Atlanta-based brokerage firm; Foster & Marshall, a well-respected securities firm; and Balcor, Inc., the largest real estate syndicator in the United States.

In 1982, American Express was reorganized under a holding company called American Express Corp.; its travel services became a wholly owned subsidiary, American Express Travel Related Services.

Sanford I. Weill, formerly of Shearson Loeb Rhoades Inc., was elected the 12th president of American Express in early 1983. Under Weill, American Express continued to expand. That same year, American Express acquired Ayco Corp., a financial counseling firm, and in 1984 it bought Allegheny Corporation’s principal subsidiary, the financial planning company Investors Diversified Services, Inc. (IDS). Also in 1984, Shearson acquired Lehman Bros. Kuhn Loeb, one of the most respected Wall Street brokerage firms, to form Shearson Lehman Brothers Holdings Inc.

In 1985 American Express announced that it would spin off Fireman’s Fund Insurance Company, the property and casualty insurer it had purchased in 1968. Stiff competition in the insurance industry during the early 1980s had led to price wars, and the subsidiary’s profits had been declining since 1983. In addition, in 1983 and 1984, American Express had to spend $430 million strengthening Fireman’s reserves. The first public offering of Fireman’s Fund stock was made in October 1985; by December 1987, American Express retained only 31 percent of the company. In 1988 its holding was reduced to 20 percent and American Express formally exited the insurance business.

Also in 1985 the American Express International Banking Corp., established in 1919 to help American Express expand internationally, became simply American Express Bank, Ltd. In the mid-1990s, American Express was a thoroughly international company; its bank, with a presence in more than 40 countries, completed the range of financial services the company offered, focusing on private banking for wealthy individuals.

Credit Card Wars: 1980s-90s

The year 1987 was a dramatic—and difficult—one at most financial companies, and American Express was no exception. The stock market crash in October shook Shearson Lehman, and fears about Third World debt forced American Express Bank to add nearly $1 billion to its loan-loss reserves. But American Express’s core business, Travel Related Services, continued to prosper. That year it introduced its Optima Card, American Express’s first credit card (regular American Express cards are charge cards; the balance must be paid in full each month). By late 1989, Optima had garnered some 2.5 million members.

In the 1980s, as competition in the card industry intensified, American Express pursued both an increased customer and merchant base. At the beginning of the decade, American Express had ten million cardmembers who had roughly 400,000 places to use their cards. By the end of the decade those numbers had grown to 33 million cardholders around the world whose cards were accepted at 2.7 million places. But sheer size was not the objective: American Express emphatically positioned its services as “premium”—its card cost much more than credit cards, like Visa and MasterCard, offered by banks, and it charged merchants a higher percentage of the bills charged to the card than its competitors did. These higher fees to merchants were warranted, the company told them, by the business its generally high-income cardmembers generated; the higher card dues bought better services. Nevertheless, American Express ran into heavy competition, especially abroad, where its greatest hopes for expansion lay.

At the beginning of 1988, Shearson made another dramatic acquisition when it bought E.F. Hutton and became Shearson Lehman Hutton. Such growth in so short a time added up to a second year of decreased earnings—a five percent drop on top of 1987’s 70 percent drop. At the end of 1989 Shearson was still struggling to cut costs and raise profits. American Express announced plans, in December 1989, to pump an additional $900 million into its ailing subsidiary. The recapitalization included $350 million of American Express’s own money. The rest was to come from notes.

American Express toppled from its perch as the preeminent charge card due to a number of serious problems in the early 1990s. The flagship charge card suffered fading customer loyalty, intense competition from lower-priced bank cards, and loss of service establishments accepting the card because of high fees to the merchants. Some observers blamed advertising for a public relations fiasco that damaged the company’s image. But the company’s 1991 revelation that its Optima revolving credit card—which analysts and investors had previously regarded as one of American Express’s biggest successes—lost $300 million in write-offs, also eroded its credibility. At the same time, the Travel Related Services unit was battered by competition from no-fee bank cards and debit cards. As a recession deepened, merchants dropped the high-fee American Express card in droves. Profits plummeted from $1.16 billion in 1989 to $461 million in 1992.

In 1993, Harvey Golub advanced to American Express’s chief executive office upon the resignation of Robinson, who had served in that capacity since 1977. He instituted several recovery strategies at the firm, including retrenchment to core businesses, new product launches, cost-cutting, and brand-building.

Part of American Express’s recovery strategy involved aggressive brand promotion, launching what were derisively called “guerrilla” or “ambush” marketing campaigns. In response to a Visa advertising campaign tied to the 1988 Olympic Games, American Express engaged in a campaign in which it ran television and space ads featuring those cities where the Olympics were held, trying to affiliate itself with the games without directly sponsoring them. American Express also launched a legal battle with Visa, claiming that the rival’s “But they don’t take American Express” commercials implied broader exclusivity than existed. Visa retorted that its ad claims were valid, and that American Express was simply using legal maneuvers, public relations, and newspaper ads to blunt its advertising effectiveness. Early in 1994, Gary Levin, of Advertising Age, declared that’ ‘neither is entirely blameless, and both are unlikely to surrender.” In 1994, American Express’s promotional efforts were extended internationally, with a global advertising campaign targeting Italy, Germany, Japan, and the United Kingdom. The company planned to take 60 new ads to 30 countries around the world.

American Express’s new products included Cheques for Two, introduced in 1992; a Senior Member card featuring special services and benefits; and a corporate purchasing card. American Express hoped to capture a significant share of the prospective $300 billion market segment, only one percent of which had been put on plastic by 1994. In 1993, American Express won the federal government’s travel and transportation payment system contract—the largest corporate card account in the world. Some industry analysts interpreted the introduction of these new products as a sign of “renewed vigor” at American Express.

