Student’s Signature: Amy Monasteries Instructors Grade on Assignment: Instructor’s Comments: Commerce Bank Case Study Executive Summary Commerce Bank is well known in the banking industry for their customer-centric practices. They emphasize the importance of keeping their customers happy on a day-to-day basis. They have established practices that are out of the norm for the banking Industry. These practices Include: extended hours, coffee and newspapers In the walling lobby, Inviting locations, phones In their ATM machines and even a bright-red Penny Arcade in their lobby!
Through these practices Commerce’s goal has Eden to Drill ten retail experience Into all AT tenet Transcends. Looking at ten Dankly industry using Porter’s Five Forces Model, it is clear that the industry is very competitive. There is a very high degree of rivalry caused by local and international banks along with credit unions which are favored by a substantial number of customers. Commerce is also facing an increasing potential of new entrants into their competition because other banks have started to assimilate their customer-centric practices.
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Additionally, Commerce has to face the reality of technology slowly coming a threat in what’s evolving into a “self-service” world. As a supplier, the bank has less bargaining power than the customer due to the minimal costs involved in switching banks and the large number of banking options available to the customer. Once the banking industry was evaluated, a SOOT analysis was done on Commerce Banks internal features in order to determine the current status of the organization. Commerce current strengths are: their customer-centric service experience, their serviceable and their financial status.
The banks weaknesses reside in their lack of push for a robust deposit rate and their high operating costs. They have an opportunity in expanding their location overseas as well as training their staff to be more aggressive with their sales skills at the store level. Commerce Bank is currently being faced with a significant threat from the competition. Other banks have started to add the “human touch” to their daily operations and are taking away from Commerce’s branding. For this reason, they have developed the concept of “Retaliation”.
Managers are currently in charge of figuring out a way to entertain customers every Friday in order to enhance their banking experience. The bank is errantly wondering if Retaliation is a good idea or a waste of resources as customer complaints have increased ever since it became a practice. Background Despite its conventional approach to driving business, Commerce Bank has established itself as one of the most successful players in the banking industry. Since its early stages, Commerce has provided its customers with a “retail experience” in a banking setting making it very clear that its top priority is to have happy customers.
Commerce differentiates itself in its customer-centric service strategies. They offer extended evening and weekend hours, they don’t charge fees for their cards or for transactions, they offer dog biscuits and lollipops; all of which play a small role in the WOW! Experience. At Commerce Bank, good service is referred to as “WOW! ” In 1994, the WOW! Program was developed for process improvement purposes. This program evolved into “managing for WOW! ” which now guide the quality-assurance standards of each branch. As employees meet and exceed their goals, they are celebrated with WOW! Trinkets, redeemable little red CSS, and even a WOW!
Awards ceremony. Additionally, WOW! S also an “integral part of the training process (Fret, 2006)”. All new employees have to participate in an introductory class where they are exposed to Commerce’s culture. New hires participate in fun activities in which they learn how to treat customers the WOW! Way. Historically, retail banks offer commodity products such as deposit and loan products. Deposit products allow customers to store their money with the institution “in exchange for access to the payment system, interest on their money, and contact with the bank service infrastructure” (Fret. 2006).
Most banks blame their success on high deposit rates. However, Commerce prides itself on being generally “the lowest ratepayers in every market” I nee Touch on “core deposits” wanly are appose TTS Tanat are mace for non-rate reasons. As part of their strategy, Commerce looked to save money in order to invest that money back in their customers through savings in their services. Additionally, Commerce does not follow new industry trends such as product cross selling and growth of revenue through customer fees. They proudly use their competitive advantage “to get stronger, not to make more money’ (Fret, 2006).
Commerce’s business strategy has helped them tremendously in their growth. They do not support mergers and acquisitions, as they believe organic growth is the best way for the business to succeed. After 18 years in the banking industry, Commerce reached $1 billion in deposits. Most impressive; however, is the doubling of Commerce’s net income (see graph 1) from 1998-2001 “compared to 20% for the industry as a whole” (Fret, 2006). Due to this tremendous growth, Commerce has been challenged in their recruiting efforts.
In order to staff their branches with the right people, Commerce really looks at the experience an individual will bring to the company. Additionally, keeping track of the current markets and the best performers within the market has also been helpful. As Commerce Banks success grew, so did the intensity of the competition. In addition to offering better rates, some of Commerce’s competitors were also beginning to emphasize the “human aspect” of service (Fret, 2006). If Commerce wanted to stay relevant in the banking industry, they had to take their customer service to the next level.
Out of this challenge came the concept of Retaliation; a strategy used in order to “improve the service experience for customers waiting in branches” (Fret, 2006). Through Retaliation, branch managers were encouraged to think of fun ideas for entertaining customers on Friday afternoons. However, due to past customer complaints, the organization feels unsure as to how successful Retaliation will be; some argue that perhaps Commerce should stick to executing their “existing service model” (Fret, 2006).
Problem Statement Should Commerce Bank implement “Retaliation” into its current differentiation strategy and risk Jeopardizing their already successful service model? Analysis Porter’s Five Forces Analysis In Commerce Banks case, the five forces model will be used to determine the nominative advantage of the bank as it compares to other organizations in the industry. Competitive Rivalry within Industry Within the banking industry, there is a very high degree of rivalry emphasized by the competitive struggle between banks “to gain market share from each other” (Indian’s, Managing, Manmade, Buchannan & George, 2014).
