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Commerce Bank Case Essay

Executive Summary
Commerce Bank has been a pioneer in the banking industry by returning to customer service. This has driven customers to the bank, but in order to stay ahead on the curve they want to move away from the model that has worked for them. An analysis was performed regarding whether their new concept of “retailtainment”, entertaining customers throughout the banking service process, would be beneficial or not. After thorough consideration, it was determined that “retailtainment” was not the best way to improve Commerce’s quality of service. Commerce should focus on their former centralized model and enhance it, rather than change it.

Background

Commerce Bank is a New Jersey-based bank founded in 1973 by fast food franchiser Vernon Hill. Hill took his experience as a fast food business owner and utilized it to operate Commerce Bank. Commerce had branches opening earlier than the competitors and staying open later, 7:30AM to 8:00PM during the week and modified hours on Saturday and Sunday (Frei, 2006). Drive-through windows at busier locations even stayed open until midnight to accommodate customers; however, all branches operated under the notion that they were to open ten minutes before and close ten minutes after the posted time (Frei, 2006). Commerce used this model to get customers in the door and made their primary focus customer service. This focus allowed them to increase customer deposits, by an average of 30% per year from 1996 to 2001, and some years they even achieved growth rates in excess of 40% (Frei, 2006).

This was not consistent with the market trend during this period, as other banks were selecting online banking, pushing customers out the door. Hill felt that this was a model for failure, because “You can’t name one retailer in this country that has pushed people where they don’t want to go and succeeded” (Frei, 2006). Currently, Commerce is feeling the pressure from other banks who want to use their business model to draw new customers. Washington Mutual, for instance, launched “un-bank”, with roaming tellers, a children’s play area and no desk. ING, a new entrant in the market, opened a café style branch that served espresso to customers (Frei, 2006). To combat this Commerce launched a new customer experience called “Retailtainment”. Retailtainment is the incorporation of entertainment into the various branches. Essentially, each branch can come up with their own wacky ideas for entertaining customers every Friday (Frei, 2006). This was to ensure that Commerce, who offers the lowest loan rates, stayed ahead of the competition.

Problem Statement

Commerce bank is losing track of what originally made them successful, service quality and efficiency, and losing sight of what the customers really want in a banking experience.

Analysis

“Many banks attribute their growth to their successful transformation to a sales culture.” (McBride, 2005) .Commerce has used traditional banking to form a niche in the industry. Other banks at this time were moving towards online banking, focusing less on the person to person interaction. This could have catastrophic implications: “I am referring to the turn-off of poorly trained, new employees. What’s worse is seeing this person struggle and look in vain for help from someone else in the branch” (McBride, 2005). Commerce, on the other hand, has embraced this by training employees with emphasis on customer service. The customer-central model was the springboard for what Commerce believed was the value of the bank, customer deposits (Fitzsimmons and Fitzsimmons, 2011). Hill believed that by focusing on “non-rate” reason deposits, that he could build a deposit base, and his philosophy was for the bank to provide customers with an unforgettable experience in exchange for a loan rate, half a point less than the competition (Frei, 2006).

This lower rate enabled Commerce to stay open later and have additional benefits for its members. These benefits included no-fee banking and even ATM fee refunds for high balance members. As service occurs, customers also play a role in co-production (Fitzsimmons and Fitzsimmons, 2011). To ensure this experience was the same for all the members of the bank, Commerce standardized its branches, attempting to make life easier for customers. At these branches, customers are greeted at the front door and made to feel at home while they wait to be served. This is unique from other banks, who sometimes charge fees if customers visit the branches or talk to a real person. “Customers enrolled in Bank of America’s e-banking account pay $8.95 a month for the privilege of accessing branches and talking to tellers when you need to make a transaction or deposit” (CNN, 2011). Commerce’s threat from industry rivals forced them decide to implement a decentralized program called “Retailtainment”, a break from their standardized model, which had been their main reason for success thus far.

