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7/30/2014 
Case Analysis – Commerce Bank 
1 
Case Study Analysis 
Commerce Bank 
Binus Business School, 
MM Executive Batch 20 
Presented by Group I 
Alexander Christian 
Dina Sandri Fani 
Jenna Widyawati 
Ridwan Martawidjaja
Table of Contents 
7/30/2014 
2 
The Story of Commerce Bank 
Insights from the U.S. Banking Industry 
Deep Dive Analysis of Commerce Bank 
Conclusion & Recommendation 
1 
2 
3 
4 
Case Analysis – Commerce Bank
Table of Contents 
7/30/2014 
3 
The Story of Commerce Bank 
Insights from the U.S. Banking Industry 
Deep Dive Analysis of Commerce Bank 
Conclusion & Recommendation 
1 
2 
3 
4 
Case Analysis – Commerce Bank
Commerce’s Flashback in Years 
7/30/2014 
Case Analysis – Commerce Bank 
4 
• 1973 Founded by Vernon Hill. Set up to “be 
different” as the world did not need 
another “me-too” bank 
• Early 1990s 4 branch offices were purchased from 
Long Island-based Anchor Savings Bank 
• 21 Jan 1997 Independence Bancorp, Inc. became 
Commerce Bank/North 
• 13 Aug 1998 Community First Banking Company & its 
subsidiary Tinton Falls State Bank 
became Commerce Bank/Shore 
• 17 Sep 1998 Prestige Financial Corp & its subsidiary 
Prestige State Bank became Commerce 
Bank/Central 
• 25 Jul 2005 Palm Beach County Bank established 
Commerce Bank in Southeast Florida 
• 2006 Purchased eMoney Advisor 
• 2007 Acquired by TD Bank Financial Group
Dare to be different since beginning 
Acted and thought as a retailer, not as a banker! 
Case Analysis – Commerce Bank 7/30/2014 
5 
Brought retail 
experience to 
banking 
Competed on service 
rather than rate 
Deposit rather than 
loan as a core 
product 
 Lollipops and dog 
biscuits in the lobby 
and drive-thru 
 Playful events, e.g. 
Red Fridays 
 Longer operating 
hours 
 Hassel free 
products, e.g. no 
transaction fee, no 
fee to the ATM 
 Deposit as a core 
product 
 No deposit, no loan! 
 Grew much higher 
than industry 
Defying conventional wisdom helped Commerce Bank to grow as one of the 
fastest growing banks in the US!!!
Table of Contents 
7/30/2014 
6 
The Story of Commerce Bank 
Insights from the U.S. Banking Industry 
Deep Dive Analysis of Commerce Bank 
Conclusion & Recommendation 
1 
2 
3 
4 
Case Analysis – Commerce Bank
Customers typology in the U.S. banking industry 
Case Analysis – Commerce Bank 7/30/2014 
7 
• Service Excellent 
• Fast and easy experience 
• Call center 24 hours 
Wants 
• Better rates 
• Safety on their accounts 
• Nothing will be your problem, we 
take care 
Needs 
• Fully trained cast member 
• Friendly persons: give the 
customers confidence and 
excellent advisement 
Searches 
• From traditional, full-service 
transaction to electronic, self-service 
transaction 
Evolves
Loans as a core products compared to deposits 
Growth was about 20% over the period of 1998 to 2001 
Case Analysis – Commerce Bank 7/30/2014 
8 
Loans 
Deposits 
Commercial Banking Industry Figures 
Loans vs. Deposits (in tn USD) 
3.68 3.83 
4.18 4.39 
3.18 3.43 3.76 3.82 
1998 1999 2000 2001 
Loans Deposits 
2 main products: 
Commercial Banking Industry Figures 
86.41% 
Loan-to-Deposit Ratio 
89.61% 89.85% 
87.06% 
1998 1999 2000 2001 
Major trends in industry: 
Cross-sell 
• A push to increase the 
“cross-sell” of products. 
Customer has 1.5 to 2.5 
products with the banks 
Fee revenue 
• Growing revenues from 
non-interest income
Low service quality resulted to low satisfaction and high customer 
attrition rate 
Case Analysis – Commerce Bank 7/30/2014 
9 
 Customer satisfaction 
historically been quite 
low 
 Only 53% of retail bank 
customers satisfied with 
the provided services 
 Demographics-based 
segmentation 
 Customer lifetime 
value/customer 
profitability as a 
segmentation variable 
 Help the banks to 
differentiate the service 
amongst customers 
 High attrition rate 
 One-third of customer 
base each year to 
attrition 
 Mostly occurred in the 1st 
year of a banking 
relationship 
 34% dissatisfied with the 
service provision; 34% 
due to geographic move 
Customer Attrition
Decision to choose a bank mostly influenced by proximity of a 
local bank 
Case Analysis – Commerce Bank 7/30/2014 
10 
Forcing banks to deploy the following channels: 
A. Traditional channel B. Modern channel 
Branches • Enormous branch networks to getting 
closer with the targeted segment 
ATM 
networks 
• Large ATM networks to ease 
customer doing a transaction 
• Free base vs. fee base 
• ATM transformation: from cost center 
to profit center 
24/7 call 
centers 
• Including Voice Response Unit (VRU) 
• Allowing customer execute an 
increasing no, of transaction via 
telephone 
Internet Banking era 
 Banks to have a lower 
marginal cost 
 Full-service channels to 
self-service channels 
 Monetary incentives 
for using electronic 
channels 
 On the other hand, 
impose monetary 
penalties for using 
traditional channels
Front-line employees are vital for retail banks 
Case Analysis – Commerce Bank 7/30/2014 
11 
Selection criteria were as 
follows: 
 Be able to perform 
repeated tasks, interact 
with customers 
 Willingness to accept 
relatively low wages 
Undergo series of training 
to ensure compliance with 
processes & product 
attributes 
 Learning about bank-specific 
policies & 
procedures 
 Product knowledge 
training 
Main KPIs: 
 Volume of calls 
handled 
 No. of transactions 
processed
Table of Contents 
7/30/2014 
12 
The Story of Commerce Bank 
Insights from the U.S. Banking Industry 
Deep Dive Analysis of Commerce Bank 
Conclusion & Recommendation 
1 
2 
3 
4 
Case Analysis – Commerce Bank
Commerce Bank in Numbers 
Grew faster than the U.S. banking industry due to the implementation of revolutionary 
business model 
Case Analysis – Commerce Bank 7/30/2014 
13 
Commerce Bank Financial Figures 
4.98 
Total assets (in bn USD) 
6.73 
8.86 
12.27 
1998 1999 2000 2001 
Commerce Bank Financial Figures 
Interest Income vs. Non-Interest 
Income 
74 625 
297 
393 
523 
97 
156 
198 
1998 1999 2000 2001 
 35% of CAGR from 1998 to 2001 
 Mostly came from securities and net 
loans & leases 
 Income mostly came from interest 
compared to non-interest 
 Non-interest income recorded higher 
CAGR compared to interest income 
(39% vs. 28%) following industry’s trend
Commerce Bank in Numbers 
Commerce went to a different direction as compared to industry, resulted to a lower loan-to-deposit 
ratio and higher expense ratio 
Case Analysis – Commerce Bank 7/30/2014 
14 
Loan-to-Deposit Ratio 
Commerce Bank vs. Industry 
86.41% 89.61% 89.85% 87.06% 
43.16% 
52.48% 49.91% 
45.48% 
1998 1999 2000 2001 
Commerce Industry 
 Lower loan-to-deposit ratio as 
compared to industry 
 Deposits as a core products: no loan if 
no deposit 
Total Expense Ratio 
