Commercial Bank Service Delivery

calling assert INDUSTRY pay offory financial institutioning SERVICE Checking Accounts &038 lendwords caller-out/BRAND traffic depone SOURCE HBS Premier Case order of battle WRITTEN BY Frances X. Frei, Corey Hajim PUBLICATION DATE Dec 02, cc2 PROD. 603080-PDF-ENG Readers comments would be oft appreciated and replied to Analyze doctor Banks function voice communication system foregoing to Retailtainment. Base your analysis on the following heads Service OfferingFunding Mechanism Employee c ar System guest instruction System ANALYSIS transaction Banks Service Deli very(prenominal) System work Banks entire confideing and operational philosophy is imageed around creating a retail experience for the node. This was unusual for the entire banking industry and thus a abundant source of variantiation from both the operational point of view and from the suffice delivery design perspective.This meant that the entire cheer proposition from the clients standpoint depe nded on the design of the benefit environment/theater including the 3 gain marketing change integrity variables This fuel be hold backn from employee comments and facts in the case more or less these variables Product We gestate the value of a bank is non its loan prime exactly rather the deposit base Vernon Hill (chairwoman &038 CEO) Price We are chiefly the lowest ratepayers in every market Vernon Hill (Chairman &038 CEO) Place eciding where to seat a emergence was just as important as what the structure pure toneed like.. Promotion Commerce spent $500,000/branch in NYC on publicity and Red and blue painted Commerce vans with an emblazoned logo People This is non a job for someone who s interested in creation cool or indifferent John Manning (Employee Trainer) Process the way we look at credit and credit tint is a lot tougher Falese forcible Evidence They i. . customers know what the deal is whenever they visit one of our banks John Cunningham (CMO) The C hairman and CEO, Vernon Hill has been able to do this by ground 2 very important aspects or critical success factors of the banking business Understanding the constitution of the Servicescape Despite trends (cross selling &038 non-interest revenue) in the banking industry moving towards the more impertinent delivery mode (Pg. Most banks actively back up customers to move their proceeding from full-service channels to self-service channelsmonetary penalties for using the more overpriced channelscharging $3 to visit the teller), he understood that beca call banking as a service depended so heavily on the service attributes of searchability, experience and faith 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 former(a) banks in the industry which competed on keeping a low-interest ratio, he rightly understood the customers real need by competing instead on service, gadget and other(a)wise intangible service differentiators (Pg. 6 the competition is beating on the 3% i. e. ustomers wanting a heightser interest rate we stubborn to compete on the 62% i. e. customers wanting convenience) Keeping this in encephalon we jackpot now look at the 4 dimensions its Service words system prior to Retailainment Service Offering In light of this, the banks entire service offering arse be see as in the figure below Here we can see that the service offering in itself is split into CORE OFFERING This is non very different from what other banks in the industry offer. However, from an execution standpoint their focus was different, because their strategic intent for both operations and increase was that Bank Value is specify Base NOT bestow Base. Their substance offering i. e. anking services included Deposits or Checking musical scores (first 3 years no monthly service fees and palliate 1st order of checks) Sr. none Type Minimum Bala nce Details 1 Standard Checking $century nary(prenominal)monthly service fees 2 Interest Checking $1000 No monthly service fees, Unlimited check writing, Interest 3 50 Plus Club $100 No account maintenance deplumate for checking account with interest, free checks, money orders, nonary service and travelers checks 4 Consumer Checking none No per check charge for first 8 checks/month for $3 monthly fee card 1 Commerce Banks Deposit Product Line imparts Commerces value is not in its loan base but in its deposit base.So for Commerce, loans are not devoted out as easily as other banks in the industry which believe that growing is in loans since deposit growth can occur all with the lowest interest rate. However, credit quality checks for loan approval is very stringent ATMs Withdrawals were available at every ATM and purchases anywhere Visa was accepted. Transactions were immediately reflected in accounts and statements cash throw Line every accounts could be combines with a enceinte Reserve Line to ensure protection from overdrafts SUPPLEMENTARY SERVICE Commerce has 8 supplementary services (4 facilitators and 4 differentiators) which release for superior customer service FACILITATORS DIFFERENTIATORS InformationCommerce decided to use Live agents over the phone instead of region Response Unit (VRU)to talk to customers Consultation Branch get awayr (also the Loan officer) consults/advises loan applicants and helps to manage both loans &038 deposits Order Taking (Banking context Cash withdrawal &038 loan application process) Loans were assigned to service branch instead of Head office for easy access for customer Weekend banking facilities were provided to allow customers to bank on Saturdays &038 Sundays Hospitality Helpline phones at ATMs Employee escorts with umbrellas during rains Lollipops and dog biscuits at motion through with(predicate) banking windows Coffee and newspapers in waiting lobbies Billing Banking context Loan approval and monthly statement generation process) Loan applicant had to in person sign-off by on loan papers 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 &038 Irregular hours ) centime arcades to handle coins Midnight timing at busy locations 10 narrow observe to increase banking hours by 20 minutes in a day operation add-in 2 Commerce Banks secondary Services mix As a result of this unique service offering design, Commerce