Commerce had built the brand name using this philosophy, and straying from this gives individual branched control. With bank industry ratings declining, this strategy may backfire severely and hurt the brand down the road. “In October 2010, the number of Americans expressing a “great deal” or “quite a lot” of confidence in banks fell to an all-time low of 18% — lower than its level at the height of the global financial collapse (Wood and Berg, 2011). Customers have been complaining about the lack of tellers and feel that the bank should have less greeters and more tellers (Frei, 2006). This shows that Commerce’s decentralized “retailtainment” has notable gaps in Fitzsimmons’ Service Quality Gap Model. Previously, Commerce’s service standards and service delivery were impeccable, however, “retailtainment” decreases their quality of service delivery, decreasing customer perceptions and placing a strain on “Communication Gap 4” (Fitzsimmons and Fitzsimmons, 2011). These further decrease “Customer Satisfaction Gap 5” (Fitzsimmons and Fitzsimmons, 2011).

Recommendations and Conclusion

“Retailtainment” may sound like a good idea, but it has plenty of issues associated with it. Commerce Bank previously used a standardized process, but this is completely opposite from that model, thus decentralizing the process and forcing managers to make their own decisions. By relying solely on the managers and their staff, they risk damaging their image. In addition to addressing the deficits in the gaps of their Service Quality Model, Commerce can also employ the Service Encounter Triad to improve customer service. Using this model, they can improve their shortfalls between the service organization and the customer, as well as contact personnel and the customer (Fitzsimmons and Fitzsimmons, 2011). To do this, they can improve customer satisfaction by hiring another bank teller rather than a greeter, which in turn, will improve their efficiency. Additionally, doing this will improve their contact personnel’s ethical climate and better develop their service delivery to the customer (Fitzsimmons and Fitzsimmons, 2011). In addition, Commerce can also attempt to use Data Envelopment Analysis (DEA), successfully used by other banks, which uses linear programming to measure the efficiency of multiple decision making units by streamlining branch operations (Sherman and Ladino, 1995).

Commerce has focused so much on the first impression that they lost sight of what people are there for. People are there to deposit their money, and delays in this process may lead to less than satisfactory service. Commerce can take some of the greeters and make them “junior” or “overflow” tellers. This group can be seen as back-up to jump into action when there is heavy flow of traffic in the bank, as well as use these junior tellers to accept check deposits at the front so customers don’t have to stand in line. Yes, they would like for the experience to feel like a retail store, but contrary to Starbucks, bank customers are not there for the taste or the flavor; they choose the bank that gives them the best interest rates and highest deposit rates. Retailtainment plays a big role in delivering Commerce’s mission, but they should also evaluate the optimal amount of “entertainment” offered to deliver their mission, while being able to maintain operations and maintain a competitive position against other banks.

There is no need to have a mascot to entertain customers or have a hot dog cart offering food. Bank of America had a simpler solution — using a TV for customers in line. This kept customers’ minds off of waiting in line and was more cost-effective than having to pay someone in a costume to talk to people. If they want to stay competitive, Commerce needs to think outside the box for efficient solutions to current problems. A good alternative would be to pay employees to suggest alternative and effective ways to entertain customers, without having to invest a great amount of money. “Retailtainment” works short-term, since customers feel they are appreciated, but going to these extreme measures and including all of the in-branch services, mascots, and free pens increases costs and makes Commerce vulnerable against other competitors. It is suggested that Commerce should return to and reinforce the principles that made the successful in the first place.

Works Cited
CNN Money. 2011. “9 most annoying bank fees”. http://money.cnn.com/galleries/2011/pf/1106/gallery.annoying_fees/4.html Accessed 20 August, 2012. Fitzsimmons, J.A. and M.J. Fitzsimmons. 2011. Service Management: Operations, Strategy, and Information Technology, 7th
edition. Irwin/McGraw-Hill, New York, NY. Frei, F. 2006. Commerce Bank. Harvard Business Review. Harvard Business School Publishing, Boston, MA. McBride, G. 2005. “Banks need to sell customer service”. http://www.bankrate.com/brm/news/bank/20051024a1.asp Accessed 21 August, 2012. Sherman, H.D. and G. Ladino. 1995. Managing Bank Productivity Using Data Envelopment Analysis (DEA). Interfaces 25:2 p. 60-73. Wood, J. and P. Berg. 2011. Rebuilding Trust in Banks. Gallup Business Journal. http://businessjournal.gallup.com/content/148049/rebuilding-trust-banks.aspx Accessed 20 August, 2012.


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