Commerce Bank's Customer Service Strategy: A Case Study

Introduction

The 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 the ability to generate increased revenue by pushing products to customers through bank transactions and service fees. As a result, 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 industry trends and developed a successful alternative model. The bank created an exemplary customer service mechanism that concentrated on customer needs. It developed SMART principles aimed at delivering quality service — a framework that measured the impact of services offered to both external and internal customers. The bank also streamlined products neglected by competitors, such as deposits, reducing deposit rates to half a percent lower than competitors. It generated more than half of its deposits from consumer business, compared to most banks that lacked a substantial consumer business base.

Commerce Bank is a valuable case study for analyzing the banking industry. It demonstrates that customer service and employee motivation are key factors in organizational success. One way of ensuring this is by selecting, hiring, and training employees who are customer-service oriented and by creating a conducive working environment for them. For the banking industry to succeed in generating income, the focus must shift to the customer rather than price. Successful organizations value both employees and customers equally and understand how to best serve them.

Background: The Banking Industry Landscape

The banking industry has been experiencing numerous changes. Mergers and acquisitions have become common as a means of survival in a highly competitive market. Characteristic of the industry, retail banks offer services that either push to increase the "cross sell" of products — the number of products each customer uses — 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 the creation of large networks where customers can access their accounts for a fee. Most banks offer different types of checking accounts categorized by characteristics such as fees based on minimum balance, overdraft protection, and number of checks written. Between 1998 and 2001, banks raised non-interest income by 27% and interest revenue by 11%. Nonetheless, loan issuance in particular 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 demographic variables — such as age, income, and geographic location — to differentiate customers instead of focusing on customer satisfaction. This resulted in high attrition, which is the greatest contributor to customer dissatisfaction. By 2002, most banks had adopted internet banking, which provided customers an option to view account balances, transfer funds, and pay bills for a fee. Electronic channels offered lower marginal costs, and most banks encouraged customers to transact online while imposing monetary penalties for using full-service channels. Banks increasingly showed little interest in training staff beyond common bank-specific policies and procedures. This also led to a lack of employee motivation, which in turn contributed to customer dissatisfaction.

Problem Statement

Banks are rapidly transforming the industry's landscape, driving a rising wave of mergers and fire sales. Banks are results-oriented, pushing to increase the "cross sell" of products and grow revenues from fees customers pay for transactions and functionality. This focus has caused many banks to lose sight of the importance of high-quality customer service.

Customer Care and Employee Motivation

One approach that proved particularly beneficial for Commerce Bank was its exemplary customer service. It is imperative that organizations look into the needs of their customers as a priority — establishing customer satisfaction, loyalty, and retention to stay ahead in business (Singh, 2006). Commerce Bank developed SMART principles 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 received stickers that could be redeemed for merchandise such as T-shirts, mugs, and radios. In addition, Commerce introduced the WOW! Awards to honor those who demonstrated outstanding service in various categories. Moreover, the WOW! concept was incorporated into the training process at the bank's dedicated training facility, where employees were taught customer service skills and, above all, how to "WOW" the customer.

Staffing has continued to be a challenge for the bank. Success depends on selecting and hiring the right people and integrating them into the existing culture. Despite this challenge, the bank maintains very low employee turnover. Employee motivation is a key factor in helping organizations thrive, making employees more productive within the context of the roles they perform (Lindner, 1998). Commerce Bank's culture is apparently conducive for both customers and employees alike. The bank has continued to pay particular attention to experience, gathering information on competitors, the labor market, and the banking industry as a whole. Notably, the success of Commerce Bank has been driven by a focus on the customer rather than on price.

As a result, the bank registered substantial gains in revenue. In 1998, the bank's net revenue was $61.7 billion. In 1999, net revenue grew to $71.4 billion, a 15% increase from the previous year. In 2000, the bank registered $70.9 billion, a slight 0.7% drop from 1999. In 2001, the bank recovered to register a 4.2% growth over the previous year, with net revenue of $73.9 billion.

Conclusion

According to Stirtz (2011), a unifying characteristic of the most successful companies is their use of resources in finding solutions. These companies value both employees and customers alike and have a clear understanding of what the customer wants and how best to help them. Just as in the case of Commerce Bank — which focused on the customer rather than on price, as many other banks did — the results speak for themselves. When customers came in to open checking accounts at Commerce, they received friendly service that included tangible incentives.

It is important that organizations establish staff training and development as a strategic tool for improving productivity and for building and sustaining competitive advantage (Selvarajah, Sung-Wai Lau, & Taormina, 2012). The steps taken by Commerce Bank in introducing an in-house training program are commendable. The program is fundamental in orienting new and future employees to the bank's culture, and it also offers courses for existing employees, including senior executives.

References

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

Appendix

Total Deposits and Net Revenue (values in billions)

Net Revenue: 1998 — $61.7B; 1999 — $71.4B (+15%); 2000 — $70.9B (−0.7%); 2001 — $73.9B (+4.2%)

Total Deposits: 1998 — $4.5B; 1999 — $5.6B (+26%); 2000 — $7.4B (+34%); 2001 — $10.2B (+38.7%)