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OSCM_Harvard Business Case_Commerce Bank

Commerce Bank implemented a revolutionary business model in the US banking industry by focusing on deposits rather than loans and providing an excellent customer experience through retail-inspired branches and services. This allowed Commerce Bank to grow much faster than the industry, with deposit growth averaging over 30% from 1998-2001 compared to 6% for the industry. However, competitors began adopting some of Commerce Bank's service offerings, threatening its position, and it faced pressure to continue innovating.

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7/30/2014 Case Analysis – Commerce Bank 1 Case Study Analysis Commerce Bank Binus Business School, MM Executive Batch 20 Presented by Group I Alexander Christian Dina Sandri Fani Jenna Widyawati Ridwan Martawidjaja
Table of Contents 7/30/2014 2 The Story of Commerce Bank Insights from the U.S. Banking Industry Deep Dive Analysis of Commerce Bank Conclusion & Recommendation 1 2 3 4 Case Analysis – Commerce Bank
Table of Contents 7/30/2014 3 The Story of Commerce Bank Insights from the U.S. Banking Industry Deep Dive Analysis of Commerce Bank Conclusion & Recommendation 1 2 3 4 Case Analysis – Commerce Bank
Commerce’s Flashback in Years 7/30/2014 Case Analysis – Commerce Bank 4 • 1973 Founded by Vernon Hill. Set up to “be different” as the world did not need another “me-too” bank • Early 1990s 4 branch offices were purchased from Long Island-based Anchor Savings Bank • 21 Jan 1997 Independence Bancorp, Inc. became Commerce Bank/North • 13 Aug 1998 Community First Banking Company & its subsidiary Tinton Falls State Bank became Commerce Bank/Shore • 17 Sep 1998 Prestige Financial Corp & its subsidiary Prestige State Bank became Commerce Bank/Central • 25 Jul 2005 Palm Beach County Bank established Commerce Bank in Southeast Florida • 2006 Purchased eMoney Advisor • 2007 Acquired by TD Bank Financial Group
Dare to be different since beginning Acted and thought as a retailer, not as a banker! Case Analysis – Commerce Bank 7/30/2014 5 Brought retail experience to banking Competed on service rather than rate Deposit rather than loan as a core product  Lollipops and dog biscuits in the lobby and drive-thru  Playful events, e.g. Red Fridays  Longer operating hours  Hassel free products, e.g. no transaction fee, no fee to the ATM  Deposit as a core product  No deposit, no loan!  Grew much higher than industry Defying conventional wisdom helped Commerce Bank to grow as one of the fastest growing banks in the US!!!
Table of Contents 7/30/2014 6 The Story of Commerce Bank Insights from the U.S. Banking Industry Deep Dive Analysis of Commerce Bank Conclusion & Recommendation 1 2 3 4 Case Analysis – Commerce Bank
Customers typology in the U.S. banking industry Case Analysis – Commerce Bank 7/30/2014 7 • Service Excellent • Fast and easy experience • Call center 24 hours Wants • Better rates • Safety on their accounts • Nothing will be your problem, we take care Needs • Fully trained cast member • Friendly persons: give the customers confidence and excellent advisement Searches • From traditional, full-service transaction to electronic, self-service transaction Evolves
Loans as a core products compared to deposits Growth was about 20% over the period of 1998 to 2001 Case Analysis – Commerce Bank 7/30/2014 8 Loans Deposits Commercial Banking Industry Figures Loans vs. Deposits (in tn USD) 3.68 3.83 4.18 4.39 3.18 3.43 3.76 3.82 1998 1999 2000 2001 Loans Deposits 2 main products: Commercial Banking Industry Figures 86.41% Loan-to-Deposit Ratio 89.61% 89.85% 87.06% 1998 1999 2000 2001 Major trends in industry: Cross-sell • A push to increase the “cross-sell” of products. Customer has 1.5 to 2.5 products with the banks Fee revenue • Growing revenues from non-interest income
Low service quality resulted to low satisfaction and high customer attrition rate Case Analysis – Commerce Bank 7/30/2014 9  Customer satisfaction historically been quite low  Only 53% of retail bank customers satisfied with the provided services  Demographics-based segmentation  Customer lifetime value/customer profitability as a segmentation variable  Help the banks to differentiate the service amongst customers  High attrition rate  One-third of customer base each year to attrition  Mostly occurred in the 1st year of a banking relationship  34% dissatisfied with the service provision; 34% due to geographic move Customer Attrition
Decision to choose a bank mostly influenced by proximity of a local bank Case Analysis – Commerce Bank 7/30/2014 10 Forcing banks to deploy the following channels: A. Traditional channel B. Modern channel Branches • Enormous branch networks to getting closer with the targeted segment ATM networks • Large ATM networks to ease customer doing a transaction • Free base vs. fee base • ATM transformation: from cost center to profit center 24/7 call centers • Including Voice Response Unit (VRU) • Allowing customer execute an increasing no, of transaction via telephone Internet Banking era  Banks to have a lower marginal cost  Full-service channels to self-service channels  Monetary incentives for using electronic channels  On the other hand, impose monetary penalties for using traditional channels
Front-line employees are vital for retail banks Case Analysis – Commerce Bank 7/30/2014 11 Selection criteria were as follows:  Be able to perform repeated tasks, interact with customers  Willingness to accept relatively low wages Undergo series of training to ensure compliance with processes & product attributes  Learning about bank-specific policies & procedures  Product knowledge training Main KPIs:  Volume of calls handled  No. of transactions processed
Table of Contents 7/30/2014 12 The Story of Commerce Bank Insights from the U.S. Banking Industry Deep Dive Analysis of Commerce Bank Conclusion & Recommendation 1 2 3 4 Case Analysis – Commerce Bank
Commerce Bank in Numbers Grew faster than the U.S. banking industry due to the implementation of revolutionary business model Case Analysis – Commerce Bank 7/30/2014 13 Commerce Bank Financial Figures 4.98 Total assets (in bn USD) 6.73 8.86 12.27 1998 1999 2000 2001 Commerce Bank Financial Figures Interest Income vs. Non-Interest Income 74 625 297 393 523 97 156 198 1998 1999 2000 2001  35% of CAGR from 1998 to 2001  Mostly came from securities and net loans & leases  Income mostly came from interest compared to non-interest  Non-interest income recorded higher CAGR compared to interest income (39% vs. 28%) following industry’s trend
Commerce Bank in Numbers Commerce went to a different direction as compared to industry, resulted to a lower loan-to-deposit ratio and higher expense ratio Case Analysis – Commerce Bank 7/30/2014 14 Loan-to-Deposit Ratio Commerce Bank vs. Industry 86.41% 89.61% 89.85% 87.06% 43.16% 52.48% 49.91% 45.48% 1998 1999 2000 2001 Commerce Industry  Lower loan-to-deposit ratio as compared to industry  Deposits as a core products: no loan if no deposit Total Expense Ratio Commerce Bank vs. Industry 77.7% 77.4% 80.2% 78.2% 76.9% 74.1% 75.7% 73.2% 1998 1999 2000 2001 Commerce Industry  Commerce sacrificed its expense ratio in order to create a superior customer experience  Total expense ratio is higher as compared to industry
