Source: TaxRebate.org.uk via flickr.
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American Express has certainly had its share of setbacks lately, losing most notably its exclusivity agreements with Costco and JetBlue. In an effort to help revitalize its brand, Amex recently announced that it's starting a new loyalty program in partnership with several other major companies.
How will this new program work, and how will American Express and the other participating companies make money?
The Plenti program
American Express' new loyalty program will be called Plenti. It's important to note that it will be completely independent of the company's current reward program for Amex cardholders, which is called Membership Rewards. Customers won't even need to pay with American Express cards to participate and earn points. In fact, they can even participate in the program and pay with credit and debit cards from rivalsVisaor MasterCard.
Instead, American Express will play more of an administrative role in the program. As of the initial press release, there are seven companies that have agreed to participate:
- Direct Energy
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Much of the program's details aren't known at this point, but we do know that every 1,000 points earned will be worth at least $10 in savings, and that consumers can earn and redeem points at any of the participating companies. We also know that the program will be managed by American Express' U.S. Loyalty division.
The significance of the Plenti program is that it's the first loyalty program of its kind in the United States. According to American Express' press release, 72% of Americans want a loyalty program that allows them to earn points at several businesses instead of just one. And these are seven businesses that a lot of Americans use.
As far as revenue goes, American Express will issue the rewards and be responsible for marketing the program, so it's most likely going to be paid by the participating companies for its management duties. I would assume that the revenue American Express collects will be based on how many people use their Plenti account when making purchases.
What it means to the companies involved
Perhaps the biggest winners of all here are the companies that are participating in the program. The Plenti program won't directly make any of these companies money; in fact, they'll probably have to pay each time a customer uses it. However, the real benefit is that it could lead to a sort of "customer sharing" effect.
For example, if an AT&T wireless customer is already earning rewards for paying his or her bill every month, maybe the customer will go out of his or her way to refuel at an Exxon gas station, or get prescriptions filled at a Rite-Aid pharmacy. Or when a Nationwide insurance customer's wireless contract is up, maybe he or she will consider switching to AT&T in order to maximize rewards.
Even though it will cost these companies to participate in the program, the hope is that it brings in enough new business to more than justify the costs.
Not a replacement for Costco... yet
Costco accounted for a substantial chunk of American Express' card revenue, so it's doubtful that the Plenti program will come close to filling the hole, at least at first. However, the important thing for shareholders here is that American Express still knows how to innovate and execute on its ideas: The program is the first of its kind to be rolled out on such a grand scale and with such large participating companies.
If the program catches on, it's entirely possible that more companies will join. This could eventually become a big revenue stream for American Express, as well as a nice boost to the companies that choose to participate.
The article Why American Express New Rewards Program Could Be a Game Changer originally appeared on Fool.com.
Matthew Frankel owns shares of American Express and AT&T.; The Motley Fool recommends American Express and Costco Wholesale. The Motley Fool owns shares of Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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