Saying it has succeeded in getting consumers to use its cards for essential day-to-day purchases, American Express Co. is overhauling its reward programs - which have been unexpectedly expensive of late - to encourage online spending instead.
Beginning Oct. 1, the New York company will stop giving double points for "everyday spending" on charge cards at supermarkets, drugstores, and gas stations. Instead, cardholders enrolled in the Membership Rewards program will earn two points for every dollar spent online at more than 100 top retailers, such as Target Corp., Barnes and Noble Inc., and Gap Inc.
Desiree Fish, a spokeswoman for Amex, said the four-year-old double-rewards program did its job. "Over the last few years, we really changed the consumer behavior and that mind-set," she said. "People realized, 'I can use my card instead of a check to buy that $4 tube of toothpaste.' Now, we want to spur some online spending."
The double-rewards program for everyday spending will still be available on some of Amex's credit cards, including the cobranded Delta Sky Miles card and the Blue Cash card.
The changes, announced Tuesday, apply only to Amex's proprietary cards, not Amex cards issued by other banks.
Amex's second-quarter earnings report last week included a $62 million charge to adjust its model for higher expected rewards redemptions outside the United States.
Gary Crittenden, Amex's executive vice president and chief financial officer, said during a conference call last week that if marketing and reward costs in 2005 were summed up in one category, rewards expenses would account for 59% of those costs. In this year's second quarter, Mr. Crittenden said, marketing, promotions, card services, and rewards costs rose 16%.
Craig J. Maurer, an analyst for Soleil Securities-Fulcrum Research, said that like any incentive program, the double-rewards program "served its purpose." But the high redemption costs necessitated changes, he said.
"They introduced the program to build their everyday spending on their cards, and it's worked," Mr. Maurer said. Amex might lose some everyday spending because of the changes, but, he asked, is there "anything better out there?"
Even if there are better programs, Mr. Maurer said, he doubts customers would suddenly give up all the points they have accumulated over the years on the Amex cards.
"How many years is it going to take you to build up on that new Citi card, where you could have just been adding to the points you already have on Amex, albeit at a slower rate?" he said.
Robert P. Napoli, an analyst with Piper Jaffray Cos., said that Amex's "tweaking" of its rewards program would perhaps "take away a touch of the revenue growth, but a little bit more of the expenses."
And though Amex's card-use volume will probably drop, it still has a competitive rewards offer, he said. Mr. Napoli called the program a classic example of creating an incentive to break into a market, in this case grocery stores.
"They raised the awareness, and now they're going to take some of that incentive away, but you still have a very good incentive program," he said. "If you used a credit card at the grocer, you're still likely to use the American Express card."