Commerce Bank vs. Industry 
77.7% 77.4% 
80.2% 
78.2% 
76.9% 
74.1% 
75.7% 
73.2% 
1998 1999 2000 2001 
Commerce Industry 
 Commerce sacrificed its expense ratio 
in order to create a superior customer 
experience 
 Total expense ratio is higher as 
compared to industry
Commerce Bank in Numbers 
Deposits grew way above the industry due to its unique proposition; while on the other 
hand, loans & leases still grew nicely 
Case Analysis – Commerce Bank 7/30/2014 
15 
Commerce Bank Financial Figures 
Total Deposits Growth (in bn USD) 
31% 
4.50 
5.67 
7.44 
10.23 
1998 1999 2000 2001 
 Provided convenient service instead of 
high deposit rate 
 Core product for Commerce: growth had 
averaged over 30% since 1996 
 1998-2001 CAGR was 31% much ahead 
industry of 6% 
 More than half of it were consumer 
business 
Commerce Bank Financial Figures 
Net Loans & Leases Growth (in bn 
1.94 
2.98 
3.71 
4.65 
USD) 
1998 1999 2000 2001 
 Implemented “No deposit, no loan” 
policy 
 Loan-to-deposit ratio was significantly 
below the industry average due to tight 
credit acceptance policy 
 Net loans & leases CAGR was 34%
Commerce’s SWOT Analysis 
Commerce had a strong positioning in service area; however, competitors were beginning 
to adopt some of its basic offerings 
Case Analysis – Commerce Bank 7/30/2014 
16 
S W 
T 
Strengths 
• Retailer mindset 
• Customer-centric program 
• Consistent service delivery 
• Excellent service innovation 
• Walk the talk attitude 
• Passionate employees 
• Financial growth 
Opportunities 
• Enormous market 
opportunities 
• Expanding the business to 
related financial sector such 
as insurance 
• Expanding overseas 
Threats 
• Fierce competition: 
competitors were beginning 
to adopt some of its basic 
service offerings 
• Lack of creativity and 
innovation to keep ahead of 
the competition 
O 
Weaknesses 
• Provided the lowest deposit 
rate 
• Higher operating cost as 
compared to competitions 
• Less focused on 
responsiveness, reliability, 
and assurance
Case Analysis – Commerce Bank 7/30/2014 
17 
Commerce Bank’s Business Model 
Customer 
Segments 
Mass Market: 
covering business 
and individual 
customer from young 
age to senior citizen 
Customer 
Relationships 
Full Service 
Personal assistance 
at branches and call 
center 
Automated services 
through online 
banking 
Value Proposition 
Excellent service with 
personal touch & 
attitude 
Different experience 
through retailtainment 
Convenient operating 
hours 
Inviting and comfy 
branches
Case Analysis – Commerce Bank 7/30/2014 
18 
Commerce Bank’s Business Model 
Key Resources 
Enthusiastic 
employees 
Inviting branch at the 
right location & other 
physical facilities 
Commerce culture to 
innovate, continuous 
improvement and 
customer service 
Key Activities 
Provide loan 
Collect core deposit 
Call center 
Online banking 
services 
ATM provider 
Marketing 
Key Partners 
ATM providers 
Street vendor and 
performers to assist 
marketing campaign
Case Analysis – Commerce Bank 7/30/2014 
19 
Commerce Bank’s Business Model 
Channels 
Marketing through: 
Street vendors, direct 
mailing, ads on public 
places, ads on 
company’s van. 
Banking services 
provided through: 
branches, ATMs, call 
center, online banking 
Cost structure 
Labor cost 
Marketing & 
advertising cost 
Design, construction 
and maintenance of 
branches 
Employee training 
and development 
program 
Revenue Streams 
Fee on banking 
services 
Interest from loan
Commerce’s Core Service Business Model 
They were here to blow customers away through creating a strong service business 
management model 
Case Analysis – Commerce Bank 7/30/2014 
20 
Service 
Offering 
Core 
service 
Model 
Funding 
Mechanism 
Customer 
Management 
 More impact for service 
 Well-integrated employee 
management system must 
be reflected on recruitment 
process, training, job 
design, and performance 
management 
Employee 
Management 
1 
2 
3 
4 
 Focus on the experiences 
customers want to have 
 Agreed on which attributes of 
service the business will 
compete on 
 At the same time, define what a 
business chooses not to do well 
 Develop a way to 
fund excellence 
 4 basic forms: 2 
are ways of having 
the customer pay, 
and 2 cover the 
cost of excellence 
with operational 
savings 
businesses 
 Involving customer on 
value-creation process 
 Clear on 3 keys areas, i.e. 
which customers group, 
which customer behavior, 
which effective techniques 
to influence behavior
Commerce’s Service Offering 
Despite following the industry’s trend by providing customer good rate, Commerce decided 
to compensate its low rate through excellent service offering 
Case Analysis – Commerce Bank 7/30/2014 
21 
1 
Core offerings: 
1.Checking account 
• Standard checking 
• Internet checking 
• 50 Plus club 
• Consumer 
checking 
2.Loans 
3.ATM 
4.Cash reserve line 
(overdraft protection) 
Facilitators 
Information 
• Live agents instead of Voice 
Response Unit (VRU) 
Order taking 
• Loans assigned to service 
branch instead of Head 
Office 
• Weekend banking 
• Longer operating hours 
Billing 
• Personal sign-off by 
customer on loan papers at 
service branch 
• Online monthly statements 
Payment 
• Easier, since loan customer 
also has a deposit at service 
branch 
Differentiators 
Consultation 
• Branch Manager / Loan 
officer helps to manage 
loans & deposits 
Hospitality 
• Phones at ATMs 
• Employee escorts with 
umbrellas during rains 
Safe-keeping 
• Check View Feature 
Exception Handling 
• Penny arcades to handle 
coins 
• Midnight timing at busy 
locations 
• 10 minute rule
Case Analysis – Commerce Bank 7/30/2014 
22 
Commerce’s Service Offering 
Detail explanation: Commerce’s service offering basically divided into two categories, i.e. 
core service offerings and supplementary service offerings 
1 
Core service offerings 
Deposits Offering Details 
Not very different from what 
other banks in the industry 
offer 
However, had a different 
focus from execution stand 
point 
Deposits base instead of 
loans base as a driver of 
operations and growth 
No. Type 
Minimum 
Balance 
Details 
1 Standard 
Checking 
$100 No monthly service fees 
2 Interest 
Checking 
$1000 No monthly service fees, 
Unlimited check writing, 
Interest 
3 50 Plus 
Club 
$100 No account maintenance 
charge for checking 
account with interest, free 
checks, money orders, 
notary service and 
travelers’ checks 
4 Consumer 
Checking 
None No per check charge for 
first 8 checks/month for $3 
monthly fee 
No monthly service fees for 
the 1st 3 years and free 1st 
order of checks
Case Analysis – Commerce Bank 7/30/2014 
23 
Commerce’s Service Offering 
Detail explanation: Commerce’s service offering basically divided into two categories, i.e. 
