To increase convenience, stores were kept open seven days a week and hours were extended in the mornings and evenings. Also, customers were able to get instant ATM cards, and funds from their deposits would be credited either the same day or the next day. For fun, the bank offered free coin counting machines and gave customers free merchandise such as pens and even dog biscuits. Employees were carefully recruited and trained and competed for WOW! Appreciation awards.
Through all of these efforts, the bank has been able to reduce the costs of acquiring and retaining customers and deposits as well as Its staffing costs. In a highly competitive Industry. Commerce Bank created a value proposition with mass customer appeal and a equines model based on some of the best practices of speed, convenience, and friendly service from the fast-food Industry. Background Commerce Bank was founded in 1973 by Vernon W. Hill II with nine staff and $1. 5 million. From the onset, Mr..
Hill decided that Commerce Bank was not in the banking business but in the retail business, and created a business model that revolved around becoming a power retailer. Drawing heavily from his retail experience In fast food franchising, he leveraged Important lessons from retailers that had transformed their own industry such as Cataracts and Home Depot. Best practices from these on-financial services companies offered unique insights to help Commerce Bank set Itself apart In the Flanagan services world.
Taking a different approach Is exactly what made Commerce Bank such a success. When big banks consolidated and closed branches, Commerce Bank opened hundreds of offices in the competition's backyard through which to conduct business with customers. While most banks believed the value of its bank was In the loan base, Commerce Bank went after the deposit base. And, while most banks focused on cutting costs, Commerce Bank focused on customer needs, by adding paradigm busting conventions to the industry the bank has open early/late hours and offers seven days a week branches.
Happy and satisfied customers were Commerce Bank's primary focus (Fret, 2006 p. L). Unlike other banks that encouraged customers to move their transactions from full-service channels to self-service channels, Mr.. Hill's business strategy was to provide customers the best of every transaction channel knowing that each one would be used by the customer. Commerce Bank must be mindful to stay one step ahead of the competition as a handful of competitors were beginning to copy some of Its service features, such as weekend and evening hours.
The competitors were beginning to emphasize the human element of service with advertising and included roaming tellers, a children's play area and no desks. INS opened a cafe©- style location offering espresso and savings accounts to customers seated at tables provided with free internet terminals. And Bank of America installed televisions to entertain the waiting customers (Fret, 2006, p. 1 1). Commerce Banks continued success is dependent upon delivering a better service than the competition.
In this regard, the bank proposed to implement a form of atmosphere enhancement called "retaliating" in order to differentiate itself. This decentralized program called "retaliating" allowed branches to come up with their own ideas, even wacky ideas, to entertain branch customers on Friday afternoons. Problem Statement Commerce Bank needs to stay ahead of the competition by providing a new "retaliating" experience and by controlling operating costs to increase its profitability.
Analysis Commerce Bank has built its operation on the premise that core banking services can be enhanced by introducing the element of retail experience which they termed as "retaliating. " Commerce Bank believed that when customers can pay $6 for a cup f coffee at Cataracts Just because of the retail experience, by the same token customers of the bank should be willing to accept lower interest on the deposits if they are provided with the experience which the customer valued. Commerce Bank, through its "retaliating" approach, emphasized a customer-centric culture.
Some of the services offered for the sole purpose of customer satisfaction were (1) fast daily branch operations (2) convenient teller transactions (3) coffee and newspaper while in queue (4) elimination of fees for the ATM and check card (5) phone at the banks ATM machines if customers need to reach the call center (6) 'check view feature on the banks website and (7) a penny arcade at branches. One of the important advantages of "retaliating" is that the customer is willing to spend more time in the banks premises and is not too much concerned about the waiting time.
Commerce Bank envisaged a multitude of benefits emerging from this kind of customer experience. This meant that such experience will lead to: a) Increased traffic. B) Retention of the customers which gets translated into higher lifetime value of the customer. C) Strengthen the belief of the customer that the Commerce Bank brand is omitted towards building customer relationship. All the above mentioned factors will lead to increased satisfaction among the customers because of "WOW" effect.
While the competitors were in the process of shifting customer to low cost channels, Commerce Bank provided options for alternate channels but did not forced customers to use them. They thought like retailers; the more the customers visited the bank more revenue can be generated per customer. Banking industries income can be classified into two major parts interest income which is simply the amount earned between the difference in the spread of deposit and lending rates, and non- interest income which is revenues from fees customers paid for certain transactions and functionality.
