Dish Of The Day Served With A Dash Of Room Service

The Age

Wednesday September 19, 2007

Leon Gettler

Businesses need to adopt hospitality's mantra of "the customer comes first".

IN THE commodity business of branch deposits, Commerce Bank of New Jersey stands out as an extraordinary story of a bank that understood the power of convergence, along with a shift in the service economy.

While other banks push customers into less costly ATMs and online, Commerce repositioned itself as a retailer to build recognition. It sells itself as "America's most convenient bank". Its branches are open from 7.30am to 8pm on weekdays. It installed "penny arcade" machines so people can convert loose change into notes - and presumably encourage them to make deposits.

It has carnival-like branch openings with entertainment for children. On rainy days, staff have reportedly escorted customers to their cars under red "Commerce" umbrellas. The branches have been redesigned to appeal to customers and it slashed fees, including charges for using other banks' ATMs.

The Commerce story is significant because it tells about a business that has seized on a change in the service economy. It also a solution where overcapacity has become the norm for businesses and consumers.

Oversupply has transformed the service economy and left us with a paradox. As Swedes Jonas Ridderstrale and Kjell Nordstrom write in Karaoke Capitalism: "While there are certainly more products and services available, more does not necessarily imply greater variety or wider choice. On the contrary, services and products are becoming more and more similar. The intriguing result is an age of abundance with a surplus of 'similars'. Karaoke copying reigns. Commoditisation days are here."

The name of the game seems to be about making the customer feel good enough to return. It's no longer a case of selling products and services. Success is more a matter of selling an experience and capturing the customer's heart and mind.

In Setting The Table, New York restaurateur Danny Meyer says the service era is over.

"If you simply have a superior product or deliver on your promises, that's not enough to distinguish your business. There will always be someone else who can do it or make it as well as you. It's how you make your customers feel while using your products that distinguishes you."

By redefining itself as a retailer, Commerce has embraced the hospitality economy. Other companies create the illusion of scarcity.

Harvard Business School marketing professor John Quelch says two excellent examples are the launches of Apple's iPhone and the seventh Harry Potter book.

The reality is there were no supply shortages. The marketing departments had done their homework anticipating demand.

The crowds that responded to the hype and poured in to buy the products, sooner rather than later showed that the scarcity illusion had paid off.

Both strategies have risks. More hype means more scrutiny. If the product falls short of expectations, negative reviews will be amplified. Second, people might switch brands if they have to wait. Similarly, a hospitality model means being more in tune with the customer's needs and perceptions than what the product or service is delivering for the price.

Banks and airlines are two sectors that this shift might affect. Their customers are used to indifferent service - and when you try their call centres, it borders on hostile - and they are unlikely to change. For good reason too. Profits of Australia's Big Four banks have risen more than 300 per cent over the past 10 years. Their share prices have soared. Planes are now more crowded.

In short, the market rarely punishes them for poor customer service. Consumers stay because there are few options.

Still, the shift in the service economy will create challenges.

We are already seeing signs of what could be ahead as companies move into the hospitality economy. Telstra, NAB and Visa plan to have customers pay for products using Visa by swiping "smart mobile phones" over the merchant's reader.

Supermarkets overseas are getting in on the game, too. Tesco Personal Finance opened a "bank branch" where customers can apply for loans and credit cards, get life and health insurance quotes and do their grocery shopping.

Wal-Mart houses bank branches. But will it go the next step and open its own?

Supermarkets are open longer than banks and tend to have repeat shoppers.

There are forecasts that it is a matter of time before supermarkets will be selling mortgages along with baked beans.

In his book Future Files consultant and trend-watcher Richard Watson says supermarkets are well positioned to become banks because of their relationships with customers. Supermarkets are good at looking at the needs of customers, some better than others. With the exception of Commerce, retail banks still tend to struggle with the idea that they are basically just shops.

Their products can be too complicated for the average customer to understand. Unlike what you get at supermarkets.

Watson predicts it is a matter of time before Wal-Mart, Apple, Microsoft, Google and Vodafone will hold banking licences.

This does not mean banks are going away. They will still hold onto the big complicated and profitable deals and transactions.

Still in a hospitality economy that's global, competing in a commoditised field on price alone will be less of an option. Those forces might turn many sectors on their head. Certainly they will create challenges.

lgettler@theage.com.au

© 2007 The Age

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