core service offerings and supplementary service offerings 
1 
Core service offerings 
Loans 
ATMs 
Cash reserve line 
• Commerce’s value is not in its loan base but in its 
deposit base 
• Loans are not given out as easily as other banks in 
the industry 
• Credit quality checks for loan approval is very 
stringent 
• “No deposit no loan” policy 
• Withdrawals were available at any ATM and 
purchases anywhere Visa was accepted 
• Transactions were immediately reflected in accounts 
and statements 
• All accounts could be combines with a Cash Reserve 
Line to ensure protection from overdrafts
Case Analysis – Commerce Bank 7/30/2014 
24 
Commerce’s Service Offering 
Supplementary service offerings were designed to WOW customers. Consisted of 
facilitator offerings and differentiator offerings 
1 
Facilitators 
Information 
• Live agents instead of Voice Response Unit (VRU) 
Order taking (banking context: cash withdrawal & loan 
application process) 
• Loans were assigned to service branch instead of Head 
office for easy access for customer 
• Weekend banking facilities were provided to allow 
customers to bank on Saturdays & Sundays 
Billing 
(Banking context: loan approval and monthly 
statement generation process) 
• Personal sign-off by customer on loan papers at service 
branch 
• Online monthly statements 
Payment (loan repayment process) 
• Payment is easier for customer and assured for 
bank, since loan customer also has a deposit at 
service branch 
Differentiators 
Consultation 
• Branch Manager/loan officer helps to manage loans & 
deposits 
Hospitality 
• Helpline phones at ATMs 
• Employee escorts with umbrellas during rains 
• Lollipops and dog biscuits at drive through banking 
windows 
• Coffee and newspapers in waiting lobbies 
Safe Keeping 
(Banking context: peace of mind about account balances 
and check deposits) 
• Immediate updating of ATM withdrawals in online 
statements 
• A ‘Check View’ feature on Commerce’s website 
Exception handling 
(Banking context: Coin currency & Irregular hours ) 
• ‘Penny arcades’ to handle coins 
• Midnight timing at busy locations 
• 10 minute rule to increase banking hours by 20 minutes 
in a day’ operation
Commerce’s Funding Mechanism 
Basic theory to analyze Commerce’s funding mechanism 
Case Analysis – Commerce Bank 7/30/2014 
25 
2 
Frei, HBR: 4 basic forms of funding mechanism 
Funding Mechanism 
Let the customer pay 
Charge the customer in a 
palatable way 
Giving a half percentage 
point less in interest on 
deposits for open late and 
on weekends operations 
Create a win-win between 
operational savings & 
value-added services 
Enhance the customer 
experience while spending 
lunch 
Operational savings 
Spend now to save later 
Make operational 
investments that will pay off 
eventually by reducing 
customers’ needs for 
auxiliary service in the 
future 
Have the customers do 
the work 
Put the cost back in the 
customer’s court, but in the 
form of labor, e.g. through 
offering self-service
Commerce’s Funding Mechanism 
Commerce mixed 4 basic forms for its funding mechanism implementations 
Case Analysis – Commerce Bank 7/30/2014 
26 
2 
Frei, HBR: 4 basic forms of funding mechanism 
Funding Mechanism 
Let the customer pay 
Charge the customer in a 
palatable way 
Simply to have the 
customer pay for it, but 
possible to make the form 
that payment takes less 
objectionable to customers 
Operational savings 
Spend now to save later 
Heavily invested on 
branches: branches were 
built to be inviting 
Broke even within a year to 
18 months compared to 
three years of the average 
bank 
Have the customers do 
the work 
Provided “check view” 
feature on the bank’s web 
site that allows customers to 
see an image of the front 
and back of a check
Commerce’s Funding Mechanism 
Detail Analysis: How Commerce funded its excellence 
Case Analysis – Commerce Bank 7/30/2014 
27 
2 
Commerce’s 
start-up and 
growth 
strategy 
Commerce’s 
banking & 
lending 
operations 
Funding 
Mechanism 
How Commerce 
funded its own 
growth 
How Commerce 
functioned as a 
bank?
Commerce’s Funding Mechanism 
Start-up and growth strategy: focusing on organic growth and bring the retail franchise 
expansion model into its banking operational 
Case Analysis – Commerce Bank 7/30/2014 
28 
2 
Commerce’s 
start-up and 
growth 
strategy 
 Founded in 1973 with $ 1.5 million as startup capital (assumed to 
be seed capital not VC funding) 
 Chairman & CEO, Vernon Hill did not believe in M&As as a growth 
strategy but as a cost-cutting measure 
 Started operations as a community bank in southern New Jersey 
 Used the retail franchise expansion model (without acquisitions) 
to grow 
 Expanded into branches in Pennsylvania, Delaware and New York 
 Concentrated on seeing customer as a revenue-generator (not 
cost center). However, cross-selling was not encouraged since 
main revenue stream was considered as deposits 
 Expansion into New York was done organically (Branches were 
wholly owned and run by Commerce and promoted heavily 
(Spends - $500,000 per branch) 
 By 2001, Commerce had $ 1 billion in core deposits
Case Analysis – Commerce Bank 7/30/2014 
29 
Commerce’s Funding Mechanism 
Commerce’s banking & lending operations focused on its 2 products, i.e. deposits & 
loans. It had a different approach in running its operations as compared to industry 
2 
Commerce’s 
banking & 
lending 
operations 
Business philosophy 
Operations in 
deposits 
Commerce Industry 
 Compete on service not on rate 
 Focus is customer experience 
 Operations is designed to WOW 
customers 
 Low-expense ratios are bad 
 Outgoing friendly service 
 Rates need not be the highest in 
the industry (only 3% want this) 
 Longer operating hours allow for 
more time for customer service 
(62% want this) 
 Non-interest income revenue (i.e. 
ATM charges) must be used as 
competitive advantage to grow 
and not simply be an addition to 
the bottom line 
 Cross-Selling products 
 Preference to electronic channels 
 Non-interest income revenue 
 Pushing customers out of 
store(bank) 
 They are transaction-oriented and 
low growth 
 Dozen or more types of checking 
accounts 
 $5 monthly fee for Internet 
Banking facilities
Case Analysis – Commerce Bank 7/30/2014 
30 
Commerce’s Funding Mechanism 
Commerce’s banking & lending operations focused on its 2 products, i.e. deposits & 
loans. It had a different approach in running its operations as compared to industry 
2 
Commerce’s 
banking & 
lending 
operations 
Operations in loans 
Results 
Commerce Industry 
 Assigned to customer service 
branches that received credit for 
deposits 
 Low loan-deposit ratio 
 Stringent credit quality checks 
 Customers mostly commercial 
real estate projects, mortgages 
and consumer loans 
 Loan officer is also branch 
manager 
• Deposit Growth (2001) - 40% 
• Online Usage - 34% 
• Net Income growth (1998-2001) - 
200% 
 Loan delivery is centralized 
leading to customer and loan 
officer disconnect 
 Loans are 90% of deposit base 
(2001) 
 Lower credit quality loans (i.e. 