Commerce Bank in Numbers Deposits grew way above the industry due to its unique proposition; while on the other hand, loans & leases still grew nicely Case Analysis – Commerce Bank 7/30/2014 15 Commerce Bank Financial Figures Total Deposits Growth (in bn USD) 31% 4.50 5.67 7.44 10.23 1998 1999 2000 2001  Provided convenient service instead of high deposit rate  Core product for Commerce: growth had averaged over 30% since 1996  1998-2001 CAGR was 31% much ahead industry of 6%  More than half of it were consumer business Commerce Bank Financial Figures Net Loans & Leases Growth (in bn 1.94 2.98 3.71 4.65 USD) 1998 1999 2000 2001  Implemented “No deposit, no loan” policy  Loan-to-deposit ratio was significantly below the industry average due to tight credit acceptance policy  Net loans & leases CAGR was 34%
Commerce’s SWOT Analysis Commerce had a strong positioning in service area; however, competitors were beginning to adopt some of its basic offerings Case Analysis – Commerce Bank 7/30/2014 16 S W T Strengths • Retailer mindset • Customer-centric program • Consistent service delivery • Excellent service innovation • Walk the talk attitude • Passionate employees • Financial growth Opportunities • Enormous market opportunities • Expanding the business to related financial sector such as insurance • Expanding overseas Threats • Fierce competition: competitors were beginning to adopt some of its basic service offerings • Lack of creativity and innovation to keep ahead of the competition O Weaknesses • Provided the lowest deposit rate • Higher operating cost as compared to competitions • Less focused on responsiveness, reliability, and assurance
Case Analysis – Commerce Bank 7/30/2014 17 Commerce Bank’s Business Model Customer Segments Mass Market: covering business and individual customer from young age to senior citizen Customer Relationships Full Service Personal assistance at branches and call center Automated services through online banking Value Proposition Excellent service with personal touch & attitude Different experience through retailtainment Convenient operating hours Inviting and comfy branches
Case Analysis – Commerce Bank 7/30/2014 18 Commerce Bank’s Business Model Key Resources Enthusiastic employees Inviting branch at the right location & other physical facilities Commerce culture to innovate, continuous improvement and customer service Key Activities Provide loan Collect core deposit Call center Online banking services ATM provider Marketing Key Partners ATM providers Street vendor and performers to assist marketing campaign
Case Analysis – Commerce Bank 7/30/2014 19 Commerce Bank’s Business Model Channels Marketing through: Street vendors, direct mailing, ads on public places, ads on company’s van. Banking services provided through: branches, ATMs, call center, online banking Cost structure Labor cost Marketing & advertising cost Design, construction and maintenance of branches Employee training and development program Revenue Streams Fee on banking services Interest from loan
Commerce’s Core Service Business Model They were here to blow customers away through creating a strong service business management model Case Analysis – Commerce Bank 7/30/2014 20 Service Offering Core service Model Funding Mechanism Customer Management  More impact for service  Well-integrated employee management system must be reflected on recruitment process, training, job design, and performance management Employee Management 1 2 3 4  Focus on the experiences customers want to have  Agreed on which attributes of service the business will compete on  At the same time, define what a business chooses not to do well  Develop a way to fund excellence  4 basic forms: 2 are ways of having the customer pay, and 2 cover the cost of excellence with operational savings businesses  Involving customer on value-creation process  Clear on 3 keys areas, i.e. which customers group, which customer behavior, which effective techniques to influence behavior
Commerce’s Service Offering Despite following the industry’s trend by providing customer good rate, Commerce decided to compensate its low rate through excellent service offering Case Analysis – Commerce Bank 7/30/2014 21 1 Core offerings: 1.Checking account • Standard checking • Internet checking • 50 Plus club • Consumer checking 2.Loans 3.ATM 4.Cash reserve line (overdraft protection) Facilitators Information • Live agents instead of Voice Response Unit (VRU) Order taking • Loans assigned to service branch instead of Head Office • Weekend banking • Longer operating hours Billing • Personal sign-off by customer on loan papers at service branch • Online monthly statements Payment • Easier, since loan customer also has a deposit at service branch Differentiators Consultation • Branch Manager / Loan officer helps to manage loans & deposits Hospitality • Phones at ATMs • Employee escorts with umbrellas during rains Safe-keeping • Check View Feature Exception Handling • Penny arcades to handle coins • Midnight timing at busy locations • 10 minute rule
Case Analysis – Commerce Bank 7/30/2014 22 Commerce’s Service Offering Detail explanation: Commerce’s service offering basically divided into two categories, i.e. core service offerings and supplementary service offerings 1 Core service offerings Deposits Offering Details Not very different from what other banks in the industry offer However, had a different focus from execution stand point Deposits base instead of loans base as a driver of operations and growth No. Type Minimum Balance Details 1 Standard Checking $100 No monthly service fees 2 Interest Checking $1000 No monthly service fees, Unlimited check writing, Interest 3 50 Plus Club $100 No account maintenance charge for checking account with interest, free checks, money orders, notary service and travelers’ checks 4 Consumer Checking None No per check charge for first 8 checks/month for $3 monthly fee No monthly service fees for the 1st 3 years and free 1st order of checks
Case Analysis – Commerce Bank 7/30/2014 23 Commerce’s Service Offering Detail explanation: Commerce’s service offering basically divided into two categories, i.e. core service offerings and supplementary service offerings 1 Core service offerings Loans ATMs Cash reserve line • Commerce’s value is not in its loan base but in its deposit base • Loans are not given out as easily as other banks in the industry • Credit quality checks for loan approval is very stringent • “No deposit no loan” policy • Withdrawals were available at any ATM and purchases anywhere Visa was accepted • Transactions were immediately reflected in accounts and statements • All accounts could be combines with a Cash Reserve Line to ensure protection from overdrafts