has produced above average results in its undifferentiated consequence offering Comparison Parameter Commerces Value manufacturing or Competitor Value Deposit growing (1 996-2001) 30% US Banking Industry-20% (98-01) Deposit Growth (2001) 40% US Banking industry 5% Online exercising 34% Wells Fargo much lower electronic network 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 seed capital not VC funding) Chairman &038 CEO, Vernon Hill did not believe in M&038As as a growth strategy but as a cost-cutting measure Started operations as a community bank in southern New tee shirt Used the retail franchise expansion model (without learnings) to grow expand into branches in Pennsylvania, Delaware and New York Concentrated on seeing customer as a revenue-generator (not cost c enter).However, cross-selling was not encouraged since main revenue bourgeon was considered as deposits Expansion into New York 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 &038 electronic) channels Low-expense ratios are bad Outgoing friendly service Industry Trend Cross-Selling products Preference to electronic channels Non-interest income revenue push button customers out of bloodline(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 rev enue (i. e. ATM charges) must be apply as competitive advantage to grow and not simply be an addition to the bottom line They are transaction-oriented and low growth twelve or more types of checking accounts $5 monthly fee for Internet Banking facilities Loans charge to customer service branches that received credit for deposits Loan-deposit ratio low pie-eyed credit quality checks Customers mostly commercial real estate projects, mortgages and consumer loans Loan officer is also branch managerLoan delivery is centralized leading 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 link to deposits RESULT Deposit Growth (2001) 40% Online Usage 34% Net Income growth (1998-2001) 200% Loan &038 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 Fu nding Mechanism Employee Management System Commerces Employee Management System can be broken up into Hiring Training Work Autonomy Workplace pastime Rewards Appraisal or Performance Measurement HIRINGPolicy emphasizes indwelling (among employees) and external (customers &038 employees) involvement Extensive interviews (2000 interviews for 40 positions in Manhattan branch) Experience about local and entrepreneurs given high importance Interviews apply to know about competitors and their best performers prepare WOW curriculum (process improvement) for all employees to be trained and integrated into the Commerce culture (Traditions class) Commerce University (full time education and training facility) Easy to mark framework for learning Commerce service deliver model refreshed (Say YES to customers, Make each customer feel special, Always keep customer promises, Recover, Think like a customer) Continued business education for superior executives WORK AUTONOMY Kill the stupid rule program to advert improvements WORKPLACE INVOLVEMENTAll employees encouraged to hand out their visiting cards to kindle potential employees Redeemable WOW Stickers WOW Awards and Musical motions Red Fridays (Pictures interpreted of those employees who are wearing red) Mascots Mr. C , Buzz and Dr. Wow REWARDS Glamorous prizes for make it performers (like a leased Porsche Boxster for 1 year) $5000 repay 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 sensory(a) to all branch managers Salary increases based on obtain (No. f deposits) results Mystery shoppers visited 14000 shops (branches) annually for evaluating employees, customer-service reps for compliance with greeting and other procedures ambition between branches in different regions in the form of Leagues (assu ming this is like football or baseball leagues) to get the best service report Table 5 Commerce Banks Employee Management System Customer Management Systems Commerces Customer Management Systems or customer-centric programs can be divided into Customer Acquisition Programs Customer Retention Programs both(prenominal) these have some customer delight features which are called as such(prenominal) because they are against industry norms and unexpected 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 sa vings 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 understanding why customers selected their banks in the first place. In addition to proximity, customers chose banks based on service. Vernon Hill, CEO &038 Chairman, Commerce Bank understood this and built 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 truth and transparency) and ample parking Red &038 blue painted commerce vans helped realize 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 develop 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 customer 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 subsequently 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 favorable in a different environment and deal with a different culture when banks merged. In spite of this, even the best retail banks preoccupied 15% customers/yr as the following table shows Sr. No. Reason for leaving of customer base 1. Dissatisfaction with steep fees and fee surprises, short service and errors 34 2. Outside of reach of current branch loc ations 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 clearly 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 gutter midnight (1210 am)Weekend banking (Saturdays &038 Sundays) which started in Jersey shore were extended to all branches barely 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 contribute monitored by mystery shoppers for friendliness (handshakes), consistency in greeting and other procedural details when dealing with customers Emplo yee appraisals and salary increases linked to branch performance (which is linked to service quality) and not volume of transactions handled Live agents outfit codes stricter than other call 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 every customers or non-customers (Note This might 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 industr y stood at 20%, Commerce doubled its net income in the period 1998 -2001.