Costco and American Express Divorce Essay

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Costco and American Express terminate a 16 year old business partnership

Costco, a wholesale retail giant and American Express, a financial services corporation, recently announced that they would be ending their contract. According to the terms of their agreement, American Express was the sole credit card accepted at Costco. Additionally, American Express and Costco had issued a co-branded TrueEarnings credit card, which could also be used at other stores. After March 31, 2016, customers will no longer be able to use American Express credit cards in Costco. The TrueEarnings credit card will also be discontinued [1]. From a marketing perspective, this could have several consequences for both firms.

What are the implications for each
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Shares declined 6.4% after the announcement of the termination, wiping $5.6 billion off its market value [5]. Lack of confidence from financial experts further damages its brand image.

Costco’s brand image is not likely to be particularly affected. There could be minor irritations at the inconvenience of having to switch credit card companies. These can be managed by ensuring and advertising the ease of transferring over to its new partner(s). A portion of its middle to high end consumer base, mostly in suburban areas, might be unhappy with the prospect of potentially switching to a less exclusive credit card company [7]. It is essential to focus on advertising the new, positive and improved services. Costco holds 50 percent of the market share in the wholesale warehouse club industry [6], signifying that it retains its customers’ loyalty. Additionally, its stock has been unaffected in the wake of the announcement, a clear indication that its position remains strong [8]. It is unlikely to face major customer deflections as Costco patrons use the TrueEarnings card primarily because they want to shop at Costco and not due to loyalty towards American Express. If it switches to a more reasonably priced credit card company, it might widen in its customer base. These would be people who could not afford or qualify for the exclusive American Express cards.

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