Case Analysis – Commerce Bank 7/30/2014 24 Commerce’s Service Offering Supplementary service offerings were designed to WOW customers. Consisted of facilitator offerings and differentiator offerings 1 Facilitators Information • Live agents instead of Voice Response Unit (VRU) Order taking (banking context: cash withdrawal & 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 & Sundays Billing (Banking context: loan approval and monthly statement generation process) • Personal sign-off by customer on loan papers at service branch • Online monthly statements Payment (loan repayment process) • Payment is easier for customer and assured for bank, since loan customer also has a deposit at service branch Differentiators Consultation • Branch Manager/loan officer helps to manage loans & deposits 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 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 Commerce’s website Exception handling (Banking context: Coin currency & Irregular hours ) • ‘Penny arcades’ to handle coins • Midnight timing at busy locations • 10 minute rule to increase banking hours by 20 minutes in a day’ operation
Commerce’s Funding Mechanism Basic theory to analyze Commerce’s funding mechanism Case Analysis – Commerce Bank 7/30/2014 25 2 Frei, HBR: 4 basic forms of funding mechanism Funding Mechanism Let the customer pay Charge the customer in a palatable way Giving a half percentage point less in interest on deposits for open late and on weekends operations Create a win-win between operational savings & value-added services Enhance the customer experience while spending lunch Operational savings Spend now to save later Make operational investments that will pay off eventually by reducing customers’ needs for auxiliary service in the future Have the customers do the work Put the cost back in the customer’s court, but in the form of labor, e.g. through offering self-service
Commerce’s Funding Mechanism Commerce mixed 4 basic forms for its funding mechanism implementations Case Analysis – Commerce Bank 7/30/2014 26 2 Frei, HBR: 4 basic forms of funding mechanism Funding Mechanism Let the customer pay Charge the customer in a palatable way Simply to have the customer pay for it, but possible to make the form that payment takes less objectionable to customers Operational savings Spend now to save later Heavily invested on branches: branches were built to be inviting Broke even within a year to 18 months compared to three years of the average bank Have the customers do the work Provided “check view” feature on the bank’s web site that allows customers to see an image of the front and back of a check
Commerce’s Funding Mechanism Detail Analysis: How Commerce funded its excellence Case Analysis – Commerce Bank 7/30/2014 27 2 Commerce’s start-up and growth strategy Commerce’s banking & lending operations Funding Mechanism How Commerce funded its own growth How Commerce functioned as a bank?
Commerce’s Funding Mechanism Start-up and growth strategy: focusing on organic growth and bring the retail franchise expansion model into its banking operational Case Analysis – Commerce Bank 7/30/2014 28 2 Commerce’s start-up and growth strategy  Founded in 1973 with $ 1.5 million as startup capital (assumed to be seed 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 expansion model (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 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
Case Analysis – Commerce Bank 7/30/2014 29 Commerce’s Funding Mechanism Commerce’s banking & lending operations focused on its 2 products, i.e. deposits & loans. It had a different approach in running its operations as compared to industry 2 Commerce’s banking & lending operations Business philosophy Operations in deposits Commerce Industry  Compete on service not on rate  Focus is customer experience  Operations is designed to WOW customers  Low-expense ratios are bad  Outgoing friendly service  Rates 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  Cross-Selling products  Preference to electronic channels  Non-interest income revenue  Pushing customers out of store(bank)  They are transaction-oriented and low growth  Dozen or more types of checking accounts  $5 monthly fee for Internet Banking facilities
Case Analysis – Commerce Bank 7/30/2014 30 Commerce’s Funding Mechanism Commerce’s banking & lending operations focused on its 2 products, i.e. deposits & loans. It had a different approach in running its operations as compared to industry 2 Commerce’s banking & lending operations Operations in loans Results Commerce Industry  Assigned to customer service branches that received credit for deposits  Low loan-deposit ratio  Stringent credit quality checks  Customers mostly commercial real estate projects, mortgages and consumer loans  Loan officer is also branch manager • Deposit Growth (2001) - 40% • Online Usage - 34% • Net Income growth (1998-2001) - 200%  Loan 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 linked to deposits • Deposit Growth (2001) - 5% • Non-interest income growth – 27% • Interest Income growth – 11% • Customer attrition – 1/3rd of customer base
Commerce’s Employee Management System Analyze how Commerce instilled WOW service business model into its employee management system Case Analysis – Commerce Bank 7/30/2014 31 3 Hiring Employee Management System Training Work Autonomy Workplace involvement Rewards Appraisal or Performance Measurement Major challenge is how to create a customer-centric organization that is reflected through Commerce’s employee management system
Commerce’s Employee Management System Analyze how Commerce instilled WOW service business model into its employee management system Case Analysis – Commerce Bank 7/30/2014 32 3 Hiring Employee Management System Training Work Autonomy Workplace involvement Rewards Appraisal and Performance Measurement Objective Getting the right people and integrate them with the entire Commerce’s culture High level strategy  Does not always recruit the best talent  Prioritize to hire average people with service attitude  Tough hiring process reflected by extensive number of interviews  Consider experienced people for part time job  Utilize interview processes to learn about competitors
Commerce’s Employee Management System Analyze how Commerce instilled WOW service business model into its employee management system Case Analysis – Commerce Bank 7/30/2014 33 3 Hiring Employee Management System Training Work Autonomy Workplace involvement Rewards Appraisal and Performance measurement Objective Use WOW program in designing service curriculum applied for entire Commerce organization High level strategy  Formed full time education and training facility named Commerce University  Easy to remember framework for learning Commerce service deliver model: SMART Principle (Say YES to customers, Make each customer feel special, Always keep customer promises, Recover, Think like a customer)  Service-oriented courses selection for new employees (“Traditions”) and senior executives
Commerce’s Employee Management System Analyze how Commerce instilled WOW service business model into its employee management system Case Analysis – Commerce Bank 7/30/2014 34 3 Hiring Employee Management System Training Work Autonomy Workplace involvement Rewards Appraisal & Performance measurement Work autonomy Encourage and empower employees to participate on “Kill the stupid rule” program Workplace involvement  All employees encouraged to hand out their visiting cards to recruit potential employees  Redeemable WOW! Stickers  WOW! Awards and Musical performances  Playful events like Red Fridays
