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American Express wants to cut spending as it enters 2009—nearly $2 billion worth—but what happens if its customers do the same?
For the rest of the February 2009 issue of CRM magazine please click here
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Late last October, the American Express Co. publicly outlined its cost-cutting initiatives for 2009, intended to achieve total savings of approximately $1.8 billion. Of that, $125 million will come from reductions in general overhead and operational costs, consulting and professional services—and, not incidentally, travel and entertainment expenses, the very same sort of spending that AmEx makes its money on from its customers.

In the grand scheme, $125 million may seem a drop in the bucket for a multibillion-dollar company. Still, it implies that, in this economy, even American Express is cutting back on things it hopes you won't.
At first glance, says Richard Owen, chief executive officer of customer experience management provider Satmetrix, "it's something of a difficult line to pursue for a company that does prescribe travel services.... It's [like] an IT-services company saying [its] employees have lousy laptops."

On the other hand, Owen says, AmEx's move is both prudent and practical: "It's an acknowledgement that customers are going to be cutting back on travel and services." And companies, he adds, should "focus on cost-cutting in ways that have the least impact directly on the services they provide for their customer and to take cost out of internal operations.... [G]etting their fiscal house in order is just good practice." In fact, part of AmEx's cost-cutting efforts included laying off approximately 7,000 employees—though not, according to a company spokesperson, in positions dealing directly with customers.

On December 2, American Express Business Travel (AEBT), a division of AmEx, released a statement that, in early 2009, it will begin "offering a complimentary travel-program assessment" to all companies worldwide, a service that was previously reserved for American Express clients. The service focuses on how companies can make smarter purchasing decisions (e.g., buying from preferred suppliers); change purchasing behavior (e.g., booking early and in economy class); and ensure that employees are compliant with any relevant travel policies.

Owen says that opening services to nonmembers certainly exposes the American Express brand to a larger range of customers, and also signals to the marketplace that AmEx is providing value. The risk, he says, is diluting a brand built on the currency of membership. "On the AmEx card, they say, ‘Member Since,'" Owen says. "How many credit cards say [that]?" He warns that existing members may wonder, "If I don't get rewarded for my loyalty, why am I a member?"

Nevertheless, Owen expresses confidence that American Express has thus far avoided this fate. He does point a finger at cable and telephone companies that focus more on the acquisition model, with special offers available only to new customers. "It's like your loyalty to us is penalized," he says, adding that these types of offers ultimately result in what he calls "arguably the worst type of customers, who have the lowest lifetime value and upset the existing customer base."

Technology may have helped shrink the globe—see Re:Tooling, page 47, for a look at the resurgence of Web conferencing as a means of bridging distance—but travel is still necessary to the successful conduct of many businesses. What's changed over the past year, says Hervé Sedky, vice president and general manager of advisory services at AEBT, is that chief financial officers are forced to see travel as an investment rather than a cost. As such, companies are forced to look for ways to save money without reducing the number of trips.

Waste is often found in noncompliant travel, such as purchasing flights, hotels, or rentals from unapproved suppliers, or spending beyond an allotted travel budget. AEBT implements point-of-sale tools and technology that enforces company policies, putting benchmarks and triggers in place so companies understand what and how they're spending, and best practices around improving it.

Coming out of the recession, Sedky doesn't advise companies to overly scrutinize travel spending. He argues that large-scale customer events, employee incentives, and travel rewards are important to drive revenue and achieve solid return on investment.

For the most part, Owen says, consumers are sympathetic to cuts made during lean times. Customers like to believe their vendors are behaving ethically, but are also highly appreciative of a free market.
As consumers, Owen says, "we don't quite make the moral leap to be concerned about the welfare of our vendors. We don't really even respect our vendors' right to make a profit. It's more like, ‘Best Buy's going belly up. Let's go and get some sale prices.'"

The condition of the domestic automotive industry, he says, has really served to illustrate this psychology. "If Americans as a group really cared about the long-term fate of Detroit employees, they would have had a bias choosing American cars irrespective of the value equation.... [Instead, they've] demonstrated they'd be perfectly happy to import a [Toyota] Prius from Tokyo over protecting American jobs." (See Market Focus: Automotive, for more on that industry's woes.)

What gives Owen hope during the current recession is that, unlike those in the past, companies finally understand that success is predicated on a strong customer relationship.
"Companies that culturally and philosophically got this going into the recession will continue to execute," he says. "If you were lost in space before, arguably you're more lost in space [now]. Winners and losers get increasing separation in a recessionary environment.... These are very challenging decisions, very complicated factors. [Today's corporate leaders are] choosing between very unpalatable alternatives."

Every month, CRM magazine covers the customer relationship management industry and beyond. To subscribe, please visit http://www.destinationcrm.com/subscribe/.

Here's a quick link to more of this month's special coverage — The Recession Issue.

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To contact the editors, please email editor@destinationCRM.com
Every month, CRM magazine covers the customer relationship management industry and beyond. To subscribe, please visit http://www.destinationCRM.com/subscribe/.
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