Customer Relationship management at Capital One (UK)

(Condensed Version)Presented by:-

Rakesh Kumar Sharma

Vinay Choudhary

Sanjay Pandey

Ankit Sinha

Sandeep Sahu

About the case

This case was prepared by Ulrike Wiehr, the Boston Consulting Group

Capital One’s leaders, Richard Fairbank and Nigel Morris,- Vision of creating an information-based company rather than a financial services company.

Envisioned of Capital One that the strategy for credit card providers should be to deliver ‘the right product to the right customer at the right time, at the right price’.

Continue.. 1980- The US credit card market was characterized by the fact that the financial

institutions were offering very similar products across the whole spectrum of their customer bases. Charging a standard 19.8% interest rate and a US$20 annual fee.

1988- Signet Bank brought Fairbank and Morris concept and the concept was “Credit cards are not banking, they are information It’s all about collecting information on millions of people that you’ve never met, and on the basis of that information, making a series of critical decisions about lending money to them and hoping they back you.”

Signet Bank used information based strategy

Note:- The market lacked a customisation of offers. The prevailing story was very much ‘ONE SIZE FITS ALL’

About Capital OneIncorporated November 1994 in US

Chairman & Chief Executive Officer Richard Fairbank

President & Chief Operating Officer Nigel Morris

• 1994-2000, the stock price of the company has increased by 1,000%

• Company average annual rate of about 40%

• 2001 the company handled more than US$45 billion in loans and 43.8 customers worldwide, serviced by more than 20,000 employees.

• In 2002 company profitability reached top six credit card issuers.

Growth of Capital One’s Revenues(Worldwide Operations)

Business Model Business model of Capital One is founded on the simple,

premise that each customer requires a different product and service from its credit card provider.

Each customer carries a specific and unique credit risk. The better the company can understand and assess a customer’s specific risk, the better it can manage it.

Risk is a crucial factor in the credit card business. According to Ian Cornelius “We’re in a risk-driven business where one bad debtor can easily wipe out the benefits from 20 average customers- thus it’s vital to manage them carefully. It is one of our competitive advantages to understand and manage these different levels of risk.

Information-Based Strategy (IBS)

The company uses information technology to accumulate and manage large amounts of data on its customers. This data contain customer demography and behavioral information.

Company executes “Test and Learn” strategy. It is a scientific, hypothesis-driven approach to test any customer related activity in a controlled condition on a sample of customers before rolling it out on a large scale.

On the basis of this data marketing team develop ideas, design products, and select target customers.

On the basis of this information company develop products and the key products are Credit cards with different conditions and designs. Products directly related to the credit card such as card protection plans and payment

protection insurance (cross selling) Other financial services such as travel insurance.

Customer Relationship Management Practices at Capital One (UK)

Managing its relationships with customers is at the heart of Capital One’s strategy. In which the various corporate function are interlinked.

As Capital One managers usually say “All departments work in an integrated fashion and there are no sites within the company”.

Internally the company is grouped in four key activities. Marketing and Analysis (M&A) Operation Information Technology (IT) Human Resources (HR)

Marketing & Analysis (M&A) Capital One’s M&A department has, as its main functions segmentation , testing

and analyzing customer data in order to elaborate the company’s marketing strategy, and development of new products and services.

In order to segment customer Capital One analytical techniques and tests to identify groups of customers and to cluster them into segments according their risk profile and behavior. Segmentation strategy

Capital One targets all types of risk profiles, offering them different products and price accordingly. The company’s database has many type of customers.

Two type of customer 1) transistors”2) revolvers

Retention Strategy To attract “low risk revolvers”, Capital One may offer them a card with an introductory low

rate and no annual fee. Low risk revolvers are price sensitive customers tend to reduce their debt or leave

Capital One. With out notifying the company or closing their account.

Capital One align its operations with customers requirement.

Rather than taking the “assembly line” approach, the company attempts to handle its customers in a personalized and flexible way.

Low cost efficiency, high quality customer service, flexibility and associate satisfaction are four measurements that are cornerstone of a model known as the “Big Yellow Square” (BYS).

The BYS indicates that Capital One’s view on operating a call centre differs from most other organizations particularly in the way it weights" associate satisfaction”, which is equal important as “service quality” and “cost efficiency”.

Many associates who don’t work with operations ,are trained in one or more disciplines.

When volumes exceed expectations in a particular area, managers take the decision to ask associates to temporarily move jobs to cope with the peaks.

Operations

Another important aspect of Capital One’s strategy is the way it uses customer profitability analysis.

Profitability is calculated on an individual basis to improve the product offer to each customer.

The element that differentiate Capital One’s operations department from others is its IT infrastructure.