Golub aimed to cut $1 billion in costs by 1995, and planned to use those savings to finance the rate cutting necessary to attract the nearly 200,000 new merchant locations he expected to sign up. He also made several divestments that brought funds to the company and helped refocus on core businesses. Early in 1993, American Express sold its Shearson brokerage operations to Primerica Corp.’s Smith Barney, Inc. for $859 million in cash and about $275 million in Primerica stock. American Express netted $1.1 billion on the 1993 sale of 32 million shares of First Data Corp. to the public. In January 1994, American Express announced that it would contribute over $1 billion to Lehman Brothers, then spin the subsidiary off to shareholders. The capital injection enabled Lehman Brothers to sustain an “A” credit rating as an independent venture.

Credit Card Management magazine named American Express its “1993 Turnaround of the Year,” praising Golub’s recovery plan. That year, American Express’s worldwide charge volume increased 5.5 percent to $117.5 billion, discount revenues from merchants increased 3.2 percent, and merchant locations grew 4.5 percent. American Express’s net income made a dramatic comeback as well, tripling from $461 million to $1.48 billion.

One of Golub’s main objectives was to expand American Express’s foreign operations, to the point where international revenues accounted for 50 percent of the company’s total earnings. In 1997 American Express signed ten new agreements with overseas partners and introduced 20 new card products into foreign markets, including cobranded corporate cards with France’s Credit Lyonnais and Qantas Airlines in Australia. Although disturbances in the Asian economy during this period caused American Express to fall far short of its desired annual international growth rate of 25-30 percent, the company continued to carve a niche in developing foreign markets. In early 1999 it formed a branch of American Express Financial Advisors in Japan, and in 2000 it established a strategic position in the burgeoning Chinese economy by opening a headquarters in Beijing.

American Express’s range of financial services demonstrated consistent growth throughout the late 1990s. American Express Financial Advisors enjoyed particularly strong performances, with total client assets climbing from $182 billion in 1997, to $212 billion in 1998, to $262.5 billion in 1999. In 1996 the company launched American Express Financial Direct, which offered financial products directly to its customers. American Express Bank also saw gains in its overall client holdings during this period, with an increase from $6 billion in 1997 to $9 billion in 1999.

The Internet revolution provided American Express with the opportunity to explore new avenues for its banking and travel interests. In January 1995 the company launched ExpressNet, a web site dedicated to online cardmember and travel services. In April 1996 it formed American Express Travel on the Web, and later that year it created InvestDirect, an extensive online securities trading service. In 1997, InvestDirect was recognized by Financial Service ONLINE Magazine as the year’s most innovative online brokerage. That same year, a new member web site gave American Express cardholders complete access to their accounts online.

With increased electronic traffic came concerns over Internet security and privacy. In July 1995 American Express joined forces with four leading technology firms to develop a means of ensuring secure online business transactions, through sophisticated encryption codes and a digital signature authentication system. In February 1996 American Express signed a licensing agreement with Microsoft to develop a software that employed secure electronic transactions (SET) protocol, and in 1997 the company partnered with Hewlett-Packard to create Express Vault, which combined Hewlett-Packard’s security and computing expertise with the American Express payment processing network.

The battle over the credit and charge card market intensified in 1998, when the federal government filed an antitrust lawsuit against Visa and MasterCard. The Justice Department’s findings focused on the competitors’ policy of prohibiting member banks from issuing cards of rival companies, most notably American Express and Discover. Charging that this practice was anticompetitive, the Justice Department accused Visa and MasterCard of discouraging product innovation and ultimately hurting consumers.

Another intriguing development in the card wars came in September 1999, when American Express launched Blue, the first “smart card” offered in the United States. Embedded with a computer chip in addition to the traditional magnetic strip, Blue made it possible for consumers to consolidate their credit and debit information in a single card. As more and more computer manufacturers began including smart card “readers” as standard features on personal computers by decade’s end, Blue’s design made it ideal for e-commerce. While it remained to be seen whether smart cards would become the industry standard, by the end of 2000 there were approximately four million Blue cardholders. In addition, Visa launched its own smart card during the 2000 Olympics, ensuring that the new market would be competitive.

By the year 2000 American Express had climbed back into a position of leadership within the industry, with record net earnings throughout the late 1990s and the emergence of an extensive line of new products and services. The company continued its pursuit of a strong e-commerce presence with the introduction of a number of web sites in 1999 and 2000, including American Express Brokerage, Express B@nking, and American Express Mortgage. In 2000 the company joined the Worldwide E-commerce Fraud Protection Network, a coalition dedicated to guaranteeing the security of online transactions, and subsequently building consumer confidence in the Internet as a preferred place to shop. Although Visa and MasterCard still controlled 75 percent of the overall card market in 2000, innovations in the function of the traditional credit card put American Express in a position to remain very competitive in the 21st century.

Principal Subsidiaries

American Express Travel Related Services; American Express Financial Advisors, Inc.; American Express Bank, Ltd.; American Express Bank S.A. (France); American Express Bank International; American Express Centurion Bank; American Express Bank GMBH (Germany); American Express Bank (Luxembourg) S.A.; American Express Bank (Switzerland) S.A.; American Express Bank (Uruguay) S.A.; Banco Inter American Express (Brazil; 49%); Amex International Trust (Cayman) Ltd. (Cayman Islands); Egyptian American Bank (Egypt; 40%).