sub-prime mortgages) get 
approved 
 Loans not linked to deposits 
• Deposit Growth (2001) - 5% 
• Non-interest income growth – 
27% 
• Interest Income growth – 11% 
• Customer attrition – 1/3rd of 
customer base
Commerce’s Employee Management System 
Analyze how Commerce instilled WOW service business model into its employee 
management system 
Case Analysis – Commerce Bank 7/30/2014 
31 
3 
Hiring 
Employee 
Management 
System 
Training 
Work 
Autonomy 
Workplace 
involvement 
Rewards 
Appraisal or 
Performance 
Measurement 
Major challenge is 
how to create a 
customer-centric 
organization that is 
reflected through 
Commerce’s 
employee 
management system
Commerce’s Employee Management System 
Analyze how Commerce instilled WOW service business model into its employee 
management system 
Case Analysis – Commerce Bank 7/30/2014 
32 
3 
Hiring 
Employee 
Management 
System 
Training 
Work 
Autonomy 
Workplace 
involvement 
Rewards 
Appraisal and 
Performance 
Measurement 
Objective 
Getting the right people and 
integrate them with the entire 
Commerce’s culture 
High level strategy 
 Does not always recruit the 
best talent 
 Prioritize to hire average 
people with service attitude 
 Tough hiring process reflected 
by extensive number of 
interviews 
 Consider experienced people 
for part time job 
 Utilize interview processes to 
learn about competitors
Commerce’s Employee Management System 
Analyze how Commerce instilled WOW service business model into its employee 
management system 
Case Analysis – Commerce Bank 7/30/2014 
33 
3 
Hiring 
Employee 
Management 
System 
Training 
Work 
Autonomy 
Workplace 
involvement 
Rewards 
Appraisal and 
Performance 
measurement 
Objective 
Use WOW program in designing 
service curriculum applied for entire 
Commerce organization 
High level strategy 
 Formed full time education and 
training facility named Commerce 
University 
 Easy to remember framework for 
learning Commerce service 
deliver model: SMART Principle 
(Say YES to customers, Make 
each customer feel 
special, Always keep customer 
promises, Recover, Think like a 
customer) 
 Service-oriented courses 
selection for new employees 
(“Traditions”) and senior 
executives
Commerce’s Employee Management System 
Analyze how Commerce instilled WOW service business model into its employee 
management system 
Case Analysis – Commerce Bank 7/30/2014 
34 
3 
Hiring 
Employee 
Management 
System 
Training 
Work 
Autonomy 
Workplace 
involvement 
Rewards 
Appraisal & 
Performance 
measurement 
Work autonomy 
Encourage and empower 
employees to participate on “Kill 
the stupid rule” program 
Workplace involvement 
 All employees encouraged to 
hand out their visiting cards to 
recruit potential employees 
 Redeemable WOW! Stickers 
 WOW! Awards and Musical 
performances 
 Playful events like Red Fridays
Commerce’s Employee Management System 
Analyze how Commerce instilled WOW service business model into its employee 
management system 
Case Analysis – Commerce Bank 7/30/2014 
35 
3 
Hiring 
Employee 
Management 
System 
Training 
Work 
Autonomy 
Workplace 
involvement 
Rewards 
Appraisal and 
Performance 
Measurement 
Appraisal & Performance 
 Service performance as one of the 
KPIs. Measured thru mystery shopping 
 Competition between branches in 
different regions in the form of Leagues 
(assuming this is like football or 
baseball leagues) to get the best 
service report 
Rewards 
 Monetizing mystery shopping result: 
salary increased based on the result 
 Glamorous prizes for top performers 
(like a leased Porsche Boxster for 1 
year) 
 $5000 reward for the staff of nearest 
Commerce branch where a competitor 
closed down 
 $50 reward for suggesting improvement 
in the ‘Kill the rule’ program
Case Analysis – Commerce Bank 7/30/2014 
36 
4 
Commerce’s Customer Management System 
Analyze how Commerce developed its customer management system in accordance with 
its service business model 
Customer 
Management 
system 
Customer 
acquisition 
Customer 
retention 
programs 
Industry Norm 
 Push more product through cross-selling 
 Transactions-based KPIs rather than customer 
satisfaction or repeat customers 
 Customers were seen as cost centers and in 
order to keep a low-expense ratio were pushed 
to use the electronic channels (full-service to 
self-service) 
 Also, customers using the conventional personal 
(teller) banking channel were penalized 
through extra fees 
 This savings in the marginal cost was then used 
to give a higher interest rate which banks felt 
was the only way to attract new customers. 
Commerce chose the opposite strategy and to 
compete on service aspects by focusing on superior 
customer excellence delivery
Case Analysis – Commerce Bank 7/30/2014 
37 
4 
Commerce’s Customer Management System 
Analyze how Commerce developed its customer management system in accordance with 
its service business model 
Customer 
Management 
system 
Customer 
acquisition 
Customer 
retention 
programs 
Commerce’s acquisition strategy 
 Branches located close to competitors branches 
and designed to be inviting, open windows 
 Red & blue painted commerce vans helped 
create free advertising opportunities 
 Building designs across all branches were 
consistent (Note: consistent message to the 
customer – Integrated marketing 
communication) 
 Very high promotional spends for every new 
branch in the form of direct mailings, subway 
ads, phone kiosks and free food (like 10,000 hot 
dogs in Commerce napkins) 
 Free gift for the first time customers 
 Employees treat customers with outgoing 
friendly service and do not try to cross-sell 
products or push customers out of the store after 
they finish their transactions 
 Loan applicants were encouraged to open 
deposit accounts first
Case Analysis – Commerce Bank 7/30/2014 
38 
4 
Commerce’s Customer Management System 
Analyze how Commerce developed its customer management system in accordance with 
its service business model 
Customer 
Management 
system 
Customer 
acquisition 
Customer 
retention 
programs 
Industry Norm 
 All banks provided the same ease-of-use 
electronic banking features along with their 
extensive branch networks 
 Having an issue on retention: high attrition rate 
 Main triggers of high attrition rate: 
• dissatisfaction with steep fees and fee 
surprises, poor service and errors (34%) 
• outside of reach of current branch location 
(34%) 
• availability of more convenience such as 
longer hours in other banks (15%) 
Commerce’s retention program were designed to 
target the above-mentioned customer pain 
points which caused customers to switch banks. 
Delivering superior customer experience, once 
again, became a choice of Commerce for its 
retention program
Case Analysis – Commerce Bank 7/30/2014 
39 
4 
Commerce’s Customer Management System 
Analyze how Commerce developed its customer management system in accordance with 
its service business model 
Customer 
Management 
system 
Customer 
acquisition 
Customer 
retention 
programs 
Commerce’s retention strategy 
1. Create convenience at customer sides 
• Extended banking hours (10 minute rule 
allowed for 20 minutes of extra banking 
everyday) 
• Busy locations were open till midnight 
(12:10 am) 
• Weekend banking (Saturdays & 
Sundays) 
• Same branch look and feel 
• Phones in ATMs reach helplines 
• Live agents instead of VRUs 
2. Boundary-spanning roles and interface 
• Employee conduct monitored by 
mystery shoppers for friendliness 
(handshakes), consistency in greeting 
and other procedural details when 
dealing with customers 
• Service-oriented KPIs to measure 
employee’s performance
Case Analysis – Commerce Bank 7/30/2014 
40 
4 
Commerce’s Customer Management System 
Analyze how Commerce developed its customer management system in accordance with 
its service business model 
Customer 
Management 
system 
Customer 
acquisition 
Customer 
retention 
programs 
Commerce’s retention strategy 
3. Up-close and personal service 
• Guidance to manage deposit accounts 
by branch managers 
• Loan accounts handled by local 
customer service branches and not by 
central headquarters 
• Guidance to manage loan accounts by 
loan officers (who also happened to be 
branch managers) 
4. Customer delight features 
• No fees for ATM and check cards 
• Non-interest income (ATM charges/fees 
for using other bank’s ATMs) returned to 
customers 
• Employee escorts with umbrellas to cars 
during rains 
• ‘Penny Arcade’ program to handle coins 
with no charge either customers or non-customers 
• Gifts (pens and lollipops) at drive-through 
banking windows
Table of Contents 
7/30/2014 
41 
The Story of Commerce Bank 
Insights from the U.S. Banking Industry 
Deep Dive Analysis of Commerce Bank 
Conclusion & Recommendation 
1 
2 
3 
4 
Case Analysis – Commerce Bank
Case Analysis – Commerce Bank 7/30/2014 
42 
Conclusions 
Implementation of service-business model brought a big success for Commerce 
Success Parameter 
Deposit growth 
(1996-2001) 
Deposit growth 
(2001 only) 
Commerce Bank Industry or Competitors 
Online usage Grew about 34% Wells Fargo: much lower 
Net Income growth 
(1998-2001) 
30% growth in average 
Grew about 40% 
200% growth (double the 
net income) 
U.S. banking industry grew 
±20% from 1998-2001 
U.S. banking industry grew 
only 5% 
U.S. banking industry grew 
about 20%
Retailtainment gave a set back for Commerce 
Failed to improve overall customer experience as it increased no. of customer complaints 
Case Analysis – Commerce Bank 7/30/2014 
43 
Original Plan 
Improve the service 
experience for customer 
waiting in branches 
Triggered by the following: 
competitors beginning to adopt 
some of basic service offerings 
Allowing Branch Managers to 
suggest ideas (event wacky ones) 
for entertaining branch customers 
on Friday afternoons 
Actual result 
No. of customer complaints 
were going up 
It made the employees put more 
focus on the entertainment 
aspect rather than service aspects 
Customer did not expect to be 
entertained while waiting at branch. 
