Starting Oct. 1, 2006, American Express will eliminate a valuable point-earning scheme for holders of its Green, Gold and Platinum cards when it stops awarding double points for "Everyday Spending," i.e. purchases made at supermarkets, drug stores and gas stations.
To compensate for the loss of points, American Express will launch a new program called "Bonus Point Mall," which effectively awards members two points for each dollar spent at selected online merchants, including Target, Barnes & Noble and Gap. Cardholders will be required to access these online merchants through a link on American Express's Web site.
American Express says it will start notifying affected cardholders beginning with their August statements. Under current plans, customers holding Blue Cards and Delta Air Lines SkyMiles Cards will continue to receive double points on selected purchases.
The good, the bad and the ugly
American Express is attempting to channel cardholders' spending to direct channels. This is a buying strategy that I usually advocate, but American Express is pushing it in the wrong way at the wrong time.
Here are the nuts and bolts of the proposed changes.
* Many cardholders will lose double points on everyday shopping at grocery stores, gas stations, and drug stores.
* Some members could see their annual fee rise by $35, while others (those who lose the double points) could save up to $15 in fees.
* Elimination of the free Membership Rewards Options program, a free reward program offered to charge-card users. Members of this program will have to pay a fee to "upgrade" to the Membership Rewards program.
* Elimination of the free shipping and handling currently offered to certain high-end cardholders.
The arguably good:
* Participants will earn double points on purchases made at designated online shopping sites.
* Certain cardholders will benefit from a new insurance plan that reimburses patrons who miss concerts, plays or sporting events if the tickets were purchased with an American Express card.
* Gold, Platinum and Centurion cardholders will qualify for free roadside assistance.
In short, American Express is stepping back into the '50s, turning its once-valued program into a modern-day application of the model formerly used by S&H Green Stamps (the program that allowed grocery shoppers to collect "green stamps" that could be redeemed for an inventory of items ranging from coffee makers to sewing machines).
A number of travelers have told me that reducing their opportunities to earn points will not increase their American Express spending but rather decrease it; in many cases, cardholders said they will cancel the card.
The reality is that the new program limits consumer choice while enriching American Express and its select group of partner vendors. The program won't fly because it offers little value.
Let me explain what I mean:
1. A dedicated Web portal where the vendor and card issuer are in collusion gives the vendor greater pricing power which, naturally, results in higher prices. Amex is basically setting up an affiliate mall and betting that you, the consumer, will ignore prices in favor of double points. Maybe you will. But at a time when the value of air miles and loyalty points is falling faster than the U.S. dollar, I think informed consumers will say, "No, thanks."
2. The added incentives, such as ticket protection and roadside assistance, are of limited value, I think. The ticket protection will require many restrictions and burdensome documentation, and it seems ripe for abuse by unscrupulous consumers -- ultimately generating costs to legitimate cardholders' claims. The roadside assistance is almost surely duplicative, as the higher-end cardholders likely already have roadside plans through AAA (or their car's dealer/manufacturer) that cost less than the high annual fees charged for American Express premium cards.
So why the change?
Desiree Fish, a spokeswoman for American Express, says that the everyday point program was devised to change consumer behavior. Essentially, the goal was to stimulate spending on items other than travel and entertainment. At the same time, Amex was working to increase merchant acceptance in the United States. With these objectives achieved, American Express seems no longer to find any benefit in creating added value for its cardholders.
Curiously, this pullback in customer value comes at a time when American Express is faced with increased competition from MasterCard and Visa and is experiencing lackluster financial results. I can appreciate the company's search for added profits, but I think Amex is in for a rude awakening a year from now, when it takes a look at its member roster. American consumers are often fickle and disloyal. American Express cardholders are no exception, and I predict that many of them will defect to better credit-card offerings.
If I were a holder of an American Express card slated for a change, I would wait and see what the final iteration of the new program looks like. If the program rolls out as anticipated, I think I would change to a card offering greater value.
August 9, 2006