American Express Cares...That You Reach for Your AmEx

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 |  About: American Express Company (AXP)
by: Trefis

If you have an American Express (NYSE:AXP) card, you probably have Visa (NYSE:V) or MasterCard (NYSE:MA) as well. Likewise, most retailers who accept American Express cards also accept Visa and MasterCard. After all the marketing and advertising, partnering with retailers and third-party financial institutions, the thing that really matters is which card a consumer pulls from his or her wallet to make a payment. So, what determines which card a shopper picks?

All payment networks have a long list of benefits and cash-back offers, to the extent that they are often difficult to differentiate (they all offer the “best” value). One easy way to differentiate is customer service – accessibility of card network representatives, ease of receiving clarifications, and transparency of the billing process. This is exactly where American Express looks to set itself apart.

What is American Express Doing?

American Express intends to go beyond rewards programs to offer a more personal touch to its customer care service. American Express has developed a program called Relationship Care, wherein front-line employees are trained to go beyond simply responding to a customers’ questions and build relationships by offering customized advice on getting the most value out of American Express cards.

While increasing the number of American Express cards in use and the number of retailers accepting American Express cards is an important business driver, getting customers to actually use the card is a more critical factor in generating transaction fee commissions. Customer care is one way to increase the likelihood that shoppers will reach for their AmEx card at the point of purchase.

Chart created using Trefis' app

How Much Could Improved Customer Care Impact AXP Stock?

American Express reportedly sees an 8-10% increase in credit card spend from a customer after talking to that customer about their card benefits. [1] Going forward, the company could potentially see similar upside outside the U.S. if it sharpens its customer focus in Europe, Asia, and South America.

We currently estimate that average card member spending on American Express issued cards outside the U.S. will grow from about $10,000 in 2010, to nearly $19,000 by the end of our forecast period. If, however, cardmember spending were to rise at a faster pace, in line with the customer behavior in the U.S., it could imply 2% upside to our $49 price estimate for American Express stock.

You can drag the trend line in the interactive chart above to see how different scenarios for average non-U.S. cardmember spending could affect American Express’ stock value.

See our complete analysis of American Express stock here

Notes:

  1. Why American Express Is Raising The Bar On Customer Service, Forbes, March 17, 2011

Disclosure: No positions