Capital idea but will a TV relaunch work?

Capital One’s decision to appoint Bartle Bogle Hegarty to handle its &£15m creative account (MW December 7) signals a switch in the credit card giant’s marketing strategy.

It is understood that Capital One will use TV advertising for the first time to entice potential customers in an already highly competitive UK market.

Capital One was launched in the UK in 1996. Since then it has acquired one million credit card holders captured mainly through direct mail marketing.

One million is a big, round figure. But observers believe Capital One is dissatisfied with this number – which translates into a market share of about two per cent. They suspect the company imagined it would take the market by storm with its low interest rates.

However, Capital One had not bargained with the branding might of the market leaders, and the inertia of UK card holders in finding better rates. And its foray into TV advertising suggests it may have overestimated the potential success of direct mail and underestimated how difficult it would be to poach customers from its rivals.

Brands such as Access, HSBC and Barclaycard are still the major players, despite offering standard interest rates between 16 and 20 per cent – far higher than rival companies such as Capital One which has a current rate of 12.9 per cent.

There is speculation that it is looking at launching a brand to rival cards such as Cahoot, owned by Abbey National, and Egg.

Egg, the Prudential-owned brand, has many special features and incentives. As well as offering a low interest rate – currently 10.9 per cent – it rewards customers by offering them 1 per cent cash back on their total expenditure for the year.

Capital One offers customers in the US phone and mortgage services and may start to offer these services in the UK.

Capital One declined to talk about its campaign to Marketing Week, but senior vice-president Matt Cooper said in June: “When we first launched, TV ads were not a cost-effective option. But we have reached the next stage of development, and are looking at broadcast media to reach a greater audience.”

Professor Steve Worthington, lecturer in marketing at Staffordshire University, said the company’s willingness to spend millions on TV advertising may be an attempt to relaunch the brand.

He says: “It is well-renowned for the information-driven approach to marketing for its success in the UK.

“But it is not a well-known brand. It is trying to raise the stature of the Capital One brand so it will be better known as a card provider.

“It may be trying to move away from credit cards and into personal loans and other financial products.”

Lucian Camp, a creative director at CCHM, says even with a substantial amount of cash to spend on TV advertising Capital One will find it hard to attract customers because of public “inertia”.

He argues that a Capital One card does the same as any other Mastercard or Visa. Although it offers low interest rates, many customers settle their debts at the end of the month so they are not subject to a charge.

Camp says the company may have been disappointed with the success of direct marketing. It has been handled by WWAV Rapp Collins in the past. BCS currently holds the account.

Camp says: “Capital One and other companies such as People’s Bank and MBNA offer much lower interest rates than say Access or Barclaycard.

“When they launched they probably imagined people would give up their existing credit cards and come on board in huge numbers. Perhaps they have not got as many customers as they anticipated.”

Industry observers offer conflicting opinions on whether Capital One can create a differentiated brand when there are more than 1,300 different types of credit card and around 45 million cards in circulation.

The latest figures from Mintel suggests the number of credit cards in circulation continues to increase while the number of credit card holders remains the same.

So while companies may not have trouble getting customers to sign up to their card they find it increasingly difficult to get them to spend cash on it. Customers have a number of credit cards to choose from in their wallets, allowing them to spread debt more easily.

Julie Cunningham, a consultant at DataMonitor, believes Capital One can be successfully relaunched. But to challenge the big hitters it will have to keep low interest rates.

She says: “The credit card industry is at such a competitive stage and through direct marketing it is almost impossible to compare on price.

“This may be the reason they are launching an advertising campaign. A recent survey carried out by us suggests that if credit card companies are offering rates lower than ten per cent they would not be making vast amounts of money.

“They have problems. They offer a low rate but potential customers don’t recognise them as a brand.”

“People trust companies such as Barclaycard because they have heard of them. Capital One has good reason for building a brand and going for a wider audience

“But whether they can spend this money on branding the product and keeping the low rates of interest remains to be seen.

“I would say they have clearly costed it out and suspect they can.”

But Camp questions if it is a wise move for Capital One to pay out millions in TV advertising.

He believes it is very difficult for financial service providers to build a strong relationship with their customers.

“I can see why they want to build a brand. But I am not convinced that by advertising alone people will buy into it,”he says.