What they actually need is a 
solution over their problem 
Concerned arose on branding 
implications 
Decentralized roll-out
Recommendations & Action Plans for Commerce 
Case Analysis – Commerce Bank 7/30/2014 
44 
Recommendations: 
 Discontinue Retailtainment program as it does not fit 
with Commerce’s value 
 Back to previous service business model, i.e. 
focusing on superior customer experience delivery 
rather than providing entertainment to customers 
 Focus should be given to the effort of improving 
quality of service. 3 main areas to be improved are 
responsiveness, reliability and assurance 
 Improving brand positioning through consistent 
service delivery 
 Maintaining and improving financial conditions 
(deposits growth, net income)
Recommendations & Action Plans for Commerce 
Case Analysis – Commerce Bank 7/30/2014 
45 
Action Plans: 
1. Create more effective and efficient 
process 
• Provide several service zones, i.e. 
basic service area, quick service 
zone, and complaint zone 
• 3 types of front-liners, i.e. product 
consultant, service consultant and 
2. Launch service guarantee program 
rather than continuing Retailtainment 
program
Case Analysis – Benihana of Tokyo 7/28/2014 
46

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OSCM_Harvard Business Case_Commerce Bank

  • 1. 7/30/2014 Case Analysis – Commerce Bank 1 Case Study Analysis Commerce Bank Binus Business School, MM Executive Batch 20 Presented by Group I Alexander Christian Dina Sandri Fani Jenna Widyawati Ridwan Martawidjaja
  • 2. Table of Contents 7/30/2014 2 The Story of Commerce Bank Insights from the U.S. Banking Industry Deep Dive Analysis of Commerce Bank Conclusion & Recommendation 1 2 3 4 Case Analysis – Commerce Bank
  • 3. Table of Contents 7/30/2014 3 The Story of Commerce Bank Insights from the U.S. Banking Industry Deep Dive Analysis of Commerce Bank Conclusion & Recommendation 1 2 3 4 Case Analysis – Commerce Bank
  • 4. Commerce’s Flashback in Years 7/30/2014 Case Analysis – Commerce Bank 4 • 1973 Founded by Vernon Hill. Set up to “be different” as the world did not need another “me-too” bank • Early 1990s 4 branch offices were purchased from Long Island-based Anchor Savings Bank • 21 Jan 1997 Independence Bancorp, Inc. became Commerce Bank/North • 13 Aug 1998 Community First Banking Company & its subsidiary Tinton Falls State Bank became Commerce Bank/Shore • 17 Sep 1998 Prestige Financial Corp & its subsidiary Prestige State Bank became Commerce Bank/Central • 25 Jul 2005 Palm Beach County Bank established Commerce Bank in Southeast Florida • 2006 Purchased eMoney Advisor • 2007 Acquired by TD Bank Financial Group
  • 5. Dare to be different since beginning Acted and thought as a retailer, not as a banker! Case Analysis – Commerce Bank 7/30/2014 5 Brought retail experience to banking Competed on service rather than rate Deposit rather than loan as a core product  Lollipops and dog biscuits in the lobby and drive-thru  Playful events, e.g. Red Fridays  Longer operating hours  Hassel free products, e.g. no transaction fee, no fee to the ATM  Deposit as a core product  No deposit, no loan!  Grew much higher than industry Defying conventional wisdom helped Commerce Bank to grow as one of the fastest growing banks in the US!!!
  • 6. Table of Contents 7/30/2014 6 The Story of Commerce Bank Insights from the U.S. Banking Industry Deep Dive Analysis of Commerce Bank Conclusion & Recommendation 1 2 3 4 Case Analysis – Commerce Bank
  • 7. Customers typology in the U.S. banking industry Case Analysis – Commerce Bank 7/30/2014 7 • Service Excellent • Fast and easy experience • Call center 24 hours Wants • Better rates • Safety on their accounts • Nothing will be your problem, we take care Needs • Fully trained cast member • Friendly persons: give the customers confidence and excellent advisement Searches • From traditional, full-service transaction to electronic, self-service transaction Evolves
  • 8. Loans as a core products compared to deposits Growth was about 20% over the period of 1998 to 2001 Case Analysis – Commerce Bank 7/30/2014 8 Loans Deposits Commercial Banking Industry Figures Loans vs. Deposits (in tn USD) 3.68 3.83 4.18 4.39 3.18 3.43 3.76 3.82 1998 1999 2000 2001 Loans Deposits 2 main products: Commercial Banking Industry Figures 86.41% Loan-to-Deposit Ratio 89.61% 89.85% 87.06% 1998 1999 2000 2001 Major trends in industry: Cross-sell • A push to increase the “cross-sell” of products. Customer has 1.5 to 2.5 products with the banks Fee revenue • Growing revenues from non-interest income
  • 9. Low service quality resulted to low satisfaction and high customer attrition rate Case Analysis – Commerce Bank 7/30/2014 9  Customer satisfaction historically been quite low  Only 53% of retail bank customers satisfied with the provided services  Demographics-based segmentation  Customer lifetime value/customer profitability as a segmentation variable  Help the banks to differentiate the service amongst customers  High attrition rate  One-third of customer base each year to attrition  Mostly occurred in the 1st year of a banking relationship  34% dissatisfied with the service provision; 34% due to geographic move Customer Attrition
  • 10. Decision to choose a bank mostly influenced by proximity of a local bank Case Analysis – Commerce Bank 7/30/2014 10 Forcing banks to deploy the following channels: A. Traditional channel B. Modern channel Branches • Enormous branch networks to getting closer with the targeted segment ATM networks • Large ATM networks to ease customer doing a transaction • Free base vs. fee base • ATM transformation: from cost center to profit center 24/7 call centers • Including Voice Response Unit (VRU) • Allowing customer execute an increasing no, of transaction via telephone Internet Banking era  Banks to have a lower marginal cost  Full-service channels to self-service channels  Monetary incentives for using electronic channels  On the other hand, impose monetary penalties for using traditional channels
  • 11. Front-line employees are vital for retail banks Case Analysis – Commerce Bank 7/30/2014 11 Selection criteria were as follows:  Be able to perform repeated tasks, interact with customers  Willingness to accept relatively low wages Undergo series of training to ensure compliance with processes & product attributes  Learning about bank-specific policies & procedures  Product knowledge training Main KPIs:  Volume of calls handled  No. of transactions processed
  • 12. Table of Contents 7/30/2014 12 The Story of Commerce Bank Insights from the U.S. Banking Industry Deep Dive Analysis of Commerce Bank Conclusion & Recommendation 1 2 3 4 Case Analysis – Commerce Bank
  • 13. Commerce Bank in Numbers Grew faster than the U.S. banking industry due to the implementation of revolutionary business model Case Analysis – Commerce Bank 7/30/2014 13 Commerce Bank Financial Figures 4.98 Total assets (in bn USD) 6.73 8.86 12.27 1998 1999 2000 2001 Commerce Bank Financial Figures Interest Income vs. Non-Interest Income 74 625 297 393 523 97 156 198 1998 1999 2000 2001  35% of CAGR from 1998 to 2001  Mostly came from securities and net loans & leases  Income mostly came from interest compared to non-interest  Non-interest income recorded higher CAGR compared to interest income (39% vs. 28%) following industry’s trend
  • 14. Commerce Bank in Numbers Commerce went to a different direction as compared to industry, resulted to a lower loan-to-deposit ratio and higher expense ratio Case Analysis – Commerce Bank 7/30/2014 14 Loan-to-Deposit Ratio Commerce Bank vs. Industry 86.41% 89.61% 89.85% 87.06% 43.16% 52.48% 49.91% 45.48% 1998 1999 2000 2001 Commerce Industry  Lower loan-to-deposit ratio as compared to industry  Deposits as a core products: no loan if no deposit Total Expense Ratio Commerce Bank vs. Industry 77.7% 77.4% 80.2% 78.2% 76.9% 74.1% 75.7% 73.2% 1998 1999 2000 2001 Commerce Industry  Commerce sacrificed its expense ratio in order to create a superior customer experience  Total expense ratio is higher as compared to industry
