MANAGEMENT DECISION CASE Crafty Credit Card Competitor "Chases"...

MANAGEMENT DECISION CASE Crafty Credit Card Competitor "Chases" Amex for Share of Millennials' Wallets American Express (Amex for short) is one of the most venerable brands in all of financial services. Unfortunately, Amex and its stockholders recently saw profits in the credit card business fall by nearly 20 percent, with an accompanying revenue plunge of $2 billion!66 How is it that a successful firm like Amex can hit such a rough patch? One key reason is changing customer demographic trends, Amex's aging and somewhat pompous brand image (which makes it appear out of touch with younger up-and-coming market segments), and a wily competitor in the form of Chase Bank (more on Chase later). Amex, founded in 1850 as an express mail service, didn't offer its first charge cardwhich was technically not a credit card, since the balance had to be paid off each monthuntil 1958. Over its history, the firm created the once popular "Traveler's Cheques" business (1891-1990s), founded and spun off an investment bank to Lehman Brothers (1981-1994), and formed a joint venture with Warner Communications that led to the creation of television channels MTV and Nickelodeon (1979-1984). Today, Amex has over 100 million cardholders worldwide, some of whom see enough value in their cards to pay a $7,500 initial fee and a 207 $2,500 annual fee to obtain the rarefied Centurion card (a.k.a. their "black card").67 To call Amex a venerable brand would be a gross understatement, as it ranks as one of the top 25 brands in the world and has been valued by Interbrand at $18 billion.68 Amex's branding power provides a lot of cachet with customersespecially those from Generation X and olderand it has significant pricing power with merchants worldwide. However, Amex recently has been steadily losing customers and key merchants, including dropped exclusive deals with Costco and JetBluelosses that cost Amex massive amounts of revenue. Warren Buffett, whose holding company Berkshire Hathaway owns more than 10 percent of Amex, has said that the "brand is under attack." But why under attack now, in particular? The brand most responsible for the recent vulnerability at Amex is Chase. Chase has boldly taken advantage of an opportunity by segmenting, targeting, and positioning in Amex's market to craft and present a new image to the highly desirable and hard-to-reach millennials. To explain Chase's approach, we must first understand that Amex has traditionally positioned itself as a premier offering, providing a posh credit card for the elite, successful, and (typically) older professional. But Chase decided to take a different approach. Following demographic trends, Chase saw that market growth potential was much greater for millennials (Generation Y) than any other generational segment. According to the U.S. Census Bureau, millennials now outnumber every other generational cohort and will hold this position for at least two decades.69 Millennial consumers behave differently from those from previous generations. They are known to ignore much traditional advertising, and often postpone marriage and home purchasesbut they may not hesitate to jump right into car and travel purchases. They check blogs and social media for product reviews, and also tend to be more brand loyal than other generational segments. The value that millennials place on brand authenticity and brand involvement with social causes, as well as their desire to participate in product creation processes and dialogues (usually virtually), provide strong clues to marketing managers about how to win them over.70 It seems that Amex largely missed these cues, and Chase was only too happy to cash in on the oversight. So Chase developed and marketed a card rich with rewards, designed to appeal to millennials' value-seeking behavior and attitudes. They positioned the Sapphire Reserve card as "not your father's credit card," directly opposite to Amex's positioning. Chase smartly set out to provide a different value proposition by offering up a brand image based on experiences rather than conspicuous consumption (meaning "showing off" one's ability to buy). Using basic demographic segmentation, but deepening the insights with psychographics of the millennial target segment, Chase discovered that younger consumers typically shunned the Amex card because, as one consumer stated, using the Amex card felt "braggy" (an antithetical value for millennials). But Chase's Sapphire card, tinted dark blue and made of metal, feels more authentic to the younger consumer. It says, "If I have this card I'm interesting."71 To be sure, the Sapphire Reserve card offers plenty of benefits, especially for travelersa 100,000-mile reward sign-up bonus, credit toward TSA-Pre? enrollment, an automatic extended warranty on purchases, trip insurance, and access to airport lounges. But Chase's main brand message is that these rewards are designed to get you to the snowboard slopes and the after-parties at the hottest local venues, rather than to an exclusive upscale wine tasting in the Loire Valley. To say that Chase's Sapphire Reserve card has been a slam dunk would be an understatement. In the first seven months after its release, Chase signed up more than 1 million new cardholders, half of whom were under age 35!72 But don't count Amex totally out of the millennial ballgamethey are working hard for a comeback, but how well they do is "all in the cards."

On page 206 of the eText, the management decision case we see the credit card discourse from the perspective of American Express and its drive and battlefor the millennials' wallets.Chase positions its offering as, "It's not your father's credit card".

• Discuss the millennial segment and its archetype and explain why this segment is crucial to both Amex and Chase?
• Is the historical branding of Amex card for the " successful professional", give Sapphire a branding advantage?