Co-branding Relationships

TAKEAWAY: CO-BRANDING RELATIONSHIPS

Audience Member: What is the impact on your brand of the fact that you’re losing certain exclusive relationships with companies like American Airlines—and there goes the access to their lounges in airports and Costco? And what are you doing and what can you do to retain customer loyalty that comes not just to American Express but to those with whom you’re co-branding?

Chenault: So let me balance that. The first one is, with respect to American Airlines, we don’t have a co-brand card with them. That’s really with Citi. The airline we ended the relationship with was JetBlue. And I’ll talk about Costco in a second. But what we also were able to do is we have resigned every other major co-brand relationship, whether that was with Delta, Starwood, British Airways, Cathay Pacific.

Here’s the issue, fundamentally, that I believe in strongly—that we offer differentiated products and services. So we had a 16-year relationship with Costco. Reality is that was a very, very long-term relationship. And what we offered Costco at the time was we said we can actually improve your warehouse club memberships and we can actually improve the retention. 

What we also felt is I decided that I wanted to renegotiate early all of our major co-brand deals, because I don’t believe in life what you do is wait for things to happen. You want to be on your front foot. So I wanted visibility into our partner relationships. So we went out early to everyone. We went out to Delta. We went out to Starwood. We went out to British Airways. We went out to a range of co-brand partners. And, as I said, we successfully signed all of them. 

But what’s fortunate for us is, on Costco, 70% of the spend is outside of Costco. The spending inside Costco is in fact less profitable. So while, at the end of the day, I value our partnerships, here’s what I don’t value—I don’t like to get into deals where I don’t think they are sustainable as far as the economics are concerned. And I’ve never been afraid to say I don’t like to lose money. 

And so that was not a good economic deal for us. It was a long-term deal. I don’t believe you enter long-term deals unless you think that you’ve got a partner that’s aligned with your values, aligned with the brand,and things are going to move forward. Costco has said that they wanted a credit utility. I’m not a utility. We provide value. 

I think that we are very proud of the business results that we generated for Costco. But I think it’s very, very important to have aligned partnerships and relationships, and I think it’s why American Express has been one of the most successful companies relative to our co-brand relationships. We work with over 150 banks, who issue American Express branded cards all over the world. That’s worked out very well with us. But very importantly, 70% of our spending in general is on our proprietary card products. So I have a range of products where in fact I can get better returns. 

And so that’s the reason why. My view is we’re on the front foot. We didn’t want to wait until the contract expired. And that, frankly, gives us a significant period of time to operate, and I’m very confident that we’re going to do well.