  • 15. Commerce Bank in Numbers Deposits grew way above the industry due to its unique proposition; while on the other hand, loans & leases still grew nicely Case Analysis – Commerce Bank 7/30/2014 15 Commerce Bank Financial Figures Total Deposits Growth (in bn USD) 31% 4.50 5.67 7.44 10.23 1998 1999 2000 2001  Provided convenient service instead of high deposit rate  Core product for Commerce: growth had averaged over 30% since 1996  1998-2001 CAGR was 31% much ahead industry of 6%  More than half of it were consumer business Commerce Bank Financial Figures Net Loans & Leases Growth (in bn 1.94 2.98 3.71 4.65 USD) 1998 1999 2000 2001  Implemented “No deposit, no loan” policy  Loan-to-deposit ratio was significantly below the industry average due to tight credit acceptance policy  Net loans & leases CAGR was 34%
  • 16. Commerce’s SWOT Analysis Commerce had a strong positioning in service area; however, competitors were beginning to adopt some of its basic offerings Case Analysis – Commerce Bank 7/30/2014 16 S W T Strengths • Retailer mindset • Customer-centric program • Consistent service delivery • Excellent service innovation • Walk the talk attitude • Passionate employees • Financial growth Opportunities • Enormous market opportunities • Expanding the business to related financial sector such as insurance • Expanding overseas Threats • Fierce competition: competitors were beginning to adopt some of its basic service offerings • Lack of creativity and innovation to keep ahead of the competition O Weaknesses • Provided the lowest deposit rate • Higher operating cost as compared to competitions • Less focused on responsiveness, reliability, and assurance
  • 17. Case Analysis – Commerce Bank 7/30/2014 17 Commerce Bank’s Business Model Customer Segments Mass Market: covering business and individual customer from young age to senior citizen Customer Relationships Full Service Personal assistance at branches and call center Automated services through online banking Value Proposition Excellent service with personal touch & attitude Different experience through retailtainment Convenient operating hours Inviting and comfy branches
  • 18. Case Analysis – Commerce Bank 7/30/2014 18 Commerce Bank’s Business Model Key Resources Enthusiastic employees Inviting branch at the right location & other physical facilities Commerce culture to innovate, continuous improvement and customer service Key Activities Provide loan Collect core deposit Call center Online banking services ATM provider Marketing Key Partners ATM providers Street vendor and performers to assist marketing campaign
  • 19. Case Analysis – Commerce Bank 7/30/2014 19 Commerce Bank’s Business Model Channels Marketing through: Street vendors, direct mailing, ads on public places, ads on company’s van. Banking services provided through: branches, ATMs, call center, online banking Cost structure Labor cost Marketing & advertising cost Design, construction and maintenance of branches Employee training and development program Revenue Streams Fee on banking services Interest from loan
  • 20. Commerce’s Core Service Business Model They were here to blow customers away through creating a strong service business management model Case Analysis – Commerce Bank 7/30/2014 20 Service Offering Core service Model Funding Mechanism Customer Management  More impact for service  Well-integrated employee management system must be reflected on recruitment process, training, job design, and performance management Employee Management 1 2 3 4  Focus on the experiences customers want to have  Agreed on which attributes of service the business will compete on  At the same time, define what a business chooses not to do well  Develop a way to fund excellence  4 basic forms: 2 are ways of having the customer pay, and 2 cover the cost of excellence with operational savings businesses  Involving customer on value-creation process  Clear on 3 keys areas, i.e. which customers group, which customer behavior, which effective techniques to influence behavior
  • 21. Commerce’s Service Offering Despite following the industry’s trend by providing customer good rate, Commerce decided to compensate its low rate through excellent service offering Case Analysis – Commerce Bank 7/30/2014 21 1 Core offerings: 1.Checking account • Standard checking • Internet checking • 50 Plus club • Consumer checking 2.Loans 3.ATM 4.Cash reserve line (overdraft protection) Facilitators Information • Live agents instead of Voice Response Unit (VRU) Order taking • Loans assigned to service branch instead of Head Office • Weekend banking • Longer operating hours Billing • Personal sign-off by customer on loan papers at service branch • Online monthly statements Payment • Easier, since loan customer also has a deposit at service branch Differentiators Consultation • Branch Manager / Loan officer helps to manage loans & deposits Hospitality • Phones at ATMs • Employee escorts with umbrellas during rains Safe-keeping • Check View Feature Exception Handling • Penny arcades to handle coins • Midnight timing at busy locations • 10 minute rule
  • 22. Case Analysis – Commerce Bank 7/30/2014 22 Commerce’s Service Offering Detail explanation: Commerce’s service offering basically divided into two categories, i.e. core service offerings and supplementary service offerings 1 Core service offerings Deposits Offering Details Not very different from what other banks in the industry offer However, had a different focus from execution stand point Deposits base instead of loans base as a driver of operations and growth No. Type Minimum Balance Details 1 Standard Checking $100 No monthly service fees 2 Interest Checking $1000 No monthly service fees, Unlimited check writing, Interest 3 50 Plus Club $100 No account maintenance charge for checking account with interest, free checks, money orders, notary service and travelers’ checks 4 Consumer Checking None No per check charge for first 8 checks/month for $3 monthly fee No monthly service fees for the 1st 3 years and free 1st order of checks
  • 23. Case Analysis – Commerce Bank 7/30/2014 23 Commerce’s Service Offering Detail explanation: Commerce’s service offering basically divided into two categories, i.e. core service offerings and supplementary service offerings 1 Core service offerings Loans ATMs Cash reserve line • Commerce’s value is not in its loan base but in its deposit base • Loans are not given out as easily as other banks in the industry • Credit quality checks for loan approval is very stringent • “No deposit no loan” policy • Withdrawals were available at any ATM and purchases anywhere Visa was accepted • Transactions were immediately reflected in accounts and statements • All accounts could be combines with a Cash Reserve Line to ensure protection from overdrafts
  • 24. Case Analysis – Commerce Bank 7/30/2014 24 Commerce’s Service Offering Supplementary service offerings were designed to WOW customers. Consisted of facilitator offerings and differentiator offerings 1 Facilitators Information • Live agents instead of Voice Response Unit (VRU) Order taking (banking context: cash withdrawal & loan application process) • Loans were assigned to service branch instead of Head office for easy access for customer • Weekend banking facilities were provided to allow customers to bank on Saturdays & Sundays Billing (Banking context: loan approval and monthly statement generation process) • Personal sign-off by customer on loan papers at service branch • Online monthly statements Payment (loan repayment process) • Payment is easier for customer and assured for bank, since loan customer also has a deposit at service branch Differentiators Consultation • Branch Manager/loan officer helps to manage loans & deposits Hospitality • Helpline phones at ATMs • Employee escorts with umbrellas during rains • Lollipops and dog biscuits at drive through banking windows • Coffee and newspapers in waiting lobbies Safe Keeping (Banking context: peace of mind about account balances and check deposits) • Immediate updating of ATM withdrawals in online statements • A ‘Check View’ feature on Commerce’s website Exception handling (Banking context: Coin currency & Irregular hours ) • ‘Penny arcades’ to handle coins • Midnight timing at busy locations • 10 minute rule to increase banking hours by 20 minutes in a day’ operation
