We studied the Capital One case on our Strategy class last year, and I had the chance to meet with Richard Fairbank, one of the founders of the company. I was always impressed at how they approached the development of their products in a dull industry like the financial service industry. In the end, they were able to literary reshape the complete market.
Capital One Financial Corp. is a bank based in the USA specialized in credit cards, home loans, auto loans, banking, and savings products. A member of the Fortune 500, the company helped pioneer the mass marketing of credit cards and it is now the fourth largest customer of the United States Postal Service and has the 8th largest deposit portfolio in the United States. It was founded in 1988 by Richard Fairbank and Nigel Morris and has its corporate offices in Tysons Corner, Virginia.
What did Capital One do?
Fairbank and Morris noticed that this was not right, that there was a clear opportunity in segmenting credit card clients and focus on tailored products to each of them. Their goal was "to deliver the right product, at the right price, to the right customer, at the right time."
They quit their jobs at Signet Banking Corporation and founded Capital one with this mentality. They focused on customer service and responsiveness. Believing that micro-segmentation of their customers was the only way to identify and keep those who were most valuable.
Given that creating new financial products is not only extremely cheap, but that you can do it almost instantly, they created hundreds and hundreds of new products every months and focused their strategy in testing they acceptance in designated areas to test the response and effectiveness of each of them. Then they began building a huge database with the results and characteristics of the customers and their preferences based of credit history, region, zip code, age, gender, profession, etc. They achieved an “unsurpassed ability to handle customer information," which gave them cutting-edge knowledge of who their customers were and what they were looking for in terms of credit packages.
It is due to them that you get today lots of credit card offered on your mail, all of them with different terms and perks. Point accumulation, car fuel points, mileage, tailored APR interest rates, etc. They are testing your acceptance rate to improve the acceptance and encourage the use of credit. They streamed the creating and design of products and adopt a full test and deploy strategy to pick the winners.
Imagine if you could create thousands of products and test them for very little money. This is was Capital One does.
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This is kind of like fishing with all kinds of different flavors of bait. Which ever one has the most "bites" would be the more successful products. In what other industry would this strategy work?
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