Capital One: Leveraging
Information-Based Marketing
Case Study
MIS 3090: Spring 2008
Capital One - Background
• 2004 case
• CO founded in 1988 by Richard Fairbank
and Nigel Morris as a spinoff from Signet
Bank
• Located in Mclean, VA
• Focused on consumer credit lending
– Pioneered mass customization, innovative
products
– Huge growth throughout the 90s
Case Questions - 1
• How do credit card companies (e.g., Citi,
Capital One, MBNA, First USA, etc.) make
money? If I pay my balance in full at the
end of each month, say it’s $3,000 on
average each month for an entire year
(meaning I chalk up $36,000 in
transactions annually), how can the credit
card company profit from my business?
Case Questions - 2
•
Credit card companies are exposed to type I and type
II errors (these are terms from statistics) in their
dealings with customers. Interpret these two error
types; what do they mean, and how has technology
allowed firms like Capital One to minimize the risk of
committing both types of errors. Can errors of either
type be completely eliminated – what technology
would you need for this to occur? In terms of Capital
One’s global market operations (including countries or
regions that they may have earmarked for launch and
expansion), would the same technology solutions work
across all markets? Why or why not?
Case Questions - 3
“Credit cards seemed like the perfect place to start riding
the macro-trends of direct marketing and of technology
– the increase in computer speed, power, and memory
that offered companies the ability to record, organize,
and analyze data on the characteristics and behavior
of their customers.” What opportunities / threats has
the Internet created for credit card companies? How
have these companies reacted? How have smart
cards been received by the public – for examples, see
Blue or the Visa Smart Card. What is the current status
of stored-value cards like your Villanova student card
(for meals) or the Starbucks card?
Case Questions - 4
According to the case, merchants pay as much as 2.2% of
the transaction value in fees – sometimes it may be even
higher for Discover, Diners and other cards. In firms with
tight margins, this could be a very high cost of doing
business – you could have a problem, for example, if
your margin is less than 2.2%. Without having to insist
that customers use checks or cash, or impose a
minimum charge for all credit card transactions, are
there any B2C or B2B solutions that would help
merchants to continue to accept credit cards even in the
face of very tight margins?
Capital One – Current Update
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Auto Loans?
Credit crunch?
Other products?
Global growth?
Overall prospects?