  • 25. Commerce’s Funding Mechanism Basic theory to analyze Commerce’s funding mechanism Case Analysis – Commerce Bank 7/30/2014 25 2 Frei, HBR: 4 basic forms of funding mechanism Funding Mechanism Let the customer pay Charge the customer in a palatable way Giving a half percentage point less in interest on deposits for open late and on weekends operations Create a win-win between operational savings & value-added services Enhance the customer experience while spending lunch Operational savings Spend now to save later Make operational investments that will pay off eventually by reducing customers’ needs for auxiliary service in the future Have the customers do the work Put the cost back in the customer’s court, but in the form of labor, e.g. through offering self-service
  • 26. Commerce’s Funding Mechanism Commerce mixed 4 basic forms for its funding mechanism implementations Case Analysis – Commerce Bank 7/30/2014 26 2 Frei, HBR: 4 basic forms of funding mechanism Funding Mechanism Let the customer pay Charge the customer in a palatable way Simply to have the customer pay for it, but possible to make the form that payment takes less objectionable to customers Operational savings Spend now to save later Heavily invested on branches: branches were built to be inviting Broke even within a year to 18 months compared to three years of the average bank Have the customers do the work Provided “check view” feature on the bank’s web site that allows customers to see an image of the front and back of a check
  • 27. Commerce’s Funding Mechanism Detail Analysis: How Commerce funded its excellence Case Analysis – Commerce Bank 7/30/2014 27 2 Commerce’s start-up and growth strategy Commerce’s banking & lending operations Funding Mechanism How Commerce funded its own growth How Commerce functioned as a bank?
  • 28. Commerce’s Funding Mechanism Start-up and growth strategy: focusing on organic growth and bring the retail franchise expansion model into its banking operational Case Analysis – Commerce Bank 7/30/2014 28 2 Commerce’s start-up and growth strategy  Founded in 1973 with $ 1.5 million as startup capital (assumed to be seed capital not VC funding)  Chairman & CEO, Vernon Hill did not believe in M&As as a growth strategy but as a cost-cutting measure  Started operations as a community bank in southern New Jersey  Used the retail franchise expansion model (without acquisitions) to grow  Expanded into branches in Pennsylvania, Delaware and New York  Concentrated on seeing customer as a revenue-generator (not cost center). However, cross-selling was not encouraged since main revenue stream was considered as deposits  Expansion into New York was done organically (Branches were wholly owned and run by Commerce and promoted heavily (Spends - $500,000 per branch)  By 2001, Commerce had $ 1 billion in core deposits
  • 29. Case Analysis – Commerce Bank 7/30/2014 29 Commerce’s Funding Mechanism Commerce’s banking & lending operations focused on its 2 products, i.e. deposits & loans. It had a different approach in running its operations as compared to industry 2 Commerce’s banking & lending operations Business philosophy Operations in deposits Commerce Industry  Compete on service not on rate  Focus is customer experience  Operations is designed to WOW customers  Low-expense ratios are bad  Outgoing friendly service  Rates need not be the highest in the industry (only 3% want this)  Longer operating hours allow for more time for customer service (62% want this)  Non-interest income revenue (i.e. ATM charges) must be used as competitive advantage to grow and not simply be an addition to the bottom line  Cross-Selling products  Preference to electronic channels  Non-interest income revenue  Pushing customers out of store(bank)  They are transaction-oriented and low growth  Dozen or more types of checking accounts  $5 monthly fee for Internet Banking facilities
  • 30. Case Analysis – Commerce Bank 7/30/2014 30 Commerce’s Funding Mechanism Commerce’s banking & lending operations focused on its 2 products, i.e. deposits & loans. It had a different approach in running its operations as compared to industry 2 Commerce’s banking & lending operations Operations in loans Results Commerce Industry  Assigned to customer service branches that received credit for deposits  Low loan-deposit ratio  Stringent credit quality checks  Customers mostly commercial real estate projects, mortgages and consumer loans  Loan officer is also branch manager • Deposit Growth (2001) - 40% • Online Usage - 34% • Net Income growth (1998-2001) - 200%  Loan delivery is centralized leading to customer and loan officer disconnect  Loans are 90% of deposit base (2001)  Lower credit quality loans (i.e. sub-prime mortgages) get approved  Loans not linked to deposits • Deposit Growth (2001) - 5% • Non-interest income growth – 27% • Interest Income growth – 11% • Customer attrition – 1/3rd of customer base
  • 31. Commerce’s Employee Management System Analyze how Commerce instilled WOW service business model into its employee management system Case Analysis – Commerce Bank 7/30/2014 31 3 Hiring Employee Management System Training Work Autonomy Workplace involvement Rewards Appraisal or Performance Measurement Major challenge is how to create a customer-centric organization that is reflected through Commerce’s employee management system
  • 32. Commerce’s Employee Management System Analyze how Commerce instilled WOW service business model into its employee management system Case Analysis – Commerce Bank 7/30/2014 32 3 Hiring Employee Management System Training Work Autonomy Workplace involvement Rewards Appraisal and Performance Measurement Objective Getting the right people and integrate them with the entire Commerce’s culture High level strategy  Does not always recruit the best talent  Prioritize to hire average people with service attitude  Tough hiring process reflected by extensive number of interviews  Consider experienced people for part time job  Utilize interview processes to learn about competitors
  • 33. Commerce’s Employee Management System Analyze how Commerce instilled WOW service business model into its employee management system Case Analysis – Commerce Bank 7/30/2014 33 3 Hiring Employee Management System Training Work Autonomy Workplace involvement Rewards Appraisal and Performance measurement Objective Use WOW program in designing service curriculum applied for entire Commerce organization High level strategy  Formed full time education and training facility named Commerce University  Easy to remember framework for learning Commerce service deliver model: SMART Principle (Say YES to customers, Make each customer feel special, Always keep customer promises, Recover, Think like a customer)  Service-oriented courses selection for new employees (“Traditions”) and senior executives
  • 34. Commerce’s Employee Management System Analyze how Commerce instilled WOW service business model into its employee management system Case Analysis – Commerce Bank 7/30/2014 34 3 Hiring Employee Management System Training Work Autonomy Workplace involvement Rewards Appraisal & Performance measurement Work autonomy Encourage and empower employees to participate on “Kill the stupid rule” program Workplace involvement  All employees encouraged to hand out their visiting cards to recruit potential employees  Redeemable WOW! Stickers  WOW! Awards and Musical performances  Playful events like Red Fridays