Commerce’s Employee Management System Analyze how Commerce instilled WOW service business model into its employee management system Case Analysis – Commerce Bank 7/30/2014 35 3 Hiring Employee Management System Training Work Autonomy Workplace involvement Rewards Appraisal and Performance Measurement Appraisal & Performance  Service performance as one of the KPIs. Measured thru mystery shopping  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 Rewards  Monetizing mystery shopping result: salary increased based on the result  Glamorous prizes for top performers (like a leased 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
Case Analysis – Commerce Bank 7/30/2014 36 4 Commerce’s Customer Management System Analyze how Commerce developed its customer management system in accordance with its service business model Customer Management system Customer acquisition Customer retention programs Industry Norm  Push more product through cross-selling  Transactions-based KPIs 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. Commerce chose the opposite strategy and to compete on service aspects by focusing on superior customer excellence delivery
Case Analysis – Commerce Bank 7/30/2014 37 4 Commerce’s Customer Management System Analyze how Commerce developed its customer management system in accordance with its service business model Customer Management system Customer acquisition Customer retention programs Commerce’s acquisition strategy  Branches located close to competitors branches and designed to be inviting, open windows  Red & blue painted commerce vans helped create free advertising opportunities  Building designs across all branches were consistent (Note: 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)  Free gift for the first time customers  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
Case Analysis – Commerce Bank 7/30/2014 38 4 Commerce’s Customer Management System Analyze how Commerce developed its customer management system in accordance with its service business model Customer Management system Customer acquisition Customer retention programs Industry Norm  All banks provided the same ease-of-use electronic banking features along with their extensive branch networks  Having an issue on retention: high attrition rate  Main triggers of high attrition rate: • dissatisfaction with steep fees and fee surprises, poor service and errors (34%) • outside of reach of current branch location (34%) • availability of more convenience such as longer hours in other banks (15%) Commerce’s retention program were designed to target the above-mentioned customer pain points which caused customers to switch banks. Delivering superior customer experience, once again, became a choice of Commerce for its retention program
Case Analysis – Commerce Bank 7/30/2014 39 4 Commerce’s Customer Management System Analyze how Commerce developed its customer management system in accordance with its service business model Customer Management system Customer acquisition Customer retention programs Commerce’s retention strategy 1. Create convenience at customer sides • Extended banking hours (10 minute rule allowed for 20 minutes of extra banking everyday) • Busy locations were open till midnight (12:10 am) • Weekend banking (Saturdays & Sundays) • Same branch look and feel • Phones in ATMs reach helplines • Live agents instead of VRUs 2. 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 • Service-oriented KPIs to measure employee’s performance
Case Analysis – Commerce Bank 7/30/2014 40 4 Commerce’s Customer Management System Analyze how Commerce developed its customer management system in accordance with its service business model Customer Management system Customer acquisition Customer retention programs Commerce’s retention strategy 3. Up-close and personal service • Guidance to manage deposit accounts by branch managers • Loan accounts handled by local customer service branches and not by central headquarters • Guidance to manage loan accounts by loan officers (who also happened to be branch managers) 4. Customer delight features • No fees for ATM and check cards • Non-interest income (ATM charges/fees for using other bank’s 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 • Gifts (pens and lollipops) at drive-through banking windows
Table of Contents 7/30/2014 41 The Story of Commerce Bank Insights from the U.S. Banking Industry Deep Dive Analysis of Commerce Bank Conclusion & Recommendation 1 2 3 4 Case Analysis – Commerce Bank
Case Analysis – Commerce Bank 7/30/2014 42 Conclusions Implementation of service-business model brought a big success for Commerce Success Parameter Deposit growth (1996-2001) Deposit growth (2001 only) Commerce Bank Industry or Competitors Online usage Grew about 34% Wells Fargo: much lower Net Income growth (1998-2001) 30% growth in average Grew about 40% 200% growth (double the net income) U.S. banking industry grew ±20% from 1998-2001 U.S. banking industry grew only 5% U.S. banking industry grew about 20%
Retailtainment gave a set back for Commerce Failed to improve overall customer experience as it increased no. of customer complaints Case Analysis – Commerce Bank 7/30/2014 43 Original Plan Improve the service experience for customer waiting in branches Triggered by the following: competitors beginning to adopt some of basic service offerings Allowing Branch Managers to suggest ideas (event wacky ones) for entertaining branch customers on Friday afternoons Actual result No. of customer complaints were going up It made the employees put more focus on the entertainment aspect rather than service aspects Customer did not expect to be entertained while waiting at branch. What they actually need is a solution over their problem Concerned arose on branding implications Decentralized roll-out
Recommendations & Action Plans for Commerce Case Analysis – Commerce Bank 7/30/2014 44 Recommendations:  Discontinue Retailtainment program as it does not fit with Commerce’s value  Back to previous service business model, i.e. focusing on superior customer experience delivery rather than providing entertainment to customers  Focus should be given to the effort of improving quality of service. 3 main areas to be improved are responsiveness, reliability and assurance  Improving brand positioning through consistent service delivery  Maintaining and improving financial conditions (deposits growth, net income)
Recommendations & Action Plans for Commerce Case Analysis – Commerce Bank 7/30/2014 45 Action Plans: 1. Create more effective and efficient process • Provide several service zones, i.e. basic service area, quick service zone, and complaint zone • 3 types of front-liners, i.e. product consultant, service consultant and 2. Launch service guarantee program rather than continuing Retailtainment program
Case Analysis – Benihana of Tokyo 7/28/2014 46

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OSCM_Harvard Business Case_Commerce Bank

  • 1.
    7/30/2014 Case Analysis– Commerce Bank 1 Case Study Analysis Commerce Bank Binus Business School, MM Executive Batch 20 Presented by Group I Alexander Christian Dina Sandri Fani Jenna Widyawati Ridwan Martawidjaja
  • 2.