Commerce Bank faces local competitors as well as international competitors that have established breaches in the U. S. Through mergers and acquisitions larger banks are formed which also offer commodity products such as deposit and loan products. Additionally, Commerce Bank faces rivalry from credit units which historically have proven to have higher satisfactory rates from customers adding more pressure to the already existing competitive environment. Potential New Entrants The potential of new entrants in the banking industry is dependent on “existing barriers to entry and the combined reactions from existing competitors” (Indian’s et al. 2014). In Commerce Banks case, the potential of new entrants is starting to Increase even tong teeny nave a very prominent Transliteration strategy. Commerce’s brand imagine as it relates to being customer-centric is starting to suffer. Competitors are beginning to adopt some of their service offerings and to “emphasize the human side of services with advertising and marketing campaigns (Fret, 2006)”. As these competitors mirror Commerce’s offerings at a lower price, the number of potential new entrants increases.
Threat of Substitutes In the banking industry, substitutes have been “noted to be the Savings and Credit Societies with low levels of interest and less strict terms and conditions regarding their loan services” (Indian’s et al. , 2014). In addition to this, Commerce Bank also faces the threat of technology. The idea of moving to a world where the customer is self-sufficient has affected the industry tremendously. There is an increasingly high network of ATM stations that are strategically located throughout the country. Additionally, internet banking has also started to substitute actual banking branches.
Customers have shifted their focus to electronic channels and have embraced self-servicing. Bargaining Power of Suppliers Typically commercial banks have low bargaining power in the industry because they all offer very similar commodity products such as deposits and loans. Commerce Bank strives to increase its bargaining power through its differentiation strategies. Since customer satisfaction within the banking industry has been historically low, suppliers should focus on gaining competitive advantage through creative service offerings.
Bargaining Power of Customers Customers may threaten any industry by bargaining for lower prices, higher quality or more services (Indian’s et al. , 2014). In the banking industry specifically, the bargaining power of customers is high due to the minimal costs involved in switching banks. Attrition is a common issue industry-wide. Most attrition occurs during the customer’s first year and 34% of it is due to “steep fees and fee surprises, poor revive, and errors” (Fret, 2006).
Overall, the buyer has a higher bargaining power than the supplier since the customer can easily go to another bank due to the numerous options of banking services and branches that are being offered. SOOT Analysis A SOOT Analysis (see Graph 2) will allow us to look at Commerce Bank individually and determine its internal strength, opportunities, weaknesses and threats in order to reveal “competitive advantages, analyze prospects”, prepare for the problem at hand and develop recommendations (Fitments, Fitments & Bordello, 2014) Strengths
Commerce’s biggest strength is the retail experience they have implemented to their banking branches. They proudly advertise the fact that happy customers are their priority. They have mastered the art of a customer-centric strategy by striving for fans, not customers by blowing them away. Another strength of Commerce is their serviceable. They have meticulously planned for a perfectly inviting environment throughout all their branches. Their goal is to make all locations identical so the customer feels more comfortable during their banking experience. Lastly, Commerce is also very strong financially.
Although they were limited in their deposit growth, the banks net income “doubled from 1998-2001 , compared with 20% for the industry as a whole” (Free 2006). Weaknesses commerce Bank NAS two mall weaknesses Tanat are critical In tenet performance. In first is their deposit rate. Although Commerce does not emphasize on deposit growth, the organization is weaker against other banks because of the position they have taken in this matter. Commerce’s second weakness is the fact that they have higher operating costs due to their extended hours and all the resources they invest in their customers.
Their strategy of using competitive advantage to “get stronger, not to make more money’ results in higher costs for the organization overall (Free 2006). Opportunities Commerce Banks opportunities are expansion of the organization internationally and having a more aggressive sales strategy at the store level. The bank needs to develop their business overseas in order to increase their consumer base. In addition to that, they should also think about adopting the current trends in the banking industry. Commerce has such a loyal customer base that they are able to implement Ross selling to the way they interact with customers.
Since they’ve already gained their customer’s trust, they should use that to their advantage and capitalize a bit more aggressively on their opportunities. Threats The main threat Commerce Bank is facing is the fact that their competitors have started to assimilate customer-centric practices. If they too, have the same strategy as Commerce Bank, there will be no differentiator and they will Just become another bank within the industry. Currently, the bank is struggling with identifying innovative ways to retain their customers. If they are unable to tweak their strategy, they might be looking at some future attrition.
Conclusion & Recommendations After a thorough analysis of Commerce Banks case study it can be concluded that the bank should discontinue the “Retaliation” practice effective immediately. Since Retaliation was implemented into the organization’s weekly operations, the number of customer complaints reported has increased. Commerce Bank should shift its efforts into perfecting their customer service instead of figuring out ways to be creative and entertain its customers; after all, they are not in the entertainment easiness but the banking business.
Through a clear focus in their current strategy, Commerce will able to maintain and grow their financial success. There certainly are other ways for the organization to be innovative. Perhaps they should consider additional ways to get the customer involved in the organization. Activities such as: social media advertising, friends and family events, and even in store contests will give each individual branch the edge they are looking for. By discontinuing Retaliation, Commerce will give allow more time for management to focus on the real issues at hand.