For Commerce Bank non-interest income had increased much faster compared to interest income from the period of 1998 to 2001 (see exhibit 1 a). By comparing the two financial matrices, one for the industry and other for Commerce Bank, it could be noted for the period 1998 to 2001, that Commerce Bank the industry non-interest income growth at 27% . These figures clearly demonstrate people do value the services of Commerce Bank and are willing to pay additional price, strengthening the premise of "retaliating.
At the same time it can also be noted that the industry average number of employees per branch had decreased from 26. 3 in 1998 to 25. 9 (see exhibit b) in 2001, whereas, it had increased for Commerce Bank from 27. 5 to 28. 8 for the same period. This is an indicator that cost of operation for each branch of Commerce Bank is higher compared to that of the industry and the decrease in ratio for the banking industry could be attributed to the use of alternate channels for banking.
Commerce Bank has made a great effort to maintain the customer expectation through "retaliating", however now the bank deeds to decide if it ought to continue with the same existing model, since customer perception is changing and decrease in the customer satisfaction will have direct impact on Commerce Banks operations such as: * Referrals will go down, which means cost of new customer acquisition will increase. * Opportunity for cross- selling and up selling that was possible because of high customer involvement will be lost, which means cost of operations will increase. Customer attrition rate may increase because of the dissatisfaction with expected service levels. "Retaliating" does not carry the value as it once did. For some customers, service efficiency is more important than a greeter standing around not doing anything. Additionally, some of the aspects of "retaliating" had disrupted the core banking operations. Recommendations and Conclusions It is expected for Commerce Bank to have more revenue in the form of non-interest income because of the way its operations is designed (see exhibit la).
Therefore, Commerce Bank should try to introduce more fees for ATM and checking accounts transactions which customers are willing to pay at the expense of retail experience. Despite having a higher growth rate than the industry for interest revenue, it can be doted that net income to non-interest income ratio indicated that interest revenue started to decline in the year 2000. Commerce Bank should focus on personalization of the banking services and try to bring in more prospects for its loan products which are non-customers of Commerce Bank on a selective basis; this will increase interest income of Commerce Bank.
Seen as a potential business pitfall, Commerce's deposits have grown more quickly than it could loan the money out. Commerce Bank had invested the cash, mostly in mortgage-backed securities. If interest rates rise, the value of Commerce's portfolio would fall. That in turn could erode the bank's capital levels and its ability to continue expanding (Barrett, 2003). Commerce's loan-to- deposit ratio was significantly below the industry average.
This is an avenue for interest revenue growth as Commerce Banks realized that some of their best loans were the ones they did not make (Fret, 2006 p. 6). Commerce Bank should try to streamline or standardize some of the activities in 'retaliating" which are valued least by customers. Commerce Bank should also evaluate what is the optimal amount of "entertainment" they need to offer and still be able to maintain operations and peep themselves in a competitive position against other banks.
There is no need to have a mascot in a branch to entertain customers while in line or have a hot dog cart to offer food. Bank of America had a simpler more cost effective solution, entertaining experience for customers waiting on lines through "retaliations" may have been a good idea until customers complained that they would prefer to have that extra employee behind the counter serving them. Long-term capacity planning is a critical task of bank management. No plan or a wrong plan is planning for failure or bad service which leads to customer attrition (Domingo, 2006).
The recommendation is for Commerce Bank to focus on improving its efficiency with fast customer service by the correct and dynamic matching of demand and capacity. The important step is to separate the bank's "factory-like" transactions which are more or less standardized, like check encashment, withdrawals, and check deposits, from the personalized ones like opening accounts, loan application, or marketing a new service. Commerce Bank can easily determine the seasonality or peak and low periods by carefully analyzing the data of the "factory-like" transactions, not based on "gut-feel" as some of Mr..
Hill's decisions. As stated by Optimizations and Optimizations (201 1), "request variability results from the unique demands of customers that create uneven service times. " By matching the demand and capacity of the factory-like transactions, Commerce Bank can decongest its lobby or ATM booths, improve overall customer satisfaction, and provide its staff with ample time and better composure to attend to the more personalized transactions. If a service transaction is done by one station or one- stop-shop, multitasking, multi-skilled teller, capacity planning is simple and straightforward.