Principal Operating Units

Global Corporate Services; Global Financial Services; Global Establishment Services and Traveler’s Cheques; U.S. Consumer and Small Business Services.

Principal Competitors

Carlson Wagonlit Travel; Japan Travel Bureau, Inc.; Visa International.

American Express Company

views updated May 23 2018

American Express Company

founded: 1850

Contact Information:

headquarters: 200 vesey st.
new york, ny 10285 phone: (212)640-2000 fax: (212)619-9802 url: http://www.americanexpress.com

OVERVIEW

American Express is a financial institution that provides its customers with various services in the travel, financial, and network services industries. The company's largest division, Travel Related Services (TRS), is home to the American Express cards. American Express TRS also serves as a worldwide travel agency, publishing related magazines as well. TRS is located in 160 countries. Another division, American Express Financial Advisors, offers investment counseling services and markets life insurance, investment funds, annuities, mutual funds, and financial advisory services. A third division, American Express Bank/Travelers Cheque recently took over responsibility for the travelers cheque portion of American Express business, counted as part of the Travel Related Services division until 1998. This division also provides loans and other financial products and services to the company's international clientele.

COMPANY FINANCES

Net revenues for American Express rose 8.4 percent in 1997 to $17.8 billion, compared with $16.4 billion in 1996 and $15.9 billion in 1995. Helping the company to achieve this growth, according to its annual report, were increases in worldwide billed business, growth and wider interest margins in outstanding cardmember loans, and higher management and distribution fees. Of 1997 revenues ($17.8 billion), the majority came from the Travel Related Services division, which earned $12.6 billion. American Express Financial Advisors earned $4.6 billion, and American Express Bank/Travelers Cheque earned $637 million. The Corporate and Other division reported 1997 revenues of $123 million.

First quarter 1998 net revenues were reported as $4.5 billion, up 8.6 percent from first quarter 1997 ($4.1 billion). Growth for 1998 was attributed to the company's Travel Related Services and Financial Advisors divisions. Revenues for TRS were up 18 percent from the previous year, due to factors such as more cardholders and higher cardmember spending, which American Express attributed in part to its Membership Rewards program. The American Express Financial Advisors division also reported 18-percent growth over first quarter 1997, reflecting stock market appreciation, higher sales of mutual funds and other investment vehicles, and an increase in the company's managed assets.

Earnings per share (EPS) for American Express rose 6.7 percent from 1996 to 1997, from $3.90 to $4.16. In previous years, American Express EPS were $3.10 (1995), $2.69 (1994), and $2.93 (1993). Cash dividends of $.90 per share were declared in 1997, equal to those paid in 1996. Earnings per share for the first quarter of 1998 were $.98, up 4.3 percent from first quarter 1997 EPS of $.09. American Express's stock price hovered around $103 per share in mid-1998. The company's 52-week high was $108.63 per share, and its 52-week low was $70.75. This represented significant improvement from its five-year low of $22.38 per share.

ANALYSTS' OPINIONS

As seen by many analysts, American Express was a company pulling itself out of a slump, one limb at a time. The company's early refusal to adopt ideas of joint ventures for issuing credit and charge cards put American Express far behind its chief competitors. However, the company has seen significant improvement under CEO Harvey Golub, who took command of the company in 1993. As reported by John Greenwald in Time, American Express raised its share of the $469 billion card market from 18.3 to 18.9 percent in the first half of 1997, reversing a 10-year trend of decreasing market share. Wall Street's opinion has also risen since Golub took over, and American Express stock shares have risen to their highest numbers yet—they were around $103 per share in mid-1998. Recommendations for purchase of American Express stock varied among investment analysts, ranging from "hold" to "strong buy," with roughly equal frequency.

One obstacle facing the company was Visa's refusal to allow American Express to issue Visa cards. This rule applies to banks as well, who cannot conduct joint efforts with American Express to issue Visa cards. Taken to court, Visa's rule still stands. Therefore, most new cardholders are those who have switched from another credit card company due to low introductory percentage rates offered for a limited time. These customers come and go as competing companies offer these rates frequently. Despite this and other obstacles, many analysts see American Express as a company with significant advantages. First, it stole market share from Visa and MasterCard in 1997. The Nilson Report for 1996 showed the amounts charged on American Express cards rose 15.6 percent, whereas Visa's rose 15.5 percent and Master-Card's rose only 9.6 percent. Furthermore, 92 of the Fortune 100 companies use American Express corporate cards. Even with this good news, analysts agree American Express must remain assertive in marketing efforts.

One of the company's strengths is its progress in data mining. To simplify, American Express functions as the payment processor for the merchant and the credit card issuer. This puts the company in a very good position to know a lot about its customers' purchases. As CEO Harvey Golub stated in Forbes, "Say you go to a lot of northern Italian restaurants on the Upper West Side, and a new one opens up . . . We can get you to try the new restaurant by, say, giving you a bottle of wine when you go in." Most analysts agree this personalizing strategy has great hopes for the company. Data American Express receives about its customers has been far more informative than that acquired by Visa and MasterCard.

HISTORY

Henry Wells formed American Express in 1850 with two of his competitors in the delivery services area. He merged the company with Merchants Union Express in 1868 to create a money order that would compete with those offered at government post offices. Travelers Cheques were introduced in 1891 after Wells' partner William Fargo experienced currency difficulties in France.

