Commercial Bank Service Delivery

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Commerce Bank

INDUSTRY: Banking
SERVICE: Checking Accounts & Loans
COMPANY/BRAND: Commerce Bank
SOURCE: HBS Premier Case Collection
WRITTEN BY: Frances X. Frei, Corey Hajim
PUBLICATION DATE: Dec 02, 2002
PROD. #: 603080-PDF-ENG
Reader's comments would be much appreciated and replied to!!! Analyze Commerce Bank's service delivery system prior to ‘Retailtainment’. Base your analysis on the following heads:

Service Offering
Funding Mechanism
Employee Management System
Customer Management System

ANALYSIS:
Commerce Bank’s Service Delivery System
Commerce Bank’s entire banking and operational philosophy is designed around creating a retail experience for the customer. This was unusual for the entire banking industry and thus a great source of differentiation from both the operational standpoint and from the service delivery design perspective. This meant that the entire value proposition from the customers’ standpoint depended on the design of the service environment/theater including the 3 service marketing mix variables This can be seen from employee comments and facts in the case about these variables

Product: “We believe the value of a bank is not its loan base but rather the deposit base” – Vernon Hill (Chairman & CEO) Price: “We are generally the lowest ratepayers in every market” – Vernon Hill (Chairman & CEO) Place: ‘...deciding where to put a branch was just as important as what the building looked like..’ Promotion: ‘Commerce spent $500,000/branch in NYC on promotion…’ and ‘Red and blue painted Commerce vans with an emblazoned logo’ People: “This is not a job for someone who ‘s interested in being cool or indifferent” - John Manning (Employee Trainer) Process: “the way we look at credit and credit quality is a lot tougher…” - Falese Physical Evidence: “They i.e. customers know what the deal is whenever they visit one of our banks” – John Cunningham (CMO)

The Chairman and CEO, Vernon Hill has been able to do this by understanding 2 very important aspects or critical success factors of the banking business

Understanding the Nature of the Servicescape: Despite trends (cross selling & non-interest revenue) in the banking industry moving towards the more remote delivery mode (Pg. 3: Most banks actively encouraged customers to move their transactions from full-service channels to self-service channels…monetary penalties for using the more expensive channels…charging $3 to visit the teller), he understood that because banking as a service depended so heavily on the service attributes of searchability, experience and credence and the nature of the servicescape was in essence that of an Elaborate- Interpersonal type Reducing the Listening Gap (from Gap Model of Service Quality): In comparison to other banks in the industry which competed on keeping a low-interest ratio, he rightly understood the customers’ real need by competing instead on service, convenience and other intangible service differentiators (Pg. 6: …the competition is beating on the 3% i.e. customers wanting a higher interest rate; we decided to compete on the 62% i.e. customers wanting convenience)

Keeping this in mind we can now look at the 4 dimensions its Service Delivery system prior to ‘Retailainment’ Service Offering
In light of this, the bank’s entire service offering can be visualized as in the figure below:

Here we can see that the service offering in itself is split into

CORE OFFERING: This is not very different from what other banks in the industry offer. However, from an execution standpoint their focus was different, because their strategic intent for both operations and growth was that Bank Value is ‘Deposit Base’ NOT ‘Loan Base’. Their core offering i.e. banking services included Deposits or Checking accounts (first 3 years no monthly service fees and free 1st order of checks)

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