| BUSINESSWEEK ONLINE : MARCH 29, 1999 ISSUE | ||||||||
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| COVER STORY
Q&A with Capital One's Richard Fairbank ''Half the products we now offer didn't exist six months ago'' Capital One Financial (COF) of Falls Church, Va., is a direct marketer of credit cards and cellular-phone service. It divides its markets into "microsegments" to deliver custom-designed products to more than 5 million customers -- pitching cards to Mercedes Benz owners as well as fans of World Championship Wrestling. COF posted a 41% gain in earnings per share in 1998 and is targeting 30% earnings growth for 1999. Chairman and CEO Richard D. Fairbank recently explained to BW's Mike McNamee how his company plans to get there: Q: You describe Capital One as a "technology-based marketing company." What's that mean? A: We use technology to mass-customize our product offers. Where our competitors use a one-size-fits-all approach, we use technology and information to really understand, at the individual customer level, what product will really work. [COF President] Nigel Morris and I realized 10 years ago that the technology existed to do this very sophisticated marketing. It's microsegmentation -- very, very finely dividing up customer segments. The credit-card industry slowed down last year. But we added 14,000 [net] new customers a day, and we're growing at a rate of 20,000 customers a day now. About one in every seven households in America has a Capital One relationship. Q: You speak often about "scientific testing." What sort of science is involved with credit cards and cell phones? A: We try new products, new marketing methods, new credit policies, new ways of collecting accounts, new methods of retaining accounts. We do actual tests in the field, with measurable results. Our goal is to get past the tummy-rub methods to decide what's best for customers. If we can just peel the onion of customer needs several layers past where other companies have, we can meet those needs much better. Last year we conducted 26,831 scientific tests. You can imagine the management challenge of tracking that many different studies. Ten years ago, it just about killed us to do 336 tests. But they've enabled us to offer thousands of product variations -- with credit cards, more than 6,000 different combinations [of rates, fees, terms, perks, and affiliations]. What we do in a world of 26,000 or 28,000 tests is always try to obsolete our own products. Half the products we now offer didn't exist six months ago. The absolute key to keep our growth going is to innovate constantly. Q: To what extent did your 1998 growth depend on robust consumer spending and credit growth? A: The credit-card industry is a fabulous industry for growth. The card is becoming the instrument of choice in the consumer's wallet -- it's taking share away from cash and checks, it's gaining acceptance everywhere. Last year, though, there was a slowdown in credit-card growth [from an 8% gain in loan volume in 1997 to 6% in 1998]. We grow customers by taking them away from the competition. Out of 7,000 credit-card issuers, just four companies accounted for more than 100% of the industry's growth. There's a phenomenal shakeout under way -- it's simultaneous feast and famine. One absolute key to Capital One's success is reduction of customer attrition. Lots of people are doing interest-rate hopping from card to card. What we have done is cater to more serious long-term customers. Our 9.9% fixed-rate card is an attempt to provide continuing value to our customers. There's no intro rate, so the customer gets enduring value. We were first out with that and are still one of the few who offer it. We also can use our marketing methods to control costs. Our cards have the second-lowest charge-off rate [for bad accounts] in the nation. Q: How do cell phones fit into your business? A: A cell phone is just a credit card with an antenna. It's a product that tends to be marketed in stores with a limited number of choices. But this is an infinitely customizable product. We buy the airtime, then package it in different combinations to suit the customers' needs. Our AmericaOne subsidiary has pioneered the direct marketing of cell phones. We target the heavier users of phones. Q: When you keep dividing up the market, when does it become too expensive to serve these smaller and smaller segments? A: I wondered many years ago whether microsegments would reach diminishing returns. They haven't. The world is always changing, customers are always evolving. So there are always new segments to reach. We have found no diminishing returns. Q: What will account for the 30% growth in EPS that you're targeting for 1999? A: Credit cards will be strong. Cell phones are growing at a faster rate, but from a smaller base. We're rolling out our services aggressively overseas. We're strong in the U.K. [where COF has an operations center] and Canada. We're getting established in South Africa, and we're in the early stages in some other countries, Continental Europe and Asia. The easy expansions were in countries that spoke our language and shared our consumer behavior. Now it'll be harder. Europe, for example, is dominated by debit cards, all tied to checking accounts. We're very interested in customizing our card marketing to the way Europeans use cards. If you look at our marketing, our investment there was up 98% in 1998. We reinvest heavily in marketing and R&D. We have a commitment to long-term performance. I'm very, very focused on making sure that our short term extends into the long term. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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