The American Express card was introduced in 1958 with no credit limits, but cardholders were required to pay off the balance each month. Under the guidance of CEO James Robinson, American Express aimed to become a financial services marketplace. Over a period of 10 years, American Express bought the Boston Company, a bank; Balcor, a real estate company; Lehman Brothers, an investment banking company; and three brokerages—Investors Diversified Services (IDS), E.F. Hutton, and Shearson Loeb Rhoades. Each of these financial institutions was eventually sold and brought together (with the exception of IDS) under the name Shearson Lehman Brothers. Also, in an effort to compete with MasterCard and Visa, American Express launched the Optima card (which allowed cardholders to carry balances) in 1987. However, having no former involvement with underwriting, the company incurred many losses.

The financial marketplace strategy failed, and American Express saw a decrease in profits in the early 1990s. It did, however, purchase Lifeco Services Corporation in 1989, giving American Express the fifth largest travel institution in the United States. Unfortunately, the American Express card lost market share in the early 1990s, and Robinson was replaced with a new CEO, Harvey Golub, in 1993. Under Golub's vision, American Express restructured its divisions to work in unison. Golub and company president Kenneth Chenault sold the brokerage institutions and improved the company's travel division by buying U.S. offices and international accounts of Thomas Cook. The Optima card was brought back to life, and the company's credit card market share increased. This was in part due to joint ventures with other companies, and in part to the company's renewed emphasis on increasing the number of vendors offering the American Express card by reducing the company's take on each purchase.

STRATEGY

Offering a strand of new products each year is one part of American Express's strategy to compete with other credit card issuers. It jointly developed cards with Delta Air Lines Inc., ITT Sheraton, Hilton Hotels Inc., and United Airlines Inc. American Express also made deals with the New York Rangers and Knicks involving various benefits like frequent flyer miles and discounts on hotels. In other efforts to expand, the company began offering credit cards in Taiwan, Hong Kong, Britain, and Canada. It has also been targeting the younger market, spending $266 million on advertising, much of which highlights celebrities such as Jerry Seinfeld and Tiger Woods using their cards.

One of the company's key strategies in 1997 was to better meet the credit needs of small business owners. They aggressively targeted the lending business and ended the year with lending balances triple those of a year ago. American Express began offering a Small Business Corporate Optima Platinum Card and later introduced a joint venture with AT&T Capital, providing financing for smaller capital expenditures. At the end of 1997, they began testing an auto leasing service.

FAST FACTS: About American Express Company

Ownership: American Express is a publicly owned company traded on the New York Stock Exchange, Boston Stock Exchange, Chicago Stock Exchange, Pacific Stock Exchange, London Stock Exchange, Swiss Stock Exchange, Dusseldorf Stock Exchange, Frankfurt Stock Exchange, Paris Stock Exchange, and the Brussels Stock Exchange.

Ticker symbol: AXP

Officers: Harvey Golub, Chmn. & CEO, 59, $3,200,000; Kenneth I. Chenault, Pres. & COO, 46, $2,030,769; Richard Karl Goeltz, VChmn. & CFO, 55, $1,160,000

Employees: 73,620

Principal Subsidiary Companies: Among the many subsidiaries of American Express are: American Express Bank International, American Express Financial Corporation, American Express Publishing Corp., American Express Student Funding, Inc., American Express Travel Related Services Company, Inc., and IDS Securities Corporation. Select foreign subsidiaries include: AEB - International Portfolios Management Company (Luxembourg), AllCard Service GmbH (Germany), and Havas Voyages American Express (France—20–percent ownership).

Chief Competitors: As a provider of travel, financial, and investment services, American Express Company's primary competitors include: Accor; Advance Publications; Advanta; Allstate; Banc One; Barclays; Chase Manhattan; Citicorp; Dean Witter; Discover; First Chicago NBD; First USA; General Motors; Household International; John Hancock; MasterCard; MBNA; Merrill Lynch; New York Times; Prudential; Visa; and World Travel.

American Express's growth strategy focused on three main themes: "opening the American Express network, expanding our presence in financial services, and deepening our penetration of markets outside the United States." "Opening the American Express network" referred to the company's practice of partnering with other credit card issuers, and the company even established a separate organization to manage this business segment. In 1997, they signed agreements with 10 new partners outside the United States. "Expanding our presence in financial services" translated into focusing on increasing brand awareness in the financial marketplace as a trusted provider of financial services—and not just a card and travel services provider. American Express planned to use several avenues to do this, including retail channels, the workplace, and third-party financial institutions.

The third part of the company's strategy was international expansion. Many analysts see credit institutions as a mature business in the United States. Competition in this field is fierce, and many companies have taken their focus overseas. More and more people in developed countries were moving into the middle-class each year, giving markets overseas quite an appeal. During 1997 American Express introduced 20 new consumer and corporate cards in foreign markets, including England, Canada, and Hong Kong. The company also made deals with banks in Portugal, Greece, Israel, South Africa, and Turkey to distribute charge and credit cards. American Express established another division of the company, Global Network Services to further this company goal.

INFLUENCES

American Express's early vision under James Robinson led to a strategy of climbing the ladder of success alone. For example, American Airlines held talks with American Express in efforts to offer a co-branded credit card featuring frequent flier miles. American Express quickly rejected this offer. Similar offers by other companies were turned down as well. American Express stuck to its goal of being an all-in-one, convenient financial institution. Problems arose, however, when customers didn't see a need for an all-in-one finance center. They continued to conduct financial affairs separately with brokers, banks, and mutual funds. Even still, the company refused to conduct joint business deals with other companies. This decision caused American Express's market share to go from 26 percent in the United States in 1985 to 15 percent by 1995. After James Robinson's replacement as CEO in 1993, Golub made great efforts to get back on the competitive track. Since his takeover, American Express's number of cardholders has increased from 26 to 30 million. The measure of charges has increased as well, 37 percent or $162 billion. Income after taxes for the company almost doubled, and the stock more than quadrupled as well.

