Running head: COMMERCE BANKTable of Contents Executive Summary .......................................................................................................................3 Background ....................................................................................................................................3 Problem Statement.........................................................................................................................4 Analysis ...........................................................................................................................................5 Strengths ................................................................................................................................................... 5 Weaknesses ............................................................................................................................................... 5 Opportunities ............................................................................................................................................ 5 Threats ...................................................................................................................................................... 6 Recommendations and Conclusion ..............................................................................................6 References ......................................................................................................................................8 Appendix .........................................................................................................................................9 COMMERCE BANK 2 Commerce Bank Executive Summary Commerce Bank has built its success by focusing more on improving customer service than increasing profits. From the beginning their methods have differed from their competition but recently the competition has started to copy some of their unique service features. To continue to stay ahead of the competition, Commerce has implemented something new which they refer to as “Retailtainment,” (Frei, 2006). This report evaluates the current operations of Commerce Bank with the use of a SWOT Analysis. The findings indicate that “Retailtainment” may not be the best way for Commerce to differentiate them from the competition. Management at Commerce Bank should take advantage of this information and evaluate some other options. Background Commerce Bank was founded in 1973 by Vernon Hill. Vernon Hill began his career as a fast food business owner and used that retail experience to create a different kind of bank. He opened the 1 st branch in New Jersey with only $1.5 million and has since expanded into 3 other neighboring states without any acquisitions or mergers. Hill believed that, “It’s easier to build a bank than to fix one,” (Frei, 2006). He wanted to differentiate Commerce Bank from the competition but wanted all of his branches to be consistent, not just with their appearance but also with well trained employees and customer service. In order to develop well trained employees he implemented Commerce University which not only gave new employees “WOW! Training” but it also allowed current employees to learn even more by taking other courses offered by the University. The University was also open to non-employees which helped with future recruitment. Commodity products such as loans and deposits are offered throughout the US banking industry. From 1998 to 2001 both loans and deposits grew on average 20% in the industry, some more than 20% but primarily due to mergers and acquisitions. Commerce, however, managed to grow their deposits by 30% per year since 1996 and in 2001 managed to grow their deposits by nearly 40%, which was 35% higher than the cumulative US deposit growth (Frei, 2006). The founder of Commerce Bank, Hill, attributes this to the fact that they allow their customers to bank with them however they want, whereas, the competition is forcing their customers to use the lowest cost method or pay a fee. Hill let his customers choose the method they wanted at no COMMERCE BANK 3 additional cost because according to him, there is not one retailer who has succeeded by making their client do something they do not want to (Frei, 2006). Another way that Commerce Bank differs from the competition is that non-interest income in the industry grew 27% from 1998- 2001 due to increased fees and at the same time that Commerce was reimbursing their customers up to $5 per month for ATM fees charged by other banks (Frei, 2006). Commerce Bank is different from its competitors mainly because of their focus on convenience and customer service. Their many locations are open seven days a weeks with extended hours Monday through Friday, all with a 10 minute rule in which they open 10 minutes early and stay open 10 minutes late each day, they offer their customers coffee and newspapers while they wait, give out pens, lollipops and dog biscuits, and have Penny Arcades in the lobby. This customer-centric approach has made Commerce Bank very successful compared to its competitors. There was once a poll conducted where banking customers were asked why they pick a particular bank and according to that poll, 3% did so for a higher interest rate and 62% did so for convenience and better customer service. Hill was of course ahead of the game because he was going against the grain by focusing on the 62% of customers who wanted convenience and better service. Throughout the years Commerce Bank continued to make service improvements such as putting phones at all of their ATMs, keeping the drive thru teller open until 12:10 a.m. in busy locations, and most recently adding “Retailtainment,” (Frei, 2006). “Retailtainment” was a new concept created by Commerce Bank so they could stay ahead of the competition. Commerce was beginning to feel pressure from the competition because they were starting to implement some of their ideas in order to regain the market share. Competitors such as Washington Mutual started “un-bank” with play areas for the children, desk free branches and roaming tellers, ING opened a café in one of their branches, and B of A installed TVs in their waiting areas. The purpose of “Retailtainment” is to enhance the customer experience by entertaining the customers. “Retailtainment” currently is only offered on Fridays and varies by branch because the employees are allowed to come up with their own ideas for entertaining the customers. This, however, strays from Hill’s original concept of consistency (Frei, 2006). Problem Statement Commerce Bank may be focusing too much on entertaining their customers and losing tack of what originally made them a success which was convenience and customer service. COMMERCE BANK 4 Analysis According to Fretty (2012), “Organizations focused solely on generating financial returns without delivering value often end up losing business and alienating customers,” (¶ 4). This has proven to be true for most of Commerce Bank’s competitors but they are being to realize their weakness and are taking action to improve customer service. To remain successful, Commerce Bank decided they needed to analyze operations by conducting a SWOT analysis (see Appendix