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Book Summary: Uncommon Service

Authors: Francis Feri and Anne Morriss

Substory: Commerce Bank

Vernon Hill is a banker who started out in real estate, scouting new locations for retailers. One of his first clients was McDonald’s, and some say the Happy Meal inspired him. One thing is clear: as the founder and CEO of Commerce Bank, he built a wildly successful enterprise that rewrote the rules of an industry. And he did it by daring to be bad.

We feature the story of Vernon Hill’s creation—Commerce Bank—because it allows us to show how a company can design a great service offering, largely by making a series of carefully chosen and carefully integrated trade-offs.

When Hill started out in 1973, his vision was to build a bank not in the image of the leading financial institutions but modelled after the most successful retailers. Conventional wisdom at the time was that banks grew by offering the most attractive interest rates on deposits. The industry also assumed that the best way to accelerate growth was to aggressively acquire other banks. Commerce offered the worst rates in the industry, made very few acquisitions, and yet became the fastest growing retail bank in America. Its dynamism drove a 2,000 percent rise in its stock price in the 1990s. The bank achieved its success by deciding to be great at some dimensions of service and bad at others. Not casually bad, but bad in the service of great.

Commerce Bank carved out a winning position by deciding very strategically where it would excel—and by understanding very clearly what that would mean for the rest of its service model. Hill started by dwelling on the obvious: customers hated his competitors’ limited hours and bad attitudes. Bankers hours had been a term of derision for decades. For people with jobs, kids, or a commute, or all of these, the fact that a bank teller’s window might be open from ten to four, five days a week, was almost offensive. And then there was the less than-welcoming behavior of the tellers behind those windows and the loan officers sitting stoically nearby. The sullen or imperious bank employee had been a stock character in comedy going all the way back to vaudeville.

These cultural clichés meant that Commerce’s potential lines of attack—inconvenience, lack of customer appreciation—were just as open to the established banks as they were to Hill. So how did Commerce claim competitive advantage in the area of hours and attitude? The company created a service model based on a series of integrated trade-offs that its competitors were unwilling (and perhaps unable) to make.

With a target set of customers—those who were fed up with the service experience of a traditional retail bank—clearly in mind, Commerce set out to design a model of excellence. Aiming to be best on hours, the bank chose to stay open seven days a week. Monday through Friday, you could bank at Commerce from 7:30 a.m. to 8:00 p.m. On Friday evenings, drive-through windows would be open until midnight, and full-service banking would be available Saturdays and Sundays. This would give Commerce the most convenient hours in the business, earning its tagline of America’s Most Convenient Bank. But this kind of convenience was an expensive proposition. Indeed, the expense of being open for extended hours was a primary reason that the competition avoided it.

Why could Commerce pull it off? Because of its product design choices. Commerce paid the lowest rates on deposits in every local market. The additional capital this choice generated gave the company the resources to fund better hours. In other words, convenient hours and lower rates were inextricably linked. Commerce could deliver excellence in hours precisely because of its dismal deposit rates.