CHRONOLOGY: Key Dates for American Express Company

1850:: Founded
1868:: Merges with Merchants Union Express
1891:: Introduces Travelers Cheques
1914:: Diversifies into the travel industry
1918:: American Railway Express Co. subsidiary is created
1929:: Chase Securities Corporation acquires control of the company
1944:: Ralph T. Reed becomes president
1958:: American Express card is introduced
1968:: Buys Fireman's Fund American Insurance
1970:: Sells freight operations acquired during WWII
1977:: James Robinson becomes CEO
1981:: Purchases Shearson Loeb Rhoades and the Boston Company
1982:: Reorganizes under the holding company American Express Corp.
1984:: Purchases Lehman Brothers
1987:: Launches Optima card; acquires E.F. Hutton
1989:: Purchases Lifeco Services Corporation
1993:: Harvey Golub becomes CEO
1996:: Launches American Express's Charge Against Hunger
1997:: Begins testing an auto leasing service
1998:: Offers the Blue Credit Card in the United Kingdom

Although this growth was impressive, a lot of harm had already been done since American Express was behind the times in seeking joint ventures. Even with the company's measure of charges growing 15 percent ($21 billion) in 1995, it was slim compared to Visa's growth of $162 billion. However, in 1997 American Express actually raised its share of general card volume to 18.9 percent of the total market. This resulted in the company taking only a small part of Visa's sizeable market away, but it was a marked improvement nonetheless. The company has been able to do this in part because it has increased its volume from being offered at approximately 72 percent of merchants to 92 percent. However, they had to take a cut in the amount of discounts taken from sales in order to convince more merchants to offer the card—they reduced American Express shares of each transaction from 3.22 percent to 2.74 percent (compared to less than 2 percent taken by Visa).

CURRENT TRENDS

Expansion has been one of American Express's most recent strategic shifts. It signed a deal with Microsoft to develop an on-line service where business travelers could make reservations and purchase tickets from personal computers or laptops. Another area of expansion involved the company's interest in purchasing distinguished accounting firms. The purchase of several divisions of Checkers, Simon & Rosner LLP (later renamed Chicago Metro Area office of American Express Tax & Business Services) in early 1997 presented several advantages for American Express. First, the company automatically doubled its tax and business services organization in size. Second, customers' needs were satisfied better with the combined assistance of a major corporation and the personal services of a local firm. Various services offered have included employee benefits, business and technology consulting, tax planning and compliance, retirement assistance, bookkeeping, estate planning, and litigation support.

Another popular trend American Express took advantage of was the practice of associating its business with a charitable cause. For example, American Express's Charge Against Hunger campaign advertised that for every purchase made with American Express credit cards for a certain time period in 1996, the company agreed to donate $.03 to anti-hunger organization Share Our Strength. A recent survey (1995) by a Boston consulting firm asked company executives about the purpose behind such campaigns. The results were: 93 percent said "to build deeper relationships and trust with customers," 89 percent said "to enhance a reputation or image," and 50 percent said "to increase sales," according to Romesh Ratnesar in The New Republic.

PRODUCTS

Products offered by American Express include consumer credit cards, corporate card services, Membership Rewards, travel services and publications, and financial investment and banking services. Magazines offered by the Travel Related Services division include Food & Wine, Travel & Leisure, and Your Company. One new product offering in 1998 was the Blue Credit Card in the United Kingdom, targeted to the country's younger (23-35 age group) market. The card offered a simple cash-back reward, appealing to what American Express considers the younger, modern lifestyles.

CORPORATE CITIZENSHIP

American Express's community involvement remains impressive. Areas identified as priorities for funding include community service, cultural heritage, and economic independence. The company has supported United Way organizations across the United States for years and is known for aiding those in need due to natural disasters through the American Red Cross and other agencies. The company also sponsored the AIDS Walks in New York City, Minneapolis, Washington, D.C., and Boston. Other contributions include renovations of housing facilities for low-income families; clean up efforts of parks, schools, and neighborhoods; and involvement in Meals on Wheels, a program designed to aid the elderly.

The company also surrounds much of its community involvement around the environment. Recent grants include: World Monuments Watch, an effort to protect endangered historical sites worldwide; New York City Interactive Cultural Guide and Calendar, an on-line service listing cultural events and institutions in New York City; Czech Greenways, a fund for Central/Eastern Europe to assist in creating a tourism course around Prague; Frederick R. Weisman Art Museum, a display in Minneapolis of paintings by significant African-American artists; and Ontario Heritage Foundation, an effort to persuade youngsters to volunteer preservation activities in Canada.

GLOBAL PRESENCE

American Express conducts business throughout the United States and in more than 160 countries. Sales in 1997 for the United States alone were $13.40 billion (75 percent of total sales for that year). Europe came in second that year with sales totaling $2.20 billion (12 percent of total annual sales). The Asia/Pacific region accounted for $1.37 billion (7 percent of sales), while other regions totaled $1.27 million (7 percent of total sales). Of the company's 73,620 employees, 28,929 were employed outside the United States.

American Express Travelers Cheques are used worldwide, and its international corporate card business is growing. American Express took advantage of co-branding opportunities by introducing joint corporate cards with NatWest in the United Kingdom, Banco Bital in Mexico, Credit Lyonnais in France, and Qantas Airways in Australia. In 1997, the company launched its proprietary Corporate Card for Small Business in Australia and the Canadian Government Card. American Express also launched a global advertising campaign that focused on marketing its financial and travel services to areas around the world, including Asia and Latin America. Despite its best efforts, however, it did not gain overall market share in most international markets. In 1997's fourth quarter, card billings and travel sales in Southeast Asia slowed.