IT is used to route calls and provide necessary information to best handle specific calls. The system are updated directly by the call center associates. Once the call is completed, associate enter information in an encoded form into system which will be available for the next contact with the customer.

The operations department is divided in four main areas:A. Operation Processing:-

1. Handle all back-office operations.2. Keying in credit card applications.3. Scanning all incoming corresponding into a document

management system.4. Managing vendors such as card embossers & statement printers

and payment from customers.

Contd…B. Customer Relations

1. Handles incoming calls.2. Associates use the sales system “SALSA” when attempting to

cross-sell. This allows them to identify suitable products to the customers who is calling and to avoid offering the same products twice.

3. Customer service associates, as well as sales associates work to an incentive scheme that encourages sales and quality service.

a. Averaging handling time of the call.b. Sales point per contactc. Quality

A review of their performance is received weekly. Feed back is given by the senior management and awards are given

to best performing teams or individuals and their pictures are displayed on internal notice boards or appear in in-house publications.

C. Sales:- Divided into four units.1. Inbound2. Outbound3. Retention4. New Business

Capital One’s cross-selling system determines the likelihood of customers to buy certain products based on the projected NPV of a product to a customer, and suggest different products to different customers

Sales system (SALSA) enables targeting cross-sell offers to specific customers interested in particular products.Uses accumulated data on customers to suggest how to react to specific customer requests.

D.Collections:- This department deals with customers who have fallen behind with their payments. The department is split into three main areas:

1. Payment Assistance: Associates work with customers who can able to pay ,put their names in contact with a recruiting agency or if the customer is ill ,payment may be temporarily suspended.Offered revised terms, enabling them to make smaller, regular payments.

2. Recoveries: Look for those customers whose debt has been charged off and whose accounts are no longer open.

3. Fraud: The team has two fundamental tasks: to help customers who have been victims of fraud and to prevent fraud itself.

Cont’d…

The team closes down the old account, writes off any fraudulent charges and transfer genuine transactions into a new account.

Customers need a higher level of support. The fraud team is trained well to treat each case with sensitivity. A wide range of systems is in place to help prevent fraud, including real time

transaction models and account behavior pattern systems. The fraud customer service team call customers to let them know about

fraud. Yet another selling point fro Capital One from CRM perspective.

Work together when new product introduced. M&A design the product, develop marketing material and follow up

customer responses, operations collect regular feedback from customers and make improvement suggestions.

To review the risk perspective of present as well as future strategies enabled through IT.

Co-operation between M&A and operations

INFORMATION TECHNOLOGY

IT interacts with the company in the foloowing domains:-• Prospect Pool and Solication Management.• Account Acquisition.• Account servicing and call-centre technologies.• Core systems.

Test and Learn Strategy

HUMAN RESOURCES

1. ASSOCIATES TRAINING• Hiring & Training• Evaluation• Compensation2. COMPANY CULTURE• Housing• Culture of Involvement• Continuous Improvement

FUTURE CHALLENGES

• Building a deeper Understanding of Customer Needs

• Managing Costs• Co-ordinating Channels

Customer Complaints• I have been trying to close my account with Capital One with no

success. I have a 500.00 credt limit with a bal of 459.00 and was told that they will close it after I pay it off.

• This is outrageous. This is the second time I tried to close my account. Is this legal?

Phyllis of Portsmouth, VA Nov. 12, 2010

Cont…• I had a $500 credit limit on my capital one. I was clearly under the

limit at one point because I had made regular recurring payments monthly and have not charged on the account. Months later (from May to November) I received calls from company. They retorted that I was $274 over my credit limit and my account was now in their collections office.

• I asked the rep why all of a sudden my account was over the credit as I have made payments and have not made any charges since May. They retorted that my payment for May had bounced and thus a late charge was incurred thus allowing it to go over the limit. Every month it was over the limit they charged me $39. When I asked to speak to customer relations, the rep said I had to clear the $274 over the limit fee first.

• I was outraged as I asked to speak to someone who would be able to help--a supervisor was placed on the line and continued to convince me to pay $274.

• She could do nothing to remove charges. I felt gouged and hurt and ask for a stop payment until I can get a debt relief company to help.But, she said she would send a stop payment form and it will take 2 months (2 business cycles) before it stops. I felt very bad at this point, because they could not honor my request even though I have been diigently allowing recurring minimum payments monthly.

• Capital One and other creditors like them should be disciplined because of their practices. This once was an America where we could freely trust our banks to protect us and our investments. Now they are the monsters that destroy our people and our nation.

• The main war on terror is not the Middle East, it's within the boundaries of USA.

Roberta of Mililani, HI Nov. 10, 2010

http://www.consumeraffairs.com/credit_cards/capital_one.htm

Capital one: Systems Infrastructures

Use of Data