A) and make changes based on that data (Reed, 2013). Strengths According to McBride (2005), many banks attribute growth to the culture of the organization. This is exactly what Hill believed. He was very selective about his employees because he wanted more than anything for his employees to fit into the organizational culture of Commerce Bank. Once hired, Hill reinforced the organizational culture with new employee training at Commerce University which gave the employees the knowledge to do their job but focused primarily on customer service. Commerce also reinvests their savings into the company so that the customers benefit by extending operating ours, reducing/eliminating fees, and allowing customers to always have access to a live person whether it be by phone or in person. Another strength is that the branches are all standardized, which brings piece of mind to their customers. They know exactly what to expect no matter which branch they visit, with the exception of “Retailtainment” Fridays (Frei, 2006). Weaknesses Commerce Bank offers loans at an interest rate that is half a point less than the competition. This is a weakness because this allows competitors to have an advantage but Hill does at least reinvest these savings to compensate for this weakness. Also, due to the recent implementation of “Retailtainment” customers have been dissatisfied with the current level of service that Commerce is providing. They have limited “Retailtainment” to Fridays but it still seems to have a negative impact on their customer service (Frei, 2006). Opportunities Commerce Bank requires their customers to come into a branch to sign their loan paperwork. This allows the bank to show the customer the great customer service that they have to offer and allows them to build relationships and increase business. Commerce University is also a great asset, not only for training and growing their current staff, but also for the COMMERCE BANK 5 recruitment of future staff due to their relationship with local high schools. Commerce also has an opportunity to use their non-interest income revenue as a competitive advantage for growth instead of increasing their bottom line. Also, by focusing on organic growth, they can continue to maintain their consistent customer-centric organizational culture (Frei, 2006). Threats In order to minimize potential problems, Commerce Bank must consider the threats to their operations. Competitors are always a threat but if Commerce is aware of these threats, they can stay ahead of their competition. They are currently more successful than the industry average but with their competitors implementing more customer-centric services at the same time that they are impeding their customer service with “Retailtainment,” they could lose customers. Recent feedback in regards to “Retailtainment” has not been positive. Many customers feel that this strategy is a waste of money and manpower. They are complaining that there should be less people greeting and entertaining them and more people assisting them with their bank transactions. “Retailtainment” is very different than their original strategy (Frei, 2006). This new strategy is decentralized and has gaps according to the Service Quality Gap Model (Fitzsimmons, Fitzsimmons, & Bordoloi, 2011). In the next section, recommendations are made to address Commerce Bank’s current weaknesses and threats. Recommendations and Conclusions Commerce Bank has built its operation based on Hill’s idea that he could build a better bank by incorporating the retail experience. He was right and because of it Commerce Bank has been more successful than the industry average but the analysis shows that “Retailtainment” may be taking the retail experience a bit too far. Commerce Bank seems to have lost sight of their original idea of convenience. It is one thing to entertain customers while they wait but another to make customers wait because they are being entertained. Commerce Bank wants to be different than their competitors but Bank of America had a much better and more cost effective way of entertaining their customers with just a television (Frei, 2006). The reason this is better than “Retailtainment” is because it did not take away from customer service. With the amount of money it is costing Commerce Bank to have greeters and to entertain customers on Fridays, they could enhance customer service by adding additional tellers during high traffic hours of operation. This will help develop and improve communication between the organization and the COMMERCE BANK 6 customer as well as the service delivery between contact personnel and the customer (Fitzsimmons et al, 2011). Commerce Bank can also invest in implementing the use of Data Envelopment Analysis which, according to Fitzsimmons et al (2011), “is a linear programming technique” that can measure the efficiency of each branch and identify which branches are in need of improvement. This will allow Commerce to truly identify and address their weaknesses in an efficient manner while at the same time give them an advantage over the competition. Commerce has recently been so focused on the retail experience that they have forgotten what the customer really wants which is convenience and good customer service. Yes, entertainment can be good customer service but not if it impacts other more important needs. Not to forget the fact that “Retailtainment” is not a sunk cost, it’s an ongoing expense as long as the program is in effect. Commerce Bank needs to focus services that are more cost effective and value adding. In addition, a SWOT analysis should be conducted yearly so that Commerce Bank can continue to improve their services and expand their customer base (The SWOT analysis, 2010). COMMERCE BANK 7 References Fitzsimmons, J.A., Fitzsimmons, M.J., & Bordoloi, S. K. (2011). Service management operations, strategy, information technology (7th ed.). New York, NY: Irwin/McGraw Hill. Frei, F. 2006. Commerce Bank. Harvard Business Review. Harvard Business School Publishing, Boston, MA. Fretty, P. (2012). Most valuable players. PM Network, 58-61. McBride, G. 2005. “Banks need to sell customer service”. Retrieved February 19, 2014 from http://www.bankrate.com/brm/news/bank/20051024a1.asp Reed, D. (2013). SWOT your way to the future. Industrial Management. 55(2), 23-26. The SWOT analysis. (2010). CA Magazine, 143(8), 31. COMMERCE BANK 8 Appendix A SWOT Matrix Strengths Weaknesses Focused on customer service Rates are lower than the industry Longer operating hours “Retailtainment” has reduced convenience by increasing wait times Consistency amongst their branches (until “retailtainment”) Only offer 4 checking options SMART principles/”Managing for WOW!” More selective when giving out loans which reduces their risk Opportunities Threats No fees for customers to use the tellers in the branches Competitors offer higher interest rates Continued growth without mergers and acquisitions Competitors are implementing some of their customer service ideas “Using their competitive advantage to get stronger” (Frei, 2006) Competitors have higher profit margins and lower costs Commerce University – great recruitment tool Live agents over the phone instead of a Voice Response Unit to talk to customers