  • 35. Commerce’s Employee Management System Analyze how Commerce instilled WOW service business model into its employee management system Case Analysis – Commerce Bank 7/30/2014 35 3 Hiring Employee Management System Training Work Autonomy Workplace involvement Rewards Appraisal and Performance Measurement Appraisal & Performance  Service performance as one of the KPIs. Measured thru mystery shopping  Competition between branches in different regions in the form of Leagues (assuming this is like football or baseball leagues) to get the best service report Rewards  Monetizing mystery shopping result: salary increased based on the result  Glamorous prizes for top performers (like a leased Porsche Boxster for 1 year)  $5000 reward for the staff of nearest Commerce branch where a competitor closed down  $50 reward for suggesting improvement in the ‘Kill the rule’ program
  • 36. Case Analysis – Commerce Bank 7/30/2014 36 4 Commerce’s Customer Management System Analyze how Commerce developed its customer management system in accordance with its service business model Customer Management system Customer acquisition Customer retention programs Industry Norm  Push more product through cross-selling  Transactions-based KPIs rather than customer satisfaction or repeat customers  Customers were seen as cost centers and in order to keep a low-expense ratio were pushed to use the electronic channels (full-service to self-service)  Also, customers using the conventional personal (teller) banking channel were penalized through extra fees  This savings in the marginal cost was then used to give a higher interest rate which banks felt was the only way to attract new customers. Commerce chose the opposite strategy and to compete on service aspects by focusing on superior customer excellence delivery
  • 37. Case Analysis – Commerce Bank 7/30/2014 37 4 Commerce’s Customer Management System Analyze how Commerce developed its customer management system in accordance with its service business model Customer Management system Customer acquisition Customer retention programs Commerce’s acquisition strategy  Branches located close to competitors branches and designed to be inviting, open windows  Red & blue painted commerce vans helped create free advertising opportunities  Building designs across all branches were consistent (Note: consistent message to the customer – Integrated marketing communication)  Very high promotional spends for every new branch in the form of direct mailings, subway ads, phone kiosks and free food (like 10,000 hot dogs in Commerce napkins)  Free gift for the first time customers  Employees treat customers with outgoing friendly service and do not try to cross-sell products or push customers out of the store after they finish their transactions  Loan applicants were encouraged to open deposit accounts first
  • 38. Case Analysis – Commerce Bank 7/30/2014 38 4 Commerce’s Customer Management System Analyze how Commerce developed its customer management system in accordance with its service business model Customer Management system Customer acquisition Customer retention programs Industry Norm  All banks provided the same ease-of-use electronic banking features along with their extensive branch networks  Having an issue on retention: high attrition rate  Main triggers of high attrition rate: • dissatisfaction with steep fees and fee surprises, poor service and errors (34%) • outside of reach of current branch location (34%) • availability of more convenience such as longer hours in other banks (15%) Commerce’s retention program were designed to target the above-mentioned customer pain points which caused customers to switch banks. Delivering superior customer experience, once again, became a choice of Commerce for its retention program
  • 39. Case Analysis – Commerce Bank 7/30/2014 39 4 Commerce’s Customer Management System Analyze how Commerce developed its customer management system in accordance with its service business model Customer Management system Customer acquisition Customer retention programs Commerce’s retention strategy 1. Create convenience at customer sides • Extended banking hours (10 minute rule allowed for 20 minutes of extra banking everyday) • Busy locations were open till midnight (12:10 am) • Weekend banking (Saturdays & Sundays) • Same branch look and feel • Phones in ATMs reach helplines • Live agents instead of VRUs 2. Boundary-spanning roles and interface • Employee conduct monitored by mystery shoppers for friendliness (handshakes), consistency in greeting and other procedural details when dealing with customers • Service-oriented KPIs to measure employee’s performance
  • 40. Case Analysis – Commerce Bank 7/30/2014 40 4 Commerce’s Customer Management System Analyze how Commerce developed its customer management system in accordance with its service business model Customer Management system Customer acquisition Customer retention programs Commerce’s retention strategy 3. Up-close and personal service • Guidance to manage deposit accounts by branch managers • Loan accounts handled by local customer service branches and not by central headquarters • Guidance to manage loan accounts by loan officers (who also happened to be branch managers) 4. Customer delight features • No fees for ATM and check cards • Non-interest income (ATM charges/fees for using other bank’s ATMs) returned to customers • Employee escorts with umbrellas to cars during rains • ‘Penny Arcade’ program to handle coins with no charge either customers or non-customers • Gifts (pens and lollipops) at drive-through banking windows
  • 41. Table of Contents 7/30/2014 41 The Story of Commerce Bank Insights from the U.S. Banking Industry Deep Dive Analysis of Commerce Bank Conclusion & Recommendation 1 2 3 4 Case Analysis – Commerce Bank
  • 42. Case Analysis – Commerce Bank 7/30/2014 42 Conclusions Implementation of service-business model brought a big success for Commerce Success Parameter Deposit growth (1996-2001) Deposit growth (2001 only) Commerce Bank Industry or Competitors Online usage Grew about 34% Wells Fargo: much lower Net Income growth (1998-2001) 30% growth in average Grew about 40% 200% growth (double the net income) U.S. banking industry grew ±20% from 1998-2001 U.S. banking industry grew only 5% U.S. banking industry grew about 20%
  • 43. Retailtainment gave a set back for Commerce Failed to improve overall customer experience as it increased no. of customer complaints Case Analysis – Commerce Bank 7/30/2014 43 Original Plan Improve the service experience for customer waiting in branches Triggered by the following: competitors beginning to adopt some of basic service offerings Allowing Branch Managers to suggest ideas (event wacky ones) for entertaining branch customers on Friday afternoons Actual result No. of customer complaints were going up It made the employees put more focus on the entertainment aspect rather than service aspects Customer did not expect to be entertained while waiting at branch. What they actually need is a solution over their problem Concerned arose on branding implications Decentralized roll-out
  • 44. Recommendations & Action Plans for Commerce Case Analysis – Commerce Bank 7/30/2014 44 Recommendations:  Discontinue Retailtainment program as it does not fit with Commerce’s value  Back to previous service business model, i.e. focusing on superior customer experience delivery rather than providing entertainment to customers  Focus should be given to the effort of improving quality of service. 3 main areas to be improved are responsiveness, reliability and assurance  Improving brand positioning through consistent service delivery  Maintaining and improving financial conditions (deposits growth, net income)
  • 45. Recommendations & Action Plans for Commerce Case Analysis – Commerce Bank 7/30/2014 45 Action Plans: 1. Create more effective and efficient process • Provide several service zones, i.e. basic service area, quick service zone, and complaint zone • 3 types of front-liners, i.e. product consultant, service consultant and 2. Launch service guarantee program rather than continuing Retailtainment program
  • 46. Case Analysis – Benihana of Tokyo 7/28/2014 46