    Table of Contents 7/30/2014 2 The Story of Commerce Bank Insights from the U.S. Banking Industry Deep Dive Analysis of Commerce Bank Conclusion & Recommendation 1 2 3 4 Case Analysis – Commerce Bank
  • 3.
    Table of Contents 7/30/2014 3 The Story of Commerce Bank Insights from the U.S. Banking Industry Deep Dive Analysis of Commerce Bank Conclusion & Recommendation 1 2 3 4 Case Analysis – Commerce Bank
  • 4.
    Commerce’s Flashback inYears 7/30/2014 Case Analysis – Commerce Bank 4 • 1973 Founded by Vernon Hill. Set up to “be different” as the world did not need another “me-too” bank • Early 1990s 4 branch offices were purchased from Long Island-based Anchor Savings Bank • 21 Jan 1997 Independence Bancorp, Inc. became Commerce Bank/North • 13 Aug 1998 Community First Banking Company & its subsidiary Tinton Falls State Bank became Commerce Bank/Shore • 17 Sep 1998 Prestige Financial Corp & its subsidiary Prestige State Bank became Commerce Bank/Central • 25 Jul 2005 Palm Beach County Bank established Commerce Bank in Southeast Florida • 2006 Purchased eMoney Advisor • 2007 Acquired by TD Bank Financial Group
  • 5.
    Dare to bedifferent since beginning Acted and thought as a retailer, not as a banker! Case Analysis – Commerce Bank 7/30/2014 5 Brought retail experience to banking Competed on service rather than rate Deposit rather than loan as a core product  Lollipops and dog biscuits in the lobby and drive-thru  Playful events, e.g. Red Fridays  Longer operating hours  Hassel free products, e.g. no transaction fee, no fee to the ATM  Deposit as a core product  No deposit, no loan!  Grew much higher than industry Defying conventional wisdom helped Commerce Bank to grow as one of the fastest growing banks in the US!!!
  • 6.
    Table of Contents 7/30/2014 6 The Story of Commerce Bank Insights from the U.S. Banking Industry Deep Dive Analysis of Commerce Bank Conclusion & Recommendation 1 2 3 4 Case Analysis – Commerce Bank
  • 7.
    Customers typology inthe U.S. banking industry Case Analysis – Commerce Bank 7/30/2014 7 • Service Excellent • Fast and easy experience • Call center 24 hours Wants • Better rates • Safety on their accounts • Nothing will be your problem, we take care Needs • Fully trained cast member • Friendly persons: give the customers confidence and excellent advisement Searches • From traditional, full-service transaction to electronic, self-service transaction Evolves
  • 8.
    Loans as acore products compared to deposits Growth was about 20% over the period of 1998 to 2001 Case Analysis – Commerce Bank 7/30/2014 8 Loans Deposits Commercial Banking Industry Figures Loans vs. Deposits (in tn USD) 3.68 3.83 4.18 4.39 3.18 3.43 3.76 3.82 1998 1999 2000 2001 Loans Deposits 2 main products: Commercial Banking Industry Figures 86.41% Loan-to-Deposit Ratio 89.61% 89.85% 87.06% 1998 1999 2000 2001 Major trends in industry: Cross-sell • A push to increase the “cross-sell” of products. Customer has 1.5 to 2.5 products with the banks Fee revenue • Growing revenues from non-interest income
  • 9.
    Low service qualityresulted to low satisfaction and high customer attrition rate Case Analysis – Commerce Bank 7/30/2014 9  Customer satisfaction historically been quite low  Only 53% of retail bank customers satisfied with the provided services  Demographics-based segmentation  Customer lifetime value/customer profitability as a segmentation variable  Help the banks to differentiate the service amongst customers  High attrition rate  One-third of customer base each year to attrition  Mostly occurred in the 1st year of a banking relationship  34% dissatisfied with the service provision; 34% due to geographic move Customer Attrition
  • 10.
    Decision to choosea bank mostly influenced by proximity of a local bank Case Analysis – Commerce Bank 7/30/2014 10 Forcing banks to deploy the following channels: A. Traditional channel B. Modern channel Branches • Enormous branch networks to getting closer with the targeted segment ATM networks • Large ATM networks to ease customer doing a transaction • Free base vs. fee base • ATM transformation: from cost center to profit center 24/7 call centers • Including Voice Response Unit (VRU) • Allowing customer execute an increasing no, of transaction via telephone Internet Banking era  Banks to have a lower marginal cost  Full-service channels to self-service channels  Monetary incentives for using electronic channels  On the other hand, impose monetary penalties for using traditional channels
  • 11.
    Front-line employees arevital for retail banks Case Analysis – Commerce Bank 7/30/2014 11 Selection criteria were as follows:  Be able to perform repeated tasks, interact with customers  Willingness to accept relatively low wages Undergo series of training to ensure compliance with processes & product attributes  Learning about bank-specific policies & procedures  Product knowledge training Main KPIs:  Volume of calls handled  No. of transactions processed
  • 12.
    Table of Contents 7/30/2014 12 The Story of Commerce Bank Insights from the U.S. Banking Industry Deep Dive Analysis of Commerce Bank Conclusion & Recommendation 1 2 3 4 Case Analysis – Commerce Bank
  • 13.
    Commerce Bank inNumbers Grew faster than the U.S. banking industry due to the implementation of revolutionary business model Case Analysis – Commerce Bank 7/30/2014 13 Commerce Bank Financial Figures 4.98 Total assets (in bn USD) 6.73 8.86 12.27 1998 1999 2000 2001 Commerce Bank Financial Figures Interest Income vs. Non-Interest Income 74 625 297 393 523 97 156 198 1998 1999 2000 2001  35% of CAGR from 1998 to 2001  Mostly came from securities and net loans & leases  Income mostly came from interest compared to non-interest  Non-interest income recorded higher CAGR compared to interest income (39% vs. 28%) following industry’s trend
  • 14.