SOURCES OF INFORMATION

Bibliography

"american express acquires accounting divisions." fox news network, 19 march 1997. availble at http://www.foxnews.com.

american express annual report. 3 june 1998. available at http://www.americanexpress.com.

"american express company." hoover's online. 3 june 1998. available at http://www.hoovers.com.

american express company web site. 3 june 1998. available at http://www.americanexpress.com.

day, kathleen. "american express recharging its image." the washington post, 29 march 1997.

greenwald, john. "charge!" time, 12 january 1998.

levere, jane. "microsoft-american express pact shakes the u.s. travel industry." the new york times, 3-4 august 1996.

oliver, susan. "the battle of the credit cards." forbes, 1 july 1996.

ratnesar, romesh. "doing well by doing good." the new republic, 6 january 1997.

yang, catherine. "are visa and mastercard hogging the business?" business week, 17 february 1977.

For an annual report:

on the internet at: http://www.americanexpress.com/corp/annual_report/annual97/index.shtmlor write: corporate secretary's office, american express co., 200 vesey st., new york, ny 10285

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. american express' primary sics are:

4724 travel agencies

6189 asset-backed securities

6211 security brokers, dealers, and flotation companies

Company Profiles for Students

American Express

views updated May 11 2018

American Express

90 Hudson Street
Jersey City, NJ 07302
(212) 640-2000 www.americanexpress.com

American Express was originally a shipping outfit founded in New York by Henry Wells and William G. Fargo (1818-1881) in 1850. Within a few short years, the company became one of the most trusted and reliable names for safely transporting valuables in the United States. Wells and Fargo went on to form other companies, both together and separately, and were responsible for advances in the shipping, banking, and telecommunications industries.

Today, American Express is the world's number-one travel service organization, serving customers from over eighteen hundred offices around the globe. The company is best known for its popular and distinguished charge cards and Travelers Cheques. With American Express charge cards, you can go anywhere in the world and spend money without actually carrying a single dollar in your pocket.

Conquering the Shipping Industry

Henry Wells and William Fargo both found their way into the shipping business by the early 1840s. Wells had dabbled in various fields, but found he enjoyed shipping and messenger services the best. He first worked for Harnden Express Company, which was the first express company in the United States. An express company was responsible for safely transporting money and other valuable goods.

In 1841, Wells struck out on his own to form Wells & Company, with partner Crawford Livingston. William Fargo worked for the company as a messenger. The two men had similar ambitions and by 1850, along with several competing businessmen, they organized the American Express Company. With an initial investment of only $150,000, Wells and Fargo immediately made bold plans to capture the express shipping business along the eastern seaboard of the United States. Wells served as the company's first president; Fargo was vice present.

Since American Express was established in New York City, right on the waterways of the Hudson River and Long Island Sound, it was a prime location for shipping goods by steamer (larger ship) or barge (smaller, flat-bottomed boat). Wells and Fargo, however, did not intend to ship goods only on the waterways; they also made agreements to use the steadily growing rail system in New York and the Midwest. Other companies had the same idea, so in order to remain on top, American Express bought small competing firms, adding their contracts and travel lines to its own. One of the firm's chief rivals was Adams & Company. Adams became such a business threat that the two companies agreed not to invade each other's territory and to expand in separate directions.

American Express at a Glance

Employees: 89,000
CEO: Kenneth I. Chenault
Subsidiaries: American Express Bank; American Express Financial Corporation; American Express Publishing; American Express Sharepeople; American Express Tax and Business Services; SierraCities.com
Major Competitors: Bank One; Citigroup; John Hancock Financial Services; MasterCard; Merrill Lynch; Visa

Looking West

American Express believed one way to stay ahead of its rivals was to provide more services to its customer. The company expanded by offering a variety of financial and banking services in addition to its express shipping. Although they were rapidly becoming successful, Wells and Fargo wanted more. Their dream was to turn American Express into a national business. To do so, they looked to the West, especially California. California had recently joined the union in 1848, and gold had been discovered. Americans were flocking westward to stake claims and get rich. Wells and Fargo knew these prospectors would need the kinds of services offered by American Express.

Timeline

1850:: Henry Wells and William Fargo form the American Express Company.
1852:: Wells and Fargo create Wells, Fargo & Company.
1868:: American Express and Merchants Union Express merge.
1891:: First Travelers Cheques are offered.
1933:: While hundreds of banks fail during the Depression, American Express stays open.
1958:: American Express personal charge card is launched.
1966:: America Express Gold Card is introduced.
1970:: American Express card for companies is launched.
1987:: Optima card is introduced to challenge MasterCard and Visa.
1998:: Company purchases France's largest travel service, Havas Voyages.
1999:: Blue card with the Smart Chip for security is introduced.
2000:: New offices open in Beijing, China.
2001:: Company suffers losses during the World Trade Center attacks; temporarily moves headquarters to New Jersey.
2002:: Increases focus on financial services.

Unfortunately for Wells and Fargo, their American Express business partners disagreed and did not want to extend so far so quickly. Convinced of the urgent need for express shipping and banking services in the West, and determined not to let competitors like Adams & Company get the jump on them, Wells and Fargo raised $300,000 to form another company, independent of American Express. In 1852, Wells, Fargo & Company was established and began offering the same services as American Express but on the West Coast. Although American Express was only two years old at the time, it had already become a major force in the express shipping trade and Wells, Fargo & Company hoped to duplicate this success.

