This is a Marketing Revolution

"What we've done," says Fairbank, "is to create an innovation machine." That machine has just begun to kick into gear. "This is not just a credit-card strategy," Fairbank insists. "This is a marketing revolution that can be applied to many businesses."

For Fairbank and Morris, the credit-card business has been a grand experiment in using information technology to figure out what people want to buy and how Capital One can sell it to them. Says Jory Berson, 28, vice president of marketing and analysis at Cap One: "I want us to become the place where people go to find anything they want to buy."

"We can answer your question before you ask it."

Joe from Florida is a tough call -- a confused older man, the holder of a MasterCard with a $100 credit limit. He informs his phone rep, Tim Gorman, 29, that he knows what happened the last time he called Capital One: "I've got it written on the wall right next to the phone," he says.

Nancy from North Carolina is easier. A moment after her voice materializes in Gorman's earpiece, information about her credit card pops up on his computer. Nancy is a desirable customer: She has a $6,500 credit limit on her Visa, she's been a Capital One customer for four years, she pays no annual fee, and she hasn't paid late in the past 12 months.

Her opening line: "I want to close my account."

Gorman is used to that greeting. He works as a Capital One "retention specialist," and all of the calls routed to him are from people who say they want to close their account.

Gorman knows better. Most of them just want a better deal.

"I just got a card with a 9.9% interest rate," says Nancy, "and that's a lot lower than my current rate."

Nancy's current rate is 16.9%. Gorman's computer displays three counteroffers that he can make in an effort to keep her business. Those offers have different interest rates -- starting with 12.9% and ramping down to 9.9%.

"Well, ma'am, I could lower your rate to 12.9% . . ."

Nancy grabs the first deal that Gorman offers, and Gorman scores a "save." Is he concerned that Nancy didn't get the best deal available? Not really. "Who's to say she really was offered a 9.9% card?" he says. "Maybe that was just something that she saw or something that came in the mail." Nancy is happy, Capital One is happy, and Gorman has earned incentive pay for keeping her -- plus a little extra for getting her to take a deal that preserves much of Capital One's revenue.

Superficially, Gorman's exchange with Nancy sounds like what happens at credit-card companies everywhere. It's standard these days for account information to pop up when a call comes in (computers identify the account by linking it to a phone number), and many companies bargain over interest rates and fees. But at Capital One, that's where the interaction begins, not where it ends. The history of "intelligent call routing" (a term that Capital One coined) -- with its tiers of computer-enabled decision making -- is a case study in how a culture of innovation can take small problems or modest ideas and turn them into breakthroughs.

In this case, the problem had to do with the phone bill. Two years ago, calls from Capital One customers were taking too long to handle, and an analysis showed that customers were not to blame. Callers simply weren't getting to the right place at the right moment: People with a lost card or a fraud problem ended up reaching an ordinary rep; people who just wanted to know their balance stayed on hold to talk to a live rep; people unhappy with their interest rate called the "lost card" number on the back of their card and had to be transferred to customer service.

"All that time -- to take a call, to bridge the call to the right person -- that pisses off the customer," says Greg Gannon, 44, a technology manager who was brought in to look at the problem. "You wait for an agent, you wait for a transfer, you wait again for an agent."

Plus, says Jim Donehey, "All that time, we're paying for the call." Companies pay by the second, and at a place like Capital One, which takes 2.5 million live calls a month, even one extra second per call adds up to real money. "The real question was, How can we minimize all that?" says Donehey.

The company tried lots of options. For example, it discovered that some people called much more often than the average of five times a year. "We sent out a letter at one point that said, in effect, 'Please don't call so much,' " says Donehey. That test yielded this result: If you want people to call you, send them a letter telling them not to. "That was what I call 'a Homer Simpson moment.' "