In 2016, the long-standing partnership between Costco and American Express came to a surprising end. The split was a shock to many, as the two companies had been partners for more than 16 years. This article will explore in-depth the reasons behind the split, its impact on both companies, and the strategies adopted by each company to maintain their customer base post-separation.
The split between Costco and American Express in 2016 was mainly due to financial reasons and differences in their business models. Costco demanded better rewards for its co-branded credit card, which American Express was not willing to match. Additionally, the processing or “swipe fee” that American Express charged on each purchase was higher than what other credit card companies charged, making the partnership less attractive for Costco.
The Beginning of the Partnership
The partnership between Costco and American Express began in 1999 when the two companies struck a deal for Costco to accept American Express cards exclusively at its stores. In 2004, Costco started issuing co-branded American Express cards, which also served as membership cards for Costco customers. The partnership proved to be highly beneficial for both parties, with Costco’s affluent customer base and growing number of warehouses in the U.S. contributing to the success of the partnership.
Reasons for the Split
The split between Costco and American Express was primarily due to financial reasons and differences in their business models. Costco demanded better rewards for its co-branded credit card, which American Express was not willing to match. American Express has a high-margin business model, targeting wealthy cardholders and supplementing its fee income with interest income from financing underlying loans. In contrast, Costco focuses on offering its customers the best value possible.
Another reason for the split was the processing or “swipe fee” that American Express charged on each purchase, which was higher than what other credit card companies charged. This made it less attractive for Costco to continue the partnership.
Impact of the Split
The termination of the partnership between Costco and American Express led to the end of the co-branded credit card, which was the only credit card accepted at Costco stores. This change affected customers who were used to using their American Express cards for shopping at Costco. However, Costco quickly negotiated new partnerships with other credit card providers, such as Capital One and MasterCard, to offer alternative payment options for its customers.
As for American Express, the split initially had a negative impact on its earnings, sending its shares down as much as 7% and wiping out about $6 billion of market value.
Post-Split Strategies
After the split, both Costco and American Express adopted different strategies to maintain their customer base. Costco focused on its unique business model, offering exclusive deals and promotions to its members and ensuring customer loyalty and retention.
On the other hand, American Express focused on improving customer experience and retention through the use of data and analytics. The company invested in machine learning and advanced analytics to predict customer churn and develop more effective customer retention strategies.
Conclusion
The split between Costco and American Express was a significant event in the retail and financial industry. It highlighted the importance of aligning business models and strategies in partnerships and the potential consequences when such alignment is not achieved. Despite the initial challenges, both companies have managed to adapt and continue their growth trajectories, providing valuable lessons for other businesses.
Overall, the split between Costco and American Express was a complex event driven by multiple factors. By understanding these factors, businesses can better navigate their partnerships and avoid similar pitfalls.
Frequently Asked Questions
Who took over American Express’s co-branded card partnership with Costco?
Visa, in partnership with Citi, took over the co-branded card partnership with Costco after the split with American Express. The Costco Anywhere Visa Card by Citi is now the official card of Costco.
Did the split affect American Express’s long-term growth?
While the split initially had a negative impact on American Express’s earnings and market value, the company managed to rebound in the long term. They achieved this through a focus on improving customer experiences, investing in data analytics, and targeting affluent cardholders.
Can you still use American Express cards at Costco?
No, after the split, you can no longer use American Express cards at Costco. The retailer now accepts all Visa cards, along with other payment methods like cash, check, debit/ATM cards, EBT, and Costco Cash Cards.
What are the benefits of the new co-branded Visa card for Costco members?
The Costco Anywhere Visa Card by Citi offers several benefits to Costco members. This includes 4% cash back on eligible gas purchases (for the first $7,000 per year, then 1% thereafter), 3% cash back on restaurants and eligible travel purchases, 2% cash back on all other purchases from Costco and Costco.com, and 1% cash back on all other purchases.
Did the split affect Costco’s business?
Despite the initial challenges, Costco managed to continue its growth trajectory after the split. The company quickly established new partnerships with other credit card providers and continued to offer value to its customers through exclusive deals and promotions.