    Commerce Bank inNumbers Commerce went to a different direction as compared to industry, resulted to a lower loan-to-deposit ratio and higher expense ratio Case Analysis – Commerce Bank 7/30/2014 14 Loan-to-Deposit Ratio Commerce Bank vs. Industry 86.41% 89.61% 89.85% 87.06% 43.16% 52.48% 49.91% 45.48% 1998 1999 2000 2001 Commerce Industry  Lower loan-to-deposit ratio as compared to industry  Deposits as a core products: no loan if no deposit Total Expense Ratio Commerce Bank vs. Industry 77.7% 77.4% 80.2% 78.2% 76.9% 74.1% 75.7% 73.2% 1998 1999 2000 2001 Commerce Industry  Commerce sacrificed its expense ratio in order to create a superior customer experience  Total expense ratio is higher as compared to industry
  • 15.
    Commerce Bank inNumbers Deposits grew way above the industry due to its unique proposition; while on the other hand, loans & leases still grew nicely Case Analysis – Commerce Bank 7/30/2014 15 Commerce Bank Financial Figures Total Deposits Growth (in bn USD) 31% 4.50 5.67 7.44 10.23 1998 1999 2000 2001  Provided convenient service instead of high deposit rate  Core product for Commerce: growth had averaged over 30% since 1996  1998-2001 CAGR was 31% much ahead industry of 6%  More than half of it were consumer business Commerce Bank Financial Figures Net Loans & Leases Growth (in bn 1.94 2.98 3.71 4.65 USD) 1998 1999 2000 2001  Implemented “No deposit, no loan” policy  Loan-to-deposit ratio was significantly below the industry average due to tight credit acceptance policy  Net loans & leases CAGR was 34%
  • 16.
    Commerce’s SWOT Analysis Commerce had a strong positioning in service area; however, competitors were beginning to adopt some of its basic offerings Case Analysis – Commerce Bank 7/30/2014 16 S W T Strengths • Retailer mindset • Customer-centric program • Consistent service delivery • Excellent service innovation • Walk the talk attitude • Passionate employees • Financial growth Opportunities • Enormous market opportunities • Expanding the business to related financial sector such as insurance • Expanding overseas Threats • Fierce competition: competitors were beginning to adopt some of its basic service offerings • Lack of creativity and innovation to keep ahead of the competition O Weaknesses • Provided the lowest deposit rate • Higher operating cost as compared to competitions • Less focused on responsiveness, reliability, and assurance
  • 17.
    Case Analysis –Commerce Bank 7/30/2014 17 Commerce Bank’s Business Model Customer Segments Mass Market: covering business and individual customer from young age to senior citizen Customer Relationships Full Service Personal assistance at branches and call center Automated services through online banking Value Proposition Excellent service with personal touch & attitude Different experience through retailtainment Convenient operating hours Inviting and comfy branches
  • 18.
    Case Analysis –Commerce Bank 7/30/2014 18 Commerce Bank’s Business Model Key Resources Enthusiastic employees Inviting branch at the right location & other physical facilities Commerce culture to innovate, continuous improvement and customer service Key Activities Provide loan Collect core deposit Call center Online banking services ATM provider Marketing Key Partners ATM providers Street vendor and performers to assist marketing campaign
  • 19.
    Case Analysis –Commerce Bank 7/30/2014 19 Commerce Bank’s Business Model Channels Marketing through: Street vendors, direct mailing, ads on public places, ads on company’s van. Banking services provided through: branches, ATMs, call center, online banking Cost structure Labor cost Marketing & advertising cost Design, construction and maintenance of branches Employee training and development program Revenue Streams Fee on banking services Interest from loan
  • 20.
    Commerce’s Core ServiceBusiness Model They were here to blow customers away through creating a strong service business management model Case Analysis – Commerce Bank 7/30/2014 20 Service Offering Core service Model Funding Mechanism Customer Management  More impact for service  Well-integrated employee management system must be reflected on recruitment process, training, job design, and performance management Employee Management 1 2 3 4  Focus on the experiences customers want to have  Agreed on which attributes of service the business will compete on  At the same time, define what a business chooses not to do well  Develop a way to fund excellence  4 basic forms: 2 are ways of having the customer pay, and 2 cover the cost of excellence with operational savings businesses  Involving customer on value-creation process  Clear on 3 keys areas, i.e. which customers group, which customer behavior, which effective techniques to influence behavior
  • 21.
    Commerce’s Service Offering Despite following the industry’s trend by providing customer good rate, Commerce decided to compensate its low rate through excellent service offering Case Analysis – Commerce Bank 7/30/2014 21 1 Core offerings: 1.Checking account • Standard checking • Internet checking • 50 Plus club • Consumer checking 2.Loans 3.ATM 4.Cash reserve line (overdraft protection) Facilitators Information • Live agents instead of Voice Response Unit (VRU) Order taking • Loans assigned to service branch instead of Head Office • Weekend banking • Longer operating hours Billing • Personal sign-off by customer on loan papers at service branch • Online monthly statements Payment • Easier, since loan customer also has a deposit at service branch Differentiators Consultation • Branch Manager / Loan officer helps to manage loans & deposits Hospitality • Phones at ATMs • Employee escorts with umbrellas during rains Safe-keeping • Check View Feature Exception Handling • Penny arcades to handle coins • Midnight timing at busy locations • 10 minute rule
  • 22.
    Case Analysis –Commerce Bank 7/30/2014 22 Commerce’s Service Offering Detail explanation: Commerce’s service offering basically divided into two categories, i.e. core service offerings and supplementary service offerings 1 Core service offerings Deposits Offering Details Not very different from what other banks in the industry offer However, had a different focus from execution stand point Deposits base instead of loans base as a driver of operations and growth No. Type Minimum Balance Details 1 Standard Checking $100 No monthly service fees 2 Interest Checking $1000 No monthly service fees, Unlimited check writing, Interest 3 50 Plus Club $100 No account maintenance charge for checking account with interest, free checks, money orders, notary service and travelers’ checks 4 Consumer Checking None No per check charge for first 8 checks/month for $3 monthly fee No monthly service fees for the 1st 3 years and free 1st order of checks
  • 23.
    Case Analysis –Commerce Bank 7/30/2014 23 Commerce’s Service Offering Detail explanation: Commerce’s service offering basically divided into two categories, i.e. core service offerings and supplementary service offerings 1 Core service offerings Loans ATMs Cash reserve line • Commerce’s value is not in its loan base but in its deposit base • Loans are not given out as easily as other banks in the industry • Credit quality checks for loan approval is very stringent • “No deposit no loan” policy • Withdrawals were available at any ATM and purchases anywhere Visa was accepted • Transactions were immediately reflected in accounts and statements • All accounts could be combines with a Cash Reserve Line to ensure protection from overdrafts
  • 24.
