Commercial Bank Service Delivery

doctor Bank INDUSTRY Banking SERVICE Checking Accounts & loans COMPANY/BRAND trade Bank SOURCE HBS Premier Case Collection bring to pass verb every last(predicate)y BY Frances X. Frei, Corey Hajim PUBLICATION DATE Dec 02, 2002 PROD. 603080-PDF-ENG Readers comments would be much appreciated and replied to Analyze Commerce Banks wait on delivery system prior to Retailtainment. Base your synopsis on the following heads Service whirlFunding Mechanism Employee Management dust Customer Management System ANALYSIS Commerce Banks Service pitch shot System Commerce Banks entire banking and ope rational philosophy is designed around creating a retail experience for the node. This was unusual for the entire banking sedulousness and thus a great source of differentiation from both(prenominal) the operational outdoor stage and from the improvement delivery design perspective.This meant that the entire value proposition from the customers standpoint depended on the design of the di sh environment/theater including the 3 service marketing mix variables This burn be seen from employee comments and facts in the case about these variables carrefour We believe the value of a bank is not its loan base but rather the secretary base Vernon Hill (Chairman & CEO) Price We argon mainly the lowest ratepayers in every market Vernon Hill (Chairman & CEO) Place eciding where to put a branch was just as important as what the building looked like.. procession Commerce spent $500,000/branch in NYC on promotion and Red and blue painted Commerce vans with an emblazoned logo People This is not a ponder for someone who s interested in being cool or indifferent John Manning (Employee Trainer) Process the way we look at confidence and credit quality is a lot tougher Falese Physical Evidence They i. . customers know what the deal is whenever they visit one of our banks John Cunningham (CMO) The Chairman and CEO, Vernon Hill has been able to do this by understanding 2 ve ry important aspects or critical success factors of the banking business Understanding the Nature of the Servicescape Despite trends (cross selling & non-interest revenue) in the banking industry piteous towards the more than remote delivery mode (Pg. Most banks actively encouraged customers to move their transactions from full-service channels to self-service channelsmo doughary penalties for using the more expensive channelscharging $3 to visit the teller), he understood that beca practice session banking as a service depended so heavily on the service attributes of searchability, experience and assent and the nature of the servicescape was in essence that of an Elaborate- Interpersonal type Reducing the Listening Gap (from Gap Model of Service Quality) In comparison to early(a) banks in the industry which competed on keeping a low-interest ratio, he rightly understood the customers real select by competing instead on service, convenience and other intangible asset service differentiators (Pg. 6 the competition is beating on the 3% i. e. ustomers wanting a higher interest rate we decided to compete on the 62% i. e. customers wanting convenience) Keeping this in mind we can now look at the 4 dimensions its Service Delivery system prior to Retailainment Service Offering In light of this, the banks entire service offering can be visualized as in the figure below here(predicate) we can see that the service offering in itself is split into CORE OFFERING This is not very different from what other banks in the industry offer. However, from an motion standpoint their focus was different, because their strategic intent for both operations and harvest-festival was that Bank Value is Deposit Base NOT Loan Base. Their substance offering i. e. anking services included Deposits or Checking grades (first 3 years no monthly service fees and free 1st order of checks) Sr. No. lawsuit Minimum Balance Details 1 Standard Checking $100 No monthly service fees 2 Inte rest Checking $1000 No monthly service fees, Unlimited check writing, Interest 3 50 Plus Club $100 No broadside maintenance charge for checking account with interest, free checks, coin orders, notary service and travelers checks 4 Consumer Checking None No per check charge for first 8 checks/month for $3 monthly fee Table 1 Commerce Banks Deposit Product stage business Loans Commerces value is not in its loan base but in its deposit base.So for Commerce, loans are not given out as easily as other banks in the industry which believe that growth is in loans since deposit growth can occur only with the lowest interest rate. However, credit quality checks for loan approval is very stringent automated tellers Withdrawals were available at some(prenominal) ATM and purchases anywhere Visa was accepted. Transactions were immediately reflected in accounts and statements Cash Reserve Line All accounts could be combines with a Cash Reserve Line to ensure protection from overdrafts SUPPL EMENTARY SERVICE Commerce has 8 supplementary services (4 facilitators and 4 differentiators) which allow for superior customer service FACILITATORS DIFFERENTIATORS In painsationCommerce decided to use live on agents over the phone instead of Voice Response Unit (VRU)to talk to customers Consultation Branch manager (also the Loan officer) consults/advises loan applicants and helps to manage both loans & deposits Order Taking (Banking context Cash withdrawal & loan application process) Loans were assigned to service branch instead of Head office for easy ingress for customer Weekend banking facilities were provided to