Why Dangling Volume Wasn’t Enough for American Express to Renew Costco Deal

Back in February, when it was announced that Costco was dropping American Express as its exclusive credit card provider, most folks had the same opinion: American Express really screwed it up.

But is that really what happened?

John Maxfield from the Motley Fool wrote a great article titled Why American Express Gave Costco the Boot (and Not the Other Way Around). In it Maxfield writes, “The reality is that American Express walked away from the deal after Costco, in a manner perhaps not unlike the way it squeezes its suppliers’ margins, sought to change the terms of the partnership in ways that threatened to upset the delicate balance between the credit card portfolio’s risk and return.”

He goes on to explain why, using lots of data and analysis, but the basis for his argument is simple: American Express looked at the deal from a vendor’s perspective and just felt it didn’t make economic sense. Regardless of how much ‘volume’ it represented.

Only AMEX and Costco know the truth. But it’s another example of why companies can’t simply dangle volume as the primary incentive for doing business. Vendors don’t want volume for the sake of volume…they want great, mutually beneficial relationships. Dangle some of those for a change – you’ll be amazed at what you’ll get back from your vendors in return.

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