    Case Analysis –Commerce Bank 7/30/2014 24 Commerce’s Service Offering Supplementary service offerings were designed to WOW customers. Consisted of facilitator offerings and differentiator offerings 1 Facilitators Information • Live agents instead of Voice Response Unit (VRU) Order taking (banking context: cash withdrawal & 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 & Sundays Billing (Banking context: loan approval and monthly statement generation process) • Personal sign-off by customer on loan papers at service branch • Online monthly statements Payment (loan repayment process) • Payment is easier for customer and assured for bank, since loan customer also has a deposit at service branch Differentiators Consultation • Branch Manager/loan officer helps to manage loans & deposits 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 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 Commerce’s website Exception handling (Banking context: Coin currency & Irregular hours ) • ‘Penny arcades’ to handle coins • Midnight timing at busy locations • 10 minute rule to increase banking hours by 20 minutes in a day’ operation
  • 25.
    Commerce’s Funding Mechanism Basic theory to analyze Commerce’s funding mechanism Case Analysis – Commerce Bank 7/30/2014 25 2 Frei, HBR: 4 basic forms of funding mechanism Funding Mechanism Let the customer pay Charge the customer in a palatable way Giving a half percentage point less in interest on deposits for open late and on weekends operations Create a win-win between operational savings & value-added services Enhance the customer experience while spending lunch Operational savings Spend now to save later Make operational investments that will pay off eventually by reducing customers’ needs for auxiliary service in the future Have the customers do the work Put the cost back in the customer’s court, but in the form of labor, e.g. through offering self-service
  • 26.
    Commerce’s Funding Mechanism Commerce mixed 4 basic forms for its funding mechanism implementations Case Analysis – Commerce Bank 7/30/2014 26 2 Frei, HBR: 4 basic forms of funding mechanism Funding Mechanism Let the customer pay Charge the customer in a palatable way Simply to have the customer pay for it, but possible to make the form that payment takes less objectionable to customers Operational savings Spend now to save later Heavily invested on branches: branches were built to be inviting Broke even within a year to 18 months compared to three years of the average bank Have the customers do the work Provided “check view” feature on the bank’s web site that allows customers to see an image of the front and back of a check
  • 27.
    Commerce’s Funding Mechanism Detail Analysis: How Commerce funded its excellence Case Analysis – Commerce Bank 7/30/2014 27 2 Commerce’s start-up and growth strategy Commerce’s banking & lending operations Funding Mechanism How Commerce funded its own growth How Commerce functioned as a bank?
  • 28.
    Commerce’s Funding Mechanism Start-up and growth strategy: focusing on organic growth and bring the retail franchise expansion model into its banking operational Case Analysis – Commerce Bank 7/30/2014 28 2 Commerce’s start-up and growth strategy  Founded in 1973 with $ 1.5 million as startup capital (assumed to be seed 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 expansion model (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 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
  • 29.
    Case Analysis –Commerce Bank 7/30/2014 29 Commerce’s Funding Mechanism Commerce’s banking & lending operations focused on its 2 products, i.e. deposits & loans. It had a different approach in running its operations as compared to industry 2 Commerce’s banking & lending operations Business philosophy Operations in deposits Commerce Industry  Compete on service not on rate  Focus is customer experience  Operations is designed to WOW customers  Low-expense ratios are bad  Outgoing friendly service  Rates 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  Cross-Selling products  Preference to electronic channels  Non-interest income revenue  Pushing customers out of store(bank)  They are transaction-oriented and low growth  Dozen or more types of checking accounts  $5 monthly fee for Internet Banking facilities
  • 30.
    Case Analysis –Commerce Bank 7/30/2014 30 Commerce’s Funding Mechanism Commerce’s banking & lending operations focused on its 2 products, i.e. deposits & loans. It had a different approach in running its operations as compared to industry 2 Commerce’s banking & lending operations Operations in loans Results Commerce Industry  Assigned to customer service branches that received credit for deposits  Low loan-deposit ratio  Stringent credit quality checks  Customers mostly commercial real estate projects, mortgages and consumer loans  Loan officer is also branch manager • Deposit Growth (2001) - 40% • Online Usage - 34% • Net Income growth (1998-2001) - 200%  Loan 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 linked to deposits • Deposit Growth (2001) - 5% • Non-interest income growth – 27% • Interest Income growth – 11% • Customer attrition – 1/3rd of customer base
  • 31.
    Commerce’s Employee ManagementSystem Analyze how Commerce instilled WOW service business model into its employee management system Case Analysis – Commerce Bank 7/30/2014 31 3 Hiring Employee Management System Training Work Autonomy Workplace involvement Rewards Appraisal or Performance Measurement Major challenge is how to create a customer-centric organization that is reflected through Commerce’s employee management system
  • 32.
    Commerce’s Employee ManagementSystem Analyze how Commerce instilled WOW service business model into its employee management system Case Analysis – Commerce Bank 7/30/2014 32 3 Hiring Employee Management System Training Work Autonomy Workplace involvement Rewards Appraisal and Performance Measurement Objective Getting the right people and integrate them with the entire Commerce’s culture High level strategy  Does not always recruit the best talent  Prioritize to hire average people with service attitude  Tough hiring process reflected by extensive number of interviews  Consider experienced people for part time job  Utilize interview processes to learn about competitors
  • 33.
    Commerce’s Employee ManagementSystem Analyze how Commerce instilled WOW service business model into its employee management system Case Analysis – Commerce Bank 7/30/2014 33 3 Hiring Employee Management System Training Work Autonomy Workplace involvement Rewards Appraisal and Performance measurement Objective Use WOW program in designing service curriculum applied for entire Commerce organization High level strategy  Formed full time education and training facility named Commerce University  Easy to remember framework for learning Commerce service deliver model: SMART Principle (Say YES to customers, Make each customer feel special, Always keep customer promises, Recover, Think like a customer)  Service-oriented courses selection for new employees (“Traditions”) and senior executives
  • 34.
