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BirdsEye View

getting ahead of the game: lessons from amex segmentation

Happy New Year!

We're back from a family trip to the warm countries, recharged and ready for another intense year. My last article about Starbucks got lots of reactions, including these two:

Laura Hansen of Mechanics Bank writes, "I totally agree. When my daughter, Ashley, started working for Starbucks last year, I read the Green Apron Book and wanted to immediately come back to the bank and implement some of their concepts...The Starbucks philosophy not only has an impact on the customers, it also improves employee satisfaction, which translates into improved retention".

And Graham Painter of Sterling Bank wrote, "Great message, Anat. With the increasing focus on front line sales combined with increasing regulation and compliance scrutiny, building a functional service culture has never been more difficult. However, stories like your Starbucks example demonstrate it can be done. And you can't forget Starbucks also has regulation - from the various health departments - and withering competition. Everyone, it seems, believes they can build and operate a coffee shop. I guess Starbucks can only thank all the half-baked start-ups who think it's all about coffee (and not hospitality). They send those customers scurrying right back to Starbucks. There's a lot to learn here".

Others also pointed out that Starbucks service at airports leave much to be desired. please know that those outlets are licensed to other operators, and the difference in service levels is marked. Starbucks realizes the negative impact this has on the entire brand and its promise, and is strategizing how to handle this challenge. Again, there are many lessons here for banks who often fall short of seamless execution across channels and delivery points...

Also note Dick's article on his diet secrets at the BirdDroppings section of www.anatbird.com. His ideas are particularly apropos this time of year...

Getting Ahead of the Game: Lessons from Amex Segmentation

Segmentation is an art and a science that many data base managers have perfected, yet it's the out-of-the box product development, coupled with innovative segmentation, that truly creates a competitive advantage. A great example of such breakthrough thinking was the Ritz Carlton hotels, which targeted only the top quartile of the population in income, and then designed hotels that would especially appeal to them. It is no surprise that Horst Schulze, the hotel chain founder and creator, is now off creating two new hotel concepts for two different segments, now that the Ritz Carlton hotels have been sold to Marriott.

Banks have improved their data base management meaningfully over the past decade, and many have a data warehouse with appropriate house-holding and other appendages to better understand their current customer bases and their potential. At the same time, banks have not taken this information further, by developing segment-specific products that create tangible and fully customized value to their most desired customers.

Let's consider American Express. The original credit card company has evolved considerably over the years, and well beyond its initial green card. Using a simple color scheme, it was the first card company to introduce the gold card, adding higher limits, higher fees and much more cache to the product value proposition. The company continued to shore up the brand and its value proposition by creating "Amex gold card on Broadway", a program that allows card holders access to coveted show tickets before they are available to the general public. This represented a unique benefit that ONLY Amex offered, and a benefit that was of great interest to many of its target customers, while adding to the cache of the brand.

The gold card was followed by other card issuers who emulated Amex by offering a gold-hued card with some special privileges, such as extra points. They met with some success, but the "first in mind" space has already been occupied by Amex.

That innovation was followed by the Platinum card, which, in addition to quadrupling the gold card fees, offered cash availability anywhere around the world without the need for a check, hotel upgrades when available and other travel and concierge services. They created a high-quality magazine aimed solely at this target segment (which makes mucho dollars on the advertising, which is greatly desired by high-end vendors since it is one of the very few fully targeted magazines to their target audience, thereby minimizing wasted advertising), adding to the brand cache and also to their revenue streams. Further, for significant dollars (say, at least $300 per person per evening), Amex offers exclusive performances and evenings with different artists: authors, actors etc. For a much greater sum, they'll get you Superbowl box tickets if you can't get them. They created a sense of exclusivity. The result: a huge success, and a slew of followers.

Amex chose as their next salvo into the uncharted waters of high-end credit card differentiation a unique product: the Centurion Card, fondly called "the Black card" by its users. This card was SO exclusive you couldn't apply for it. It's a "by invitation only" product, and invitations are extended only to the most credit-worthy customers who spend at least $150,000 with their card annually. For this elite group, the card privilege is offered for the meager fee of $2,500 annually. The card comes by FedEx is a huge black box, within another black box, where the card is nestled in a third black box. It is made of titanium, and is thicker than most cards. Once you receive the card, you can enjoy your benefits, ranging from the ability to rent a jet and a personal shopper at Neiman Marcus to a high-service concierge department that is instructed to do practically whatever you ask of them.

I know this card is successful, because (a) not everyone knows about it and (b) those who know about it are happy to let you know when they got their card.

I am impressed at the careful thought and detailed product differentiation Amex has been able to achieve in a totally undifferentiated, commodity-like product. There are countless card offers with no fees for life, yet here are people paying $2,500 to have a card with essentially the same functionality, plus a few frills. I'm impressed, especially since so many bankers tell me our products are non-differentiatable, and I believe them.

What is the secret to this success? Amex' chief marketing officer says they continue to use unconventional tactics to make their cardholders feel special and others feel envious. By what I know and just described, they are surely right. For instance, at the US Open, which takes place in Flushing, NY, and is a traffic mess to get in and out of, they offered bicycle taxis for free to ride from the subway station to the arena and back -- but only for Amex card holders. They also offered large-screen TVs for viewing the games in midtown Manhattan for those who elected not to go to the actual venue. "We want our card-members to feel rewarded with membership, and we want prospects to say, "Boy, I should get one of those", says the Amex marketing executive.

Another example of exclusivity and the idea that "membership has its privileges" is offering previews of certain TV shows that appeal especially to Amex target segments, such as "Lost" and "Prison Break". Membership indeed has its privileges!

I find this desired effect particularly interesting since research conducted recently by BAI indicates that the Number One reason for customers to become loyal is the feeling that their business is appreciated and is tangibly rewarded. "The Bank Rewards Me For the Length and Size of My Business" is what 100% of the customers said. 100% is a pretty compelling number. As you think abuot it, all they are looking for is a sense of being treated fairly, which, in their minds, includes getting more value as they bring more business to their bank or retain their business at the bank for a longer period of time.

Amex has already figured this out many years ago, and every one of their cards says, "Member since...". Their desired positioning, especially in the target segments they have identified, corresponds directly to customers' preferences not only regarding product features and functionality (which banks do fairly well), but also to customers' desired feelings (which banks typically ignore).

There are many more examples pointing at the unique marketing approach Amex has taken, its effectiveness and its originality. However, the real story here is that Amex found a way to add value to a commoditized product in such a way that sways the customers they are most interested in to obtain and use their card. So many people I know use their Amex card in lieu of their debit card for all transactions, just to gain the points. They are "hooked", as am I, and have consolidated their purchasing into this single card for the value they receive other than payment convenience.

So, next time you're told that our products are fully commoditized and can't be differentiated, you might want to question this assumption. Traditional marketing and product features and functionality can't create differentiation, but value-added and a sense of belonging, appreciation and exclusivity can!

EPILOGUE: MasterCard has just introduced its Elite MasterCard product. Not only is it black, but it imitates the Amex Black card in many other ways, ranging from travel assistance (using a vendor, like Amex does), points, companion tickets and other goodies. My prediction: Amex will introduce yet another card aimed at the very exclusive segment in 18 months to battle this product offering and create a bleeding edge for others to follow.