Capital One 1997 Annual Report Download - page 7

The World Beyond Financial Services
We think of Capital One not as a credit card company or even as
only a financial services company but as an information-based
marketing company. Although we are still in the early stages of
applying our strategy outside the realm of financial services, our
first venture, into cellular phone service, continues to show the
promise we expected. By the end of 1997, our direct-marketing cel-
lular subsidiary, America One Communications, Inc., was serving
customers in 36 states. We plan to add 12 more states in 1998.
While America One is still a relatively small business, its experi-
ence to date confirms an assertion we have made ever since we
developed our information-based strategy ten years ago: the strat-
egy will work well in other information-driven industries.
For example, as disparate as credit cards and cellular phones
seem at first glance, they share several key attributes. With credit
cards, we buy funds wholesale and lend them retail to consumers.
Marketing and customer service are individualized, allowing us to
design the right product for each cardholder. And we stimulate
card usage and market additional products to the customer. With
cellular phone service, we buy airtime wholesale and market it
retail. We customize the phone service with various combinations
of such features as free minutes, usage rates and monthly fees.
And we enhance the value of each ongoing customer relationship
through cross-selling and tailored programs to increase cellular
phone use.
Diversification beyond financial services appeals to us partly
because it will broaden our opportunities and partly because it will
reduce Capital One’s vulnerability during the inevitable downturns
of the consumer credit cycle. We have established a disciplined
process for identifying and pursuing new businesses. We concen-
trate on industries that are large, growing and data-rich. Within
these industries, we focus on products and marketing channels that
lend themselves to scientific testing and mass customization.
The Rewards of Hiring the Best
From the beginning, Capital One has put a premium on hiring top
talent, and the accomplishments of our associates in this challeng-
ing year proved the value of the extraordinary time and energy we
invest in recruiting the best of the best. Our associates are truly
world-class. We asked a great deal of them in 1997, and they deli-
vered. We’re grateful—and impressed. We also appreciate the con-
fidence they have expressed by investing in our Company. More
than two-thirds of our associates have an equity stake in Capital
One—one of the highest proportions in corporate America.
Our senior managers have always been deeply committed to
Capital One, and in December 1997, we announced a compensation
plan that gives them an even larger personal stake in the
Company’s success. The two of us have given up all of our salary
through the year 2000 in exchange for stock options. The next
level of senior executives—22 in all—will trade up to half of their
We’re diversifying beyond
financial services and
moving into markets outside
the United States.
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