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FINANCIAL CORPORATION
CASE ASSIGNMENT #3
Case Group S
Contents
INTRODUCTION...................................................................................................... 1
The Credit Card Industry..................................................................................... 1
Business Model................................................................................................... 1
FIRM BASED VIEW OF CAPITAL ONE.......................................................................1
Differentiation strategy...................................................................................... 1
SWOT Analysis.................................................................................................... 2
VRIN Analysis...................................................................................................... 2
CHALLENGES IN PRODUCT DEVELOPMENT............................................................2
Past Challenges.................................................................................................. 2
Future Challenges............................................................................................... 2
STRATEGICAL ELEMENTS THAT AIDED SUCCESS....................................................3
RECOMMENDATIONS.............................................................................................. 3
Microsegmentation of Subprime.........................................................................3
Online Internet Portal.......................................................................................... 3
Venture Capitalists.............................................................................................. 4
Tie up with Retail Giants..................................................................................... 4
ANNEXURES........................................................................................................... 5
INTRODUCTION
Since its spinoff from signet in 1988, Capital One had growing into the
seventh largest credit card issuer in USA. The reason for this company to
see such tremendous growth was in the use of Information Technology to
strategize and customize products. Where the rest of the playing field was
using orthodox methods to rope in customers, Capital One chose novel
and innovative methods to draw and retain customers. Uses of
Information Technology to assess the creditworthiness of a potential
customer and to customize products were the two basis around which
Capital one operated.
Business Model
Capital one differentiated itself from the other credit card issuers by using
Information Based Strategy (IBS) to predict credit behaviour of a customer
and to accordingly customize the products. This helped Capital One retain
and grow their customer or cardholder base and also to directly market
the products. Direct Marketing of products had several advantages, the
most notable are:
Large amount of data collected from interactions with customers.
This data supplemented by credit bureau information helped Capital
one customer care executives to respond much better to customers
with customized products
Large scale release of new products in a short time and without
large fixed costs
The benefit to customers from IBS was the flexibility in interest rates.
Cardholder could have a customized interest rates based on individual
preferences and habits, whereas all the other credit card issuers had a
fixed interest rate. Another advantage of IBS was Mass Customization of
products.
SWOT Analysis
The biggest competitive advantage that Capital One has over its
counterparts is the capability in technology and information processing.
They have shown superiority in mass customization of products. This
companys culture promotes innovation which is a big plus to have in this
industry. There are ample growth opportunities in credit card and deposits
business which can be pursued through well thought out acquisitions. On
the flipside, the Capital One may feel the absence of strong partners
gradually. Also the Company should be wary of threat from substitutes
such as cash and e-wallet. A detailed SWOT analysis of the company is
attached at ANNEX I.
VRIN Analysis
The capability of the company in technology is highly valuable and it is
not so easy to imitate thus providing a sustainable competitive
advantage. Though they have developed human resources as a decent
capability who are the key in companys innovation, it may not sustain the
competitive advantage for longer time. The product customization
capability attained through mass customization strategy is a relatively
sustainable competitive advantage as it takes time for the competitor to
imitate. Also the customer service capability can be imitable over a period
of time. A detailed VRIN analysis of the company is attached at ANNEX II.
Past Challenges
In its path of continuous product development, Captial One has faced
several problems to move from a small subsidiary to one of the largest
issuer which are
History did not allow innovation: The credit cards were highly
attractive to the players when they were launched and they offered
Future Challenges
RECOMMENDATIONS
Microsegmentation of Subprime
Capital can leverage its superior information technology to perform a
microsegmentation of the subprime creditors segment into safe and unsafe
creditors, out of which the default risk of the safe creditors would be relatively
low but are rated subprime (by credit rating agencies) due to other factors. The
returns from the segment would be higher than that of prime/super prime
creditors. Capital One has a competitive advantage over the major players in the
credit card industry in capturing this micro-segment because of their
technological superiority.
Venture Capitalists
Tying up with VCs will be a mutually beneficial option. Capital One gets to
gain more information about their target customers. They can put into use
their large scale information processing capabilities. The VCs can also
leverage the partnership when Capital One helps out their investees test
out businesses.
ANNEXURES
ANNEX I
ANNEX II