allow customers to bank on Saturdays & Sundays Hospitality Helpline phones at ATMs Employee escorts with umbrellas during rains Lollipops and dog biscuits at drive through banking windows Coffee and newspapers in waiting lobbies boot Banking context Loan approval and monthly statement generation process) Loan applicant had to personally sign-off by on loan pap ers at service branch Online Monthly statements Safe Keeping (Banking context Peace of mind about account balances and check deposits) Immediate updating of ATM withdrawals in online statements A Check View feature on Commerces website Payment (Banking context Loan repayment process) Payment is easier for customer and assured for bank, since loan customer also has a deposit at service branch Exception handling (Banking context Coin currency & Irregular hours ) Penny arcades to handle coins Midnight measure at busy locations 10 minute rule to increase banking hours by 20 proceeding in a day operation Table 2 Commerce Banks Supplementary Services mix As a result of this unique service offering design, Commerce has produced above ordinary results in its undifferentiated core offering Comparison Parameter Commerces Value Industry or Competitor Value Deposit produce (1996-2001) 30% US Banking Industry-20% (98-01) Deposit maturation (2001) 40% US Banking industry 5% Online Usa ge 34% Wells Fargo much lower Net Income growth (1998-2001) 200% (Double) US Banking industry 20% Table 3 Commerce Banks Performance Comparison Funding Mechanism Commerces funding mechanism can be looked at from 2 perspectivesCommerces own startup and growth strategy (how it funded its own growth) Commerces banking and lending operations (how it functions as a bank) Startup and Growth Strategy Founded in 1973 with $ 1. 5 million as startup capital (assumed to be ejaculate capital not VC funding) Chairman & CEO, Vernon Hill did not believe in M&As as a growth strategy but as a cost-cutting measure Started operations as a community bank in southern New Jersey Used the retail franchise elaboration mystify (without acquisitions) to grow Expanded into branches in Pennsylvania, Delaware and New York Concentrated on seeing customer as a revenue-generator (not cost center).However, cross-selling was not encouraged since main revenue stream was considered as deposits Expansion into New Yo rk was done organically (Branches were wholly owned and run by Commerce and promoted heavily (Spends $500,000 per branch) By 2001, Commerce had $ 1 billion in core deposits Banking and Lending Operations Commerces 2 basic product categories were Deposits (Debits) and Loans (Credits). Its operations as compared to the Industry can be analyzed as below Product Category v Commerces Philosophy Focus is consumer business (Deposits) Best value from both (conventional & electronic) channels Low-expense ratios are bad Outgoing friendly service Industry Trend Cross-Selling products Preference to electronic channels Non-interest income revenue Pushing customers out of store(bank) DepositsRates need not be the highest in the industry (only 3% want this) Longer operating hours allow for more time for customer service (62% want this) Non-interest income revenue (i. e. ATM charges) must be used as competitive advantage to grow and not simply be an addition to the bottom line They are transaction -oriented and low growth Dozen or more types of checking accounts $5 monthly fee for Internet Banking facilities Loans Assigned to customer service branches that received credit for deposits Loan-deposit ratio low Stringent credit quality checks Customers mostly commercial real estate projects, mortgages and consumer loans Loan officer is also branch managerLoan delivery is centralized ahead(p) to customer and loan officer disconnect Loans are 90% of deposit base (2001) Lower credit quality loans (i. e. sub-prime mortgages) get approved Loans not united to deposits RESULT Deposit Growth (2001) 40% Online Usage 34% Net Income growth (1998-2001) 200% Loan & Deposit growth (1998-2001) 20% Deposit Growth (2001) 5% Non-interest income growth 27% Interest Income growth 11% Customer attrition 1/3rd of customer base Table 4 Commerce Banks Funding Mechanism Employee Management System Commerces Employee Management System can be broken up into Hiring grooming Work Autonomy Workplac e involvement Rewards Appraisal or Performance Measurement HIRINGPolicy emphasizes internal (among employees) and external (customers & employees) engagement Extensive interviews (2000 interviews for 40 positions in Manhattan branch) familiarity about local and entrepreneurs given high importance Interviews used to know about competitors and their best performers TRAINING WOW program (process improvement) for all employees to be develop and integrated into the Commerce culture (Traditions class) Commerce University (full time education and training facility) Easy to remember framework for learning Commerce service deliver model SMART (Say YES to customers, Make each customer feel special, Always keep customer promises, Recover, Think like a customer) Continued business education for cured executives WORK AUTONOMY erase the stupid rule program to suggest improvements WORKPLACE INVOLVEMENTAll employees encouraged to hand out their visiting cards to recruit possible employees Rede emable WOW Stickers WOW Awards and Musical performances Red Fridays (Pictures taken of those employees who are wearing red) Mascots Mr. C , Buzz and Dr. Wow REWARDS Glamorous prizes for top performers (like a chartered Porsche Boxster for 1 year) $5000 reward for the staff of