    Commerce’s Employee ManagementSystem Analyze how Commerce instilled WOW service business model into its employee management system Case Analysis – Commerce Bank 7/30/2014 34 3 Hiring Employee Management System Training Work Autonomy Workplace involvement Rewards Appraisal & Performance measurement Work autonomy Encourage and empower employees to participate on “Kill the stupid rule” program Workplace involvement  All employees encouraged to hand out their visiting cards to recruit potential employees  Redeemable WOW! Stickers  WOW! Awards and Musical performances  Playful events like Red Fridays
  • 35.
    Commerce’s Employee ManagementSystem Analyze how Commerce instilled WOW service business model into its employee management system Case Analysis – Commerce Bank 7/30/2014 35 3 Hiring Employee Management System Training Work Autonomy Workplace involvement Rewards Appraisal and Performance Measurement Appraisal & Performance  Service performance as one of the KPIs. Measured thru mystery shopping  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 Rewards  Monetizing mystery shopping result: salary increased based on the result  Glamorous prizes for top performers (like a leased 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
  • 36.
    Case Analysis –Commerce Bank 7/30/2014 36 4 Commerce’s Customer Management System Analyze how Commerce developed its customer management system in accordance with its service business model Customer Management system Customer acquisition Customer retention programs Industry Norm  Push more product through cross-selling  Transactions-based KPIs 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. Commerce chose the opposite strategy and to compete on service aspects by focusing on superior customer excellence delivery
  • 37.
    Case Analysis –Commerce Bank 7/30/2014 37 4 Commerce’s Customer Management System Analyze how Commerce developed its customer management system in accordance with its service business model Customer Management system Customer acquisition Customer retention programs Commerce’s acquisition strategy  Branches located close to competitors branches and designed to be inviting, open windows  Red & blue painted commerce vans helped create free advertising opportunities  Building designs across all branches were consistent (Note: 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)  Free gift for the first time customers  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
  • 38.
    Case Analysis –Commerce Bank 7/30/2014 38 4 Commerce’s Customer Management System Analyze how Commerce developed its customer management system in accordance with its service business model Customer Management system Customer acquisition Customer retention programs Industry Norm  All banks provided the same ease-of-use electronic banking features along with their extensive branch networks  Having an issue on retention: high attrition rate  Main triggers of high attrition rate: • dissatisfaction with steep fees and fee surprises, poor service and errors (34%) • outside of reach of current branch location (34%) • availability of more convenience such as longer hours in other banks (15%) Commerce’s retention program were designed to target the above-mentioned customer pain points which caused customers to switch banks. Delivering superior customer experience, once again, became a choice of Commerce for its retention program
  • 39.
    Case Analysis –Commerce Bank 7/30/2014 39 4 Commerce’s Customer Management System Analyze how Commerce developed its customer management system in accordance with its service business model Customer Management system Customer acquisition Customer retention programs Commerce’s retention strategy 1. Create convenience at customer sides • Extended banking hours (10 minute rule allowed for 20 minutes of extra banking everyday) • Busy locations were open till midnight (12:10 am) • Weekend banking (Saturdays & Sundays) • Same branch look and feel • Phones in ATMs reach helplines • Live agents instead of VRUs 2. 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 • Service-oriented KPIs to measure employee’s performance
  • 40.
    Case Analysis –Commerce Bank 7/30/2014 40 4 Commerce’s Customer Management System Analyze how Commerce developed its customer management system in accordance with its service business model Customer Management system Customer acquisition Customer retention programs Commerce’s retention strategy 3. Up-close and personal service • Guidance to manage deposit accounts by branch managers • Loan accounts handled by local customer service branches and not by central headquarters • Guidance to manage loan accounts by loan officers (who also happened to be branch managers) 4. Customer delight features • No fees for ATM and check cards • Non-interest income (ATM charges/fees for using other bank’s 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 • Gifts (pens and lollipops) at drive-through banking windows
  • 41.
    Table of Contents 7/30/2014 41 The Story of Commerce Bank Insights from the U.S. Banking Industry Deep Dive Analysis of Commerce Bank Conclusion & Recommendation 1 2 3 4 Case Analysis – Commerce Bank
  • 42.
    Case Analysis –Commerce Bank 7/30/2014 42 Conclusions Implementation of service-business model brought a big success for Commerce Success Parameter Deposit growth (1996-2001) Deposit growth (2001 only) Commerce Bank Industry or Competitors Online usage Grew about 34% Wells Fargo: much lower Net Income growth (1998-2001) 30% growth in average Grew about 40% 200% growth (double the net income) U.S. banking industry grew ±20% from 1998-2001 U.S. banking industry grew only 5% U.S. banking industry grew about 20%
  • 43.
    Retailtainment gave aset back for Commerce Failed to improve overall customer experience as it increased no. of customer complaints Case Analysis – Commerce Bank 7/30/2014 43 Original Plan Improve the service experience for customer waiting in branches Triggered by the following: competitors beginning to adopt some of basic service offerings Allowing Branch Managers to suggest ideas (event wacky ones) for entertaining branch customers on Friday afternoons Actual result No. of customer complaints were going up It made the employees put more focus on the entertainment aspect rather than service aspects Customer did not expect to be entertained while waiting at branch. What they actually need is a solution over their problem Concerned arose on branding implications Decentralized roll-out
  • 44.
    Recommendations & ActionPlans for Commerce Case Analysis – Commerce Bank 7/30/2014 44 Recommendations:  Discontinue Retailtainment program as it does not fit with Commerce’s value  Back to previous service business model, i.e. focusing on superior customer experience delivery rather than providing entertainment to customers  Focus should be given to the effort of improving quality of service. 3 main areas to be improved are responsiveness, reliability and assurance  Improving brand positioning through consistent service delivery  Maintaining and improving financial conditions (deposits growth, net income)
  • 45.
    Recommendations & ActionPlans for Commerce Case Analysis – Commerce Bank 7/30/2014 45 Action Plans: 1. Create more effective and efficient process • Provide several service zones, i.e. basic service area, quick service zone, and complaint zone • 3 types of front-liners, i.e. product consultant, service consultant and 2. Launch service guarantee program rather than continuing Retailtainment program
  • 46.
    Case Analysis –Benihana of Tokyo 7/28/2014 46