Should American Express prioritize expanding Membership Rewards partners or improving point redemption rates for existing partners?

Introduction

The trade-off between expanding Membership Rewards partners and improving point redemption rates for existing partners is a critical decision for American Express. This scenario involves balancing growth through new partnerships against enhancing value for current users. I'll analyze this trade-off by examining the product ecosystem, potential impacts, and key metrics, then design an experiment to inform our decision.

Step 1

Clarifying Questions (3 minutes)

• Based on recent market trends, I'm thinking user retention might be a key challenge. Could you share any data on customer churn rates related to Membership Rewards usage?

Why it matters: Helps identify if partner expansion or improved redemption rates would better address retention issues. Expected answer: Moderate churn among infrequent point redeemers. Impact on approach: Would prioritize improving redemption rates if churn is high among this group.

• Considering our revenue model, I assume a significant portion comes from merchant fees. How do our current partner agreements impact our fee structure?

Why it matters: Determines the financial implications of expanding vs. deepening partnerships. Expected answer: Varied fee structures based on partner size and industry. Impact on approach: Would influence the type of partners we target for expansion or rate improvements.

• Looking at user behavior, I'm curious about redemption patterns. What percentage of our users regularly redeem points, and what's the average redemption value?

Why it matters: Indicates whether we need to focus on activation or value enhancement. Expected answer: 60% active redeemers, average value of $X per redemption. Impact on approach: Low activity would suggest prioritizing partner expansion for more options.

• From a technical standpoint, how scalable is our current redemption infrastructure? Could it handle a significant increase in partners or transaction volume?

Why it matters: Assesses feasibility of rapid expansion vs. optimization. Expected answer: Moderately scalable with some limitations. Impact on approach: Technical constraints might favor improving existing partnerships first.

• Regarding resources, what's our current capacity for onboarding new partners versus negotiating better rates with existing ones?

Why it matters: Determines the feasibility of each option given our current team structure. Expected answer: Limited capacity for new partner onboarding, more flexibility for negotiations. Impact on approach: Resource constraints could favor focusing on existing partnerships.