American Express has reallocated marketing resources towards its Platinum card, which has an $895 annual fee, and reduced investment in no-fee cash back cards. CEO Stephen Squeri announced this strategic shift after the company's fourth-quarter results.
Strategic Rationale
Company executives explained that this approach aims to increase overall spending levels among affluent consumers, which contributes to higher fee revenue from premium cards and lower loan defaults. Squeri noted significant demand for premium products, specifically the Platinum card, enabling marketing investment flexibility.
"This approach aims to increase overall spending levels among affluent consumers, which contributes to higher fee revenue from premium cards and lower loan defaults."
The overall American Express portfolio is gradually becoming more premium due to the rapid growth of the Platinum portfolio.
Alignment with Economic Trends
This strategy aligns with the observed "K-shaped" U.S. economic trend, where wealthy consumers continue spending freely while others restrict their expenditures. Data from American Express indicates an acceleration in demand for high-end products and luxury experiences, while purchases in more basic categories show slower growth.
"This strategy aligns with the observed 'K-shaped' U.S. economic trend, where wealthy consumers continue spending freely while others restrict their expenditures."
Premium Spending Surges
CFO Christophe Le Caillec reported specific spending increases during the quarter:
- Luxury retailers saw a 15% surge.
- Business and first-class airfare purchases rose 9%.
- Luxury hotel spending increased by 12%.
Broader airline spending was up 3% and lodging by 5%, suggesting that premium cardmembers are significantly impacting these results.