American Express' financial hit from the loss of Costco not only hit its card business, but also resulted in record spending on marketing as the company tried to recover.

The $3.7 billion American Express pumped into global marketing in 2016— with a strong emphasis on the U.S. — resulted in increased exposure and benefits for its Platinum Card and the OptBlue program for small business owners, as well as digital marketing to complement card acquisition programs in the U.S. and internationally.

In the fourth quarter, American Express acquired 1.6 million cards across U.S. issuing channels and 2.4 million cards on a worldwide basis, said Jeffrey Campbell, executive vice president and chief financial officer at American Express during the company's fourth quarter earnings call.

Those acquisition numbers "remain above our historical average and demonstrates that we have now effectively replaced Costco as a distribution channel with our own proprietary activities," Campbell said.

The marketing costs and pursuit of new card channels speaks to Amex's big challenge as it fights the perception that it costs too much for a merchant to accept Amex transactions, said merchant acquirer consultant and industry researcher Paul Martaus, of Martaus & Associates.

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"I have a lot of conversations with merchants on a regular basis and there are very few out there who have taken a close look at their own cost structures, or understand what American Express has done to lower costs," Martaus said.

American Express has a program for acquirers and independent sales organizations to get the word out to merchants, but acquirers and ISOs traditionally haven't pushed merchants to lower costs or fully explain a cost comparison, Martaus said.

"American Express is a great company with great products and services, but it is hard for them to overcome that cost perception," Martaus said. "Merchants are not bank guys or payments guys … they just want to sell stuff. They believe their costs are based solely on the fully qualified cost they are quoted on processing."

In trying to position American Express as being stronger in the aftermath of the Costco business loss, the card brand will continue to focus on "a shift toward driving loyalty and building relationships with existing card members," Campbell added. "We have supported all of these efforts through an increased advertising effort across the globe."

American Express lost the Costco business to Citigroup, which took over the co-branded cards with Visa in June of 2016. Amex has since pushed the OptBlue program in which acquirers can adjust pricing for small business owners to more easily accept Amex transactions. Much of the year's marketing attention was to inform cardholders about all of the new merchant locations accepting Amex cards.

The high level of spending in marketing and promotions had a hand in American Express reporting an 8.2% drop in profit for the fourth quarter

But the fourth quarter of 2016 represented the culmination of spending on various long-term American Express initiatives, Campbell said. The company's enhancements to Platinum Cards rewards, work on Small Business Saturday projects, and focus on regaining the spending and lending behaviors of Costco card members all represent long-term benefits for American Express, Campbell said.

"All of those things came together in a way that happened to coincide with the fact that we also were performing well ahead financially of where we thought we would perform and it allowed us to spend at record levels," Campbell added. "It's all about driving long-term relationships with our customers and generating sustainable revenue and profitability."

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