American Express Co., which has been trying to boost use of its charge cards, has reintroduced a program that rewards charge card customers for grocery and gasoline purchases.
Through next March 15 Amex charge card customers enrolled in its Membership Rewards program will earn double the standard reward of one point for every dollar spent, up to $1,000 per month, on U.S. grocery and gas purchases. New customers approved for Amex's charge cards from April 1 through June 30 will automatically be enrolled in the double-points promotion. Corporate cards are excluded.
The nearly year-long promotion could help Amex offset the effects of the consumer spending slowdown, which is reducing the company's profits, said Brian Riley, a research director in the bank card practice at TowerGroup, an independent research firm owned by MasterCard Inc. "Amex's heavy weight of charge card customers means its revenues depend heavily on transaction fees," he said, "so when consumers pull back on spending, it has a profound effect on revenues."
The recession has hammered Amex's transaction volume, Riley said. Amex's overall billed business in the U.S. card services segment fell 9% in the fourth quarter, to $92 billion, compared to the year earlier, and per-card spending fell 13%, to $2,758.
Amex reported 44.2 million cards in circulation at Dec. 31 in the U.S. card services segment.
It offered a similar program for charge card customers that it suspended in 2006. Charge card customers pay annual fees starting at $95 per year.
The company has also periodically offered a double-points program to certain credit card customers, who typically pay no annual fee. Analysts estimate that credit cards make up about 25% of Amex's card portfolio. Amex spokeswoman Marina M. Hoffmann said the company reintroduced the program this month "to reward charge card customers for necessary spending they need to do right now."
Riley said that, because gasoline and supermarket retailers typically pay among the lowest interchange rates of all merchant types, Amex's primary goal with the promotion is to get charge card users into the habit of using their cards for routine purchases. "Gasoline and grocery are good channels for Amex to attack since those areas are dominated by branded network cards, and everyday spending on these items is recurring business. Double-point promotions can help get charge card users into the routine of using those cards for all types of purchases," he said.
Megan Bramlette, a managing associate at Westbury, N.Y.-based Auriemma Consulting Group, said the promotion shows Amex's growing emphasis on the charge card portion of its portfolio. "Amex makes most of its money on charge cards," she said, "and this promotion suggests Amex is going back to its core. The company needs to get charge card customers to pull those cards out of their wallets every day, not just when buying airplane tickets and high-end merchandise."
Amex's focus on grocery and gasoline spending is significant during a recession, Bramlette said. She estimated that 9% to 15% of the average consumer's monthly living expenses are tied to grocery and gasoline purchases. "The spending on everyday living isn't a huge amount," she said, "but these are important categories for driving everyday card use in a downturn."
The fact that Amex is providing extra rewards for dues-paying customers also signals a growing trend in rewards cards, Bramlette added. "Fee-based lending is just around the corner, as card issuers cope with economic trends," she said. "As a result, we're going to see more tier-based rewards programs that require customers to pay for points."