nearest Commerce branch where a competitor closed down $50 reward for suggesting improvement in the Kill the rule program (mentioned above) APPRAISAL OR PERFORMANCE MEASUREMENT All shops (branches) performance data on an internal database open to all branch managers pay increases based on shopping (No. f deposits) results Mystery shoppers visited 14000 shops (branches) annually for evaluating employees, customer-service reps for compliance with greeting and other procedures Competition between branches in different regions in the form of Leagues (assuming this is like football or baseball leagues) to get the best service report Table 5 Commerce Banks Employee Management System Customer Management Systems Com merces Customer Management Systems or customer-centric programs can be divided into Customer Acquisition Programs Customer Retention Programs some(prenominal) these have some customer delight features which are called as such because they are against industry norms and un pass judgment by customers Acquisition Industry NormEmployees were encouraged to cross-sell products (deposit account and loan products) Employees key performance measures were volume of calls handled and number of transactions processed rather than customer satisfaction or repeat customers Customers were seen as cost centers and in order to keep a low-expense ratio were pushed to use the electronic channels (full-service to self-service) Also, customers using the conventional personal (teller) banking channel were penalized through extra fees This savings in the marginal cost was then used to give a higher interest rate which banks felt was the only way to attract new customers. These are the result not understan ding why customers selected their banks in the first place. In addition to proximity, customers chose banks based on service. Vernon Hill, CEO & Chairman, Commerce Bank understood this and strengthened it into Commerces Customer Management System Commerces customer acquisition methodology Branches located close to competitors branches Branches are designed to be inviting, open windows (Note this is a visual Cue designed into the physical evidence variable.It shows honesty and transparency) and ample parking Red & blue painted commerce vans helped create free advertising opportunities Building designs across all branches were consistent (Note This gives a consistent message to the customer Integrated marketing communication) Very high promotional spends for every new branch in the form of direct mailings, subway ads, phone kiosks and free food (like 10,000 hot dogs in Commerce napkins) First time customer is given 4 simple checking account options (See Table 1) and First time custo mer is given a free gift for opening an account Employees treat customers with outgoing friendly service and do not try to cross-sell products or push customers out of the store after they finish their transactions Loan applicants were encouraged to open deposit accounts first Retention Industry Norm All banks provided the same ease-of-use electronic banking features along with their extensive branch networks. Also, existing Customers were expected to be comfortable in a different environment and deal with a different culture when banks merged. In spite of this, even the best retail banks lost 15% customers/yr as the following table shows Sr. No. Reason for leaving of customer base 1. Dissatisfaction with steep fees and fee surprises, unretentive service and errors 34 2. Outside of reach of current branch locations 34 3. Availability of more convenience such as longer hours in other banks 15 Table 6 Customer attrition in the Banking Industry Commerces customer retention methodology Analyzing the facts of the case, it can be clear seen that Commerces customer retention program targeted exactly those pain points (See Table 6) which caused customers to switch banks. Convenience Extended banking hours (10 minute rule allowed for 20 minutes of extra banking everyday) Busy locations were open till midnight (1210 am)Weekend banking (Saturdays & Sundays) which started in Jersey shore were extended to all branches Exactly same environment across all branches (Note This feature was lost after Retailainment program was launched) Phones in ATMs reach helplines Live agents instead of VRUs Boundary-spanning Roles and Interface Employee conduct monitored by mystery shoppers for friendliness (handshakes), consistency in greeting and other procedural details when dealing with customers Employee appraisals and salary increases linked to branch performance (which is linked to service quality) and not volume of transactions handled Live agents dress codes stricter than other ca ll center settings Personal attention Guidance to manage deposit accounts by branch managersLoan accounts handled by local customer service branches and not central headquarters Guidance to manage loan accounts by loan officers (who also happened to be branch managers) Customer delight features No fees for ATM and check cards Non-interest income (ATM charges/fees for using other banks ATMs) returned to customers Employee escorts with umbrellas to cars during rains Penny Arcade program to handle coins with no charge either customers or non-customers (Note This business leader have even helped customer acquisition) Gifts (pens and lollipops) at drive-through banking windows All these helped drive the growth engine of Commerce Bank. It grew to $1 billion in deposits by 2001. While the net income for the industry stood at 20%, Commerce doubled its net income in the period 1998 -2001.