New Partnerships

Trouble arose in 1854 when the Lake Erie & Western Railroad felt that American Express was taking away its light freight business without any sort of separate contract. (The Lake Erie railroad was American Express's connection from the East to the Midwest.) In response, the company formed an affiliate shipping firm, the United States Express Company, to compete in the freight market. An affiliate company is one that is separate from, but still keeps close ties with, the original company. United States Express made an agreement with the railroad, which allowed American Express to hold on to its valuable railroad connection throughout the Midwest.

In 1857, American Express continued to expand when it formed a partnership with Wells Fargo, United Express, and old rival Adams & Company to create a mail delivery service called Overland Mail Company. This new firm secured a contract with the United States Postal Service to deliver mail across the country, getting Wells and Fargo involved with the legendary Pony Express. The Pony Express was created in 1860 to provide fast mail service across the western United States. Deliveries were made through a series of horses and riders. It was a short-lived service that ended in 1861 when an expanded national railway system made deliveries faster and more economical.

The first symbol to represent American Express was a white bulldog sitting on top of a freight trunk. The guard dog illustrated the company's commitment to protecting the shipments of its customers.

When the United States became divided during the Civil War (1861-65), American Express and all its sibling companies soon became heavily involved in shipping documents, supplies, and funds to soldiers throughout the nation. The company did not choose sides, instead they did business with both the North and South. After the war ended, competition in express shipping reached an all-time high, and companies were aggressively cutting in on the contracts and territories held by American Express. Some intruders were bought off or persuaded to back down, but others had the money of powerful men behind them. Merchants Union Express Company out of New York posed a grave threat to American Express, sister company United Express, and Adams & Company. Yet American Express was the most vulnerable, and after suffering losses in 1867 it merged with Merchants to form American Merchants Union Express Company in 1868.

When American Express and Merchants combined their businesses, Henry Wells decided to retire after serving as president for eighteen years. William Fargo, his longtime friend and business partner, took over running the new firm, which later changed its name back to the simpler American Express Company in 1873.

The Legend of Wells Fargo

By the late 1800s, Wells, Fargo & Company had become an established part of American culture. Wells Fargo messengers carried letters into remote areas of the West where the U.S. mail could not reach. They also gained a reputation for safe and dependable delivery. Messengers used every means of transportation—steamers, river boats, railroad cars, freight wagons, mule trains, and Pony Express. Some messengers even traveled on skis to deliver mail. But it was stagecoach delivery that made Wells Fargo a legend of the American West. Because Wells Fargo messengers were known to deliver valuables, including gold, their stagecoaches were frequently robbed by such infamous outlaws as Black Bart and Rattlesnake Dick.

The bravery of Wells Fargo deliverymen, and the perils they faced on treks across the plains and through the Wild West, created a lasting legacy. In the twentieth century, the exploits of Wells Fargo messengers were portrayed in movies, on television, and even on the stage. A movie called Wells Fargo was released in 1937; a popular television series, Tales of Wells Fargo, aired from 1957 until 1962; and the song, "Wells Fargo Wagon," was featured in the 1957 Broadway show The Music Man.

A New Era

While Fargo was busy running American Express, his younger brother, James, was making a name for himself in shipping as well. James had founded a company for freight, or large shipments, which was called Merchants Dispatch. Merchants Dispatch had no connection to Merchants Union Express Company. In the early 1870s, James decided to expand his shipping services to Europe, which led American Express to do the same. Beginning service to Europe was a bold step for American Express, but a necessary one, if it wanted to remain a leader in the shipping industry.

When William Fargo died in 1881, James took over as president. In 1891, James took the company another step into the future by introducing American Express Travelers Cheques. With Travelers Cheques, clients could travel without worry. If they lost the specially designed checks, the company replaced them quickly, usually within a day. Travelers were also protected against theft: the signature on the cashed check had to match the signature of the person who originally bought them. This protected both the owner of the check as well as the American Express Company from losses.

As the years passed, American Express began to concentrate on its financial services and left the express shipping to its sister companies like Wells, Fargo & Company (shortened to Wells Fargo Company), which had become a legend throughout the West. It continued to grow, and remained successful even in the midst of the Great Depression of the early 1930s. Millions of people lost their jobs and their money when the stock market crashed and many financial institutions failed. Yet American Express remained solid in these dark days, with its doors open and business proceeding as usual. For its customers, this was a miracle as banks and businesses failed all around them.

President Franklin Delano Roosevelt (1882-1945) was able to rally the country through his New Deal (1932) economic policies, which put many Americans back to work. Then came the beginning of World War II (1939-45), which sent men to war and women into the factories to make weapons and planes. By the 1950s, the United States was experiencing an economic boom and Americans were buying. In 1958, since American Express had been highly successful with its Travelers Cheques, it started offering its customers a new form of non-cash funds with a small green plastic card.

Charge It!

The American Express personal charge card could be used at stores, restaurants, and hotels, and was the same as cash. Each individual client was assigned a credit limit, stating how much they could charge in a thirty-day period. Each month they received a monthly statement detailing their purchases. Spending was as simple as signing your name on small charge slips and paying your balance in full upon receiving your statement. Such was the birth of the American Express card—another ingenious way to spend money without actually carrying any. The American Express card soon became the charge card of choice among the wealthy and famous.

The popularity of the American Express card led to several different kinds of cards, including the Gold Card in 1966, which was very prestigious and for wealthier clients. Not just anyone could get a Gold Card, which made it the charge card everyone wanted. The corporate or business charge card was added in 1970, followed later by the platinum and the mysterious "black" card, which had no set spending limit, and was available to only the most elite clients.

