banking industry has become highly competitive prompting smaller banks to fold under acquisitions and mergers for survival. Most common is the industry’s obsession with ability to generate increased revenue by pushing products to the customers and through bank transactions and functionalities. In turn, most banks have lost focus on the customer and concentrated on price rather than quality customer care. In this case analysis, Commerce bank saw an opportunity in the industry trends and developed a successful system. The bank developed an exemplary customer service mechanism that concentrated on customer needs. The bank developed SMART principles that were aimed at delivering quality service, this framework measured the impact of services offered to both external and internal customers. The bank also took measures in streamlining products that were neglected by the competitors such as deposits. As a result, it had reduced deposit rates to half percent lower than competitors had. It had also generated more than half of these deposits from consumer business as compared to most banks that lacked substantial consumer business base.
Commerce bank is a good case study in analyzing the banking industry. It is an indicator that customer service and employee motivation are key factors in success of organizations. One way of ensuring this is by selecting, hiring and training employees that are customer service oriented and by creating a conducive working environment for them. It is recommended that for the banking industry to succeed in generating income, the focus has to shift to the customer and not price. A successful organization always value both employees and customers alike and know how to help the customer best.
The banking industry is experiencing numerous changes. Mergers and acquisitions have become common as a means of survival in the highly competitive market. Characteristic of the industry, retail banks offer services that either push to increase the “cross sell” of products, which is the number of products each customer use or generate revenue from fees customers pay for transactions and functionalities such as Automated Teller Machine (ATM) transactions, loan products and deposits. ATMs are increasingly viewed as profit centers leading to creation of large networks where customers can access their accounts for a fee. Most banks have different types of checking accounts categorized by characteristics such as fees based on minimum balance, overdraft protection and number of check written. Between 1998 and 2001, banks had raised non-interest income by 27% and interest revenue by 11%. Nonetheless, issuance of loans particularly has been an indicator of poor forecasting and execution. In 2001, most banks loaned almost 90% of their consolidated deposit base.
In addition, most banks used ineffective demographics such as age, income, and geographic location in differentiating customers instead of focusing on customer satisfaction. This resulted in attrition, which is the greatest contributor to customer dissatisfaction. By 2002, most banks had adapted internet banking that provided customers an option of viewing their account balances, transfer funds and pay bills at a fee. The electronic offered lower marginal costs and most banks encouraged their customers to transact this way while imposing monetary penalties for full service channels. Banks have increasingly shown little interest in training staff other than the common bank specific policies and procedures, this also has led to lack of motivation, which in turn lead to customer dissatisfaction.
Banks are quickly transforming the industry’s landscape. This has led to a rising wave of bank mergers and fire sales. Banks are result oriented thereby pushing to increase the “cross sell” of products and growing revenues from fees customers pay for transactions and functionality. This has caused many banks to lose focus of the importance of high quality customer service.
One way that proved beneficial for Commerce bank is the exemplary customer service. It is imperative that organizations look into the needs of their customers as a priority, establish customer satisfaction, loyalty and retention to stay ahead in business (Singh, 2006). Commerce bank developed SMART principles that aimed at maintaining high quality customer service. This framework measured the impact of a particular service on both external and internal customers. Employees who attained the desired goal under this framework were entitled to stickers that could be redeemed for merchandize such as T- shirts, mugs and radios. In addition, Commerce introduced the WOW! Awards to honor those with outstanding service in various categories. Moreover, WOW! Was incorporated in the training process at Commerce University, which is a training facility dedicated to training employees. Here employees are taught customer service skills and more so how to WOW the customers.
Staffing has continued to be a challenge to the bank. Success of the bank is based on selection and hiring the right people and integrating them into the existing culture. Despite this fact, the bank has very low employee turnover. Employee motivation is a key factor in helping organizations to survive. This way they are more productive within the context of roles they perform (Lindner, 1998). The Commerce culture apparently is conducive for both the customer as well as the employees. The bank has continued to pay particular interest to experience; this way the bank gets information on competitors, the labor market and the banking industry as a whole. It is important to note that the success of Commerce bank has been driven by focus on customer not price.
As a result, the bank has registered substantial gains in revenue. In 1998, the bank’s net revenue was 61.7 billion dollars. In 1999, net revenue grew to 71.4 billion dollars a 15% growth from the previous year. In 2000, the bank registered 70.9 billion dollars a 0.7% drop from 1999. In 2001, the bank recovered from the drop to register a 4.2% growth from the previous year with net revenue of 73.9 billion dollars (Figure 1).
Commerce had reduced deposit rates to half percent lower than competitors had. It had also generated more than half of these deposits from consumer business as compared to most banks that lacked substantial consumer business base. Unlike Commerce, they encountered challenges gathering consumer deposits; they funded themselves in wholesale market and cut costs in the retail banking. In addition, most banks are driven by loans while Commerce’s policy was based on a no deposit no loan attitude. At Commerce, the branch manager doubles up as a loan officer to ensure that the bank gives sound loans that are repaid as well as promoting generation of deposits. This significantly reduced Commerce’s loan-to-deposit ratio below the industry average.
Nonetheless, the bank saw an opportunity in taking coins, a practice most banks had stopped. It dedicated 10 million dollars in the exercise dubbed The Penny Arcade. In 2001, the bank handled 730,000 transactions worth 5711 million dollars from Penny Arcade. The bank also awarded account credit for those branches that recorded deposits.
As a result of the bank’s effort to encourage deposits, it registered over 1 billion dollars every quarter. The bank expects to attain the 100 billion dollar mark in deposits from the 1000 branches stretching from Washington, D.C. To Boston. In general, the bank’s total deposits in 1998 were 4.5 billion dollars, in 1999; the deposits grew 26% to 5.6 billion. In 2000, total deposits were 7.4 billion dollars 34% growth from 1999; it then went up 38.7% to 10.2 billion dollars in 2001(Figure 1). Commerce’s success was not limited to deposit growth.
According to Stirtz (2011), a unifying characteristic of the most successful companies is their use of resource in finding solutions. These companies value both the employees and the customers alike and have clear understanding of what the customer wants and how best they can help them. Just as in the case of Commerce bank, where it focused on the customer instead of the price as many other banks did. At Commerce bank, when customers’ came in to open checking accounts, they received a friendly service that included incentives.
It is important that organizations establish staff training and development as a strategic weapon in improving productivity and in building as well as sustaining competitive advantage (Selvarajah, Sung-Wai Lau, & Taormina, 2012). The steps taken by Commerce bank in introducing an in house training program is commendable. The program is fundamental in orienting new and future employees on the culture at the bank. The program also offers courses to existing employees including senior executives.
Lindner, J.R. (1998). Understanding Employee Motivation. Journal of Extension, 3.
Selvarajah, C.T., Sung-Wai Lau, T., & Taormina, R. (2012). Management training and development: A New Zealand study. Journal of Management & Organization .
Singh, H. (2006). The Importance of Customer Satisfaction in Relation to Customer Loyalty and Retention . UCTI Working Paper .
Stirtz, K. (2011, February 11). Five Ways to Improve Customer Service Starting Today. Retrieved from http://amazingserviceguy.com/1437/five-ways-to-improve-customer-service-starting-today/
Total Deposits and Net Revenue ( value in billion)
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