American Express Co. next month will launch a rewards program offering discounts on merchandise bought with Amex cards.
The program, Custom Extras, is similar to American Express' Membership Rewards program for frequent traveler but will be free and will probably have many more partners than the 40 participating in Membership Rewards.
"We know that rewards programs can often cement a relationship with consumers," said Alfred F. Kelly, American Express' general manager for customer loyalty.
Custom Extras required a significant investment in technology enabling the company to track the purchasing patterns of its cardholders to offer them discounts at stores where they shop or where merchants hope they will shop.
In conjunction with the new program, American Express also redesigned its billing statement to include a column that will tell cardholders about the discounts for which they are eligible from merchants participating in Custom Extras.
Moreover, American Express is leveraging its so-called closed-loop network, which is its ability to control all aspects of a card transaction from point of sale authorization to merchant card processing.
Sanford C. Bernstein & Co. analyst Moshe Orenbuch said the closed-loop system "is one of the areas where they have a significant competitive advantage."
American Express plans to give merchants in the program choices of what kinds of discount they offer and to whom.
For example, a merchant may want to reward a customer who spends $1,000 a year at the store or it may decide to offer a different reward to people who shop there for the first time, said American Express spokeswoman Emily Porter.
Custom Extras will be rolled out in two phases.
The first, beginning in November, will notify cardholders of merchant discounts, advising consumers to call a toll-free number operated by American Express. It will then mail a discount coupon to its cardholders. Initially, only charge card customers will be eligible for Custom Extras, which has been tested in the United Kingdom and other overseas markets.
The second phase, scheduled for mid-1997, will encourage cardholders to shop regularly at a store by offering discounts after several separate purchases. This phase will be rolled out in the United States without previous testing elsewhere.
American Express is to notify cardholders on their statements that, for example, after their third purchase at a particular store they would get a $15 gift certificate in their next statement.
"In the early stages we will be rewarding customers based on past behavior but then we will reward them for future behavior," said Mr. Kelly.
American Express declined to identify merchants participating in Custom Extras. But Mr. Kelly said he hoped the program would generate 100 different offers a month and have 1,000 partners in a year.
Not every cardholder would qualify for all offers because some might be from merchants that don't do business in a particular city or state, or the offer might target only customers who meet certain criteria.