In 1987, American Express launched its first credit card, called Optima, to compete with rivals MasterCard and Visa. The Optima was not a charge card. The balance of a charge card must be paid off each month. It was a credit card, which means that customers could pay off their balance over time; they are charged an extra fee, called interest, for borrowing the money. The fee is usually a percentage of the unpaid balance.

Don't Leave Home Without It

Beginning in 1974, American Express began advertising its charge card using celebrities who asked, "Do you know me?" The commercials, which were creative and often very funny, profiled famous people whose names were more familiar than their faces, or the opposite, where everyone knew their face but not their name. The first ad featured actor Norman Fell (1925-1998) from the television series Three's Company. Over the years, other famous faces included former Speaker of the House of Representatives Thomas "Tip" O'Neill (1912-1994), English comedian John Cleese (1939-), writer Stephen King (1944-), playwright Beth Henley (1952-), and hot tub designer Roy Jacuzzi (1903-1986). The successful ads always ended with the same line, one that became forever connected to American Express credit cards: "Don't leave home without it."

Building a Travel Empire

During the 1980s, American Express built up its travel services through a buying spree, gobbling up big travel agencies throughout the United States. There was Lakewood Travel (Colorado), BPF Travel (New Jersey), Commerce Travel (Pennsylvania), Corporate Travel International (Georgia), and further expansion into North America with HBC Travel in Canada. These purchases amounted to more than $400 million and added to the company's expanding empire.

In the 1990s American Express made the news with several high profile travel agency purchases in countries around the world, including Australia, Brazil, France, Germany, and the United Kingdom. In 1994, American Express acquired two businesses from one of the world's oldest travel agencies, Thomas Cook, paying $375 million for the two Cook units. The transaction was the largest ever in the travel agency industry.

American Express joined the cyber revolution by creating a Web site in 1995, offering its credit card users an Internet site with many travel and financial services at their fingertips. Called ExpressNet, the new service was available through America Online, the fastest Internet-based provider in the United States at the time. By 1997, American Express realized just how much travel business was done via the Internet and increased its presence through a new deal with the Travel Channel Online, part of the cable television organization. The new partnership offered a wide range of travel services, including airline and hotel reservations, to all of the Travel Channel's twenty million customers at the American Express Web site.

A New Century

At the end of the twentieth century, American Express introduced another charge card called Blue, with a "Smart Chip" to protect its users from fraud or unauthorized use. This new technology also keeps track of user's purchasing likes and dislikes, and makes purchasing, whether at stores or on-line, simple, fast, and private. By offering clients simplicity and privacy, American Express soon had another hit on its hands.

In September 2001, tragedy struck American Express and many other companies with offices in or near the World Trade Center in New York City. When terrorists attacked the World Trade Center, many lives were lost and businesses destroyed. American Express had offices directly across from the two World Trade Center towers, but was extremely fortunate that the majority of its six thousand employees in the area survived. The firm temporarily moved its offices and workforce across the Hudson River to the New Jersey shore, but planned to return to lower Manhattan in mid2002. Yet losing its offices was not the company's biggest problem; since its primary business was travel, American Express lost millions when airline travel was suspended and Americans were too frightened to resume travel for many months after the attacks. Americans did, however, return to the skies and business resumed within the year.

By 2000, American Express was 150 years old and had grown from a small express shipping company to an enormous worldwide travel and financial services company bringing in over $22 billion in revenues annually.

American Express was a company formed to ship valuables and funds within a set period of time for a prearranged price. It promised safety and security to its customers, and it always delivered. In the twenty-first century, American Express is still about securing its clients' trust—just through different means. Barges, railroads, stagecoaches, and men on horseback have been replaced by FedEx (see entry) package delivery and most of all, the high speed of the Internet, which American Express uses every second of every day to deliver services to its millions of global customers.

Leading American Businesses

American Express Company

American Express Company

Principal Subsidiaries

Further Reading

American Express Company

American Express Company

Principal Subsidiaries:

Further Reading:

American Express Company

American Express Company

COMPETITIVE CAMPAIGN

OVERVIEW

HISTORICAL CONTEXT

TARGET MARKET

HE SAID, SHE SAID

COMPETITION

MARKETING STRATEGY

OUTCOME

FURTHER READING

DO MORE CAMPAIGN

OVERVIEW

HISTORICAL CONTEXT

TARGET MARKET

COMPETITION

"DO MORE" EVERYWHERE

MARKETING STRATEGY

OUTCOME

FURTHER READING

SEINFELD CAMPAIGN

OVERVIEW

HISTORICAL CONTEXT

TARGET MARKET

COMPETITION

MARKETING STRATEGY

KNIX TIX

OUTCOME

FURTHER READING

American Express Company

American Express Company

Westward Expansion in 19th-century America

Competition After the Civil War

Company Perspectives:

Late 19th-century Innovations

Key Dates:

International Growth Between the Wars

The Card Revolution of the 1950s

Diversification in the 1960s

Credit Card Wars: 1980s-90s

Principal Subsidiaries

Principal Operating Units

Principal Competitors

Further Reading

American Express Company

American Express Company

Contact Information:

OVERVIEW

COMPANY FINANCES

ANALYSTS' OPINIONS

HISTORY

STRATEGY

FAST FACTS: About American Express Company

INFLUENCES

CHRONOLOGY: Key Dates for American Express Company

CURRENT TRENDS

PRODUCTS

CORPORATE CITIZENSHIP

GLOBAL PRESENCE

SOURCES OF INFORMATION

Bibliography

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American Express

American Express

Conquering the Shipping Industry

American Express at a Glance

Looking West

Timeline

New Partnerships

The Legend of Wells Fargo

A New Era