On Purpose Read online

  ‘The key is making sure the customers clearly understand what you’re doing and debating with them beforehand to make sure the product does what they want it to do at a price they are willing to pay.’

  Sometimes this approach leads to dropping a product, a move that makes every kind of sense – except to the customer. For example, Mark Constantine says:

  ‘We sell millions of pounds’ worth of toner every year – you’re buying some lovely essential oils, maybe a few other elements but basically it’s water and preservatives and packaging. We would like to eliminate all preservatives and packaging in the next couple of years from all of our products. So, we invented a toner tab: tiny little tabs that you dissolve in water when you want to use it. It lasted a week. It was a much nicer toner than you could make in the traditional way. There’s no preservative or packaging and the price is substantially lower as a result. Everything about it was perfect except that the customers hated it because it was less convenient. So, we continue with the bottled toner because that is what our customers want. When you get yourself aligned with the customer, it isn’t about profit and loss or pushing your product. It’s about producing what your customers want to buy.’

  Reinventing your industry

  It is relatively easy to create affection for a smoothie brand or a retailer but what about if we were to take the most disliked sector of all? Banking. On 5 March 2010 the Financial Services Authority gave Metro Bank the first full-service banking licence granted in the UK for over 100 years. The bank launched with one ‘store’ (it thinks more like a retailer than a banker), grew to four in the first year and by 2015 had over 31 stores located across the south of England, with 10 more due to open as we go to press. It grew deposits by 118 per cent in 2014 alone and is currently planning a £1 billion flotation.

  http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/11547670/Metro-Bank-plots-1bn-London-float-next-year.html

  Metro Bank’s co-founder and chairman is Vernon W Hill II. He is often credited with reinventing US banking as he is also the founder and former chairman and president of Commerce Bank, which like Lush has gained a reputation for achieving high levels of customer advocacy. Metro’s purpose is to ‘Amaze the customer’. Vernon Hill explains it in this way:

  ‘Amazing the customer means providing unparalleled customer service, making sure every transaction goes quickly and smoothly. It means fulfilling customer needs, even anticipating them. More than that, it means turning customers into fans. We want them to tell their family members, friends and business associates about the products and superior services we provide.’

  ‘Fans, not customers’ is so core to how Vernon Hill thinks that he wrote a book of the same title in 2012. This belief has propelled Hill into the Forbes 20-20-20 club. This is the group of CEOs who have held the top job for 20 years, at a company with publicly traded shares for at least 20 years – and have presided over at least 20 per cent annual return on share price during his or her tenure. Just seven CEOs make the list and Vernon Hill sits in fourth place with an annualized return of 23 per cent over 30 years.

  Metro Bank is still relatively small in terms of market share but is growing rapidly, unlike most of its high-street rivals and, more importantly, is achieving ‘mind-share’– a brand that is talked about for positive reasons. The fact is that consumer expectations are shaped by what they read and hear and so inevitably, small or not, banks like Metro and First Direct, which provide a best-in-class online and telephonic experience, influence what a banking experience can be like and set the benchmark for others. Perhaps it is no surprise, therefore, that Metro Bank scores the highest net promoter score (NPS) in the industry of 78.9 per cent, with First Direct following at 62.3 per cent (Satmetrix Account opening survey 2014). RBS makes do with a score of –6.3 per cent. No wonder, then, that the big five banks are closing branches.

  We interviewed Vernon Hill to find out what makes Metro Bank different and how it has achieved such impressive results.

  Metro Bank is the fifth new bank I’ve started from scratch. I started my first bank when I was just 26. Somehow they gave me a banking licence, opening with one office, nine people and $1.5 million in capital. At the time there were 24,000 banks in the United States and we were number 24,001. So I wondered how were we going to take this no-name, no-capital, no-brand retail bank and turn it into something special and a growth business? When we sold it in 2007 we had became the eighteenth largest bank in the United States, with 500 locations and $48 billion in assets – and we achieved that purely through organic growth rather than acquisition.

  Early on we decided that this was a retailing concept that happened to be a bank, and that the customers cared more about service and convenience than they did about price. This is a non-price-driven model. Some would say that we learned to decommoditize a commodity business. We gave the consumer and the businessman a completely differentiated experience. You don’t buy iPhone 6 because it’s the lowest-price handset; you buy it because it is an entry into the Apple world. Well, we learned to deliver the Commerce Bank world.

  When we sold Commerce Bank in 2007 I had nothing to do for a week. A business contact of mine in the UK had been on at me to bring this idea to Britain so I got on a plane, arrived in London and mystery-shopped the big five banks. When I stopped laughing I went to see the government. They indicated that there hadn’t been a new high-street retail bank licence issued since 1840. So I said, ‘Alright, it’s time to start a new bank in Britain.’

  Metro Bank is based on the Commerce Bank model from the United States, but everything we did in the States actually works even better in Britain because British customers have not had a choice up until now. The big banks take them for granted; they see them as a target of opportunity for the next product; they think they are doing customers a favour by letting them bank. That is compounded by the fact that they have IT systems that are about a half a step up from a quill. They must be the world’s best bankers if they can operate with their IT. Finally, they have operated a cartel – and cartels typically overcharge, underserve and underinvest in the business.

  As my book says, our objective is to build a business that builds fans. Fans join you, they stay with you and they bring their friends. You cannot have a growth company without building fans. And that certainly is a foreign concept in the banking business in Britain and not that common in the United States. So we set out to build this bank from scratch with modern IT and a fresh slate. I was taught at Wharton Business School that it’s easier to build a brand than it is to fix a brand, and I think there’s a lot of truth to that. As we moved from market to market, they used to tell me, ‘Oh it’s different in this market.’ When I decided it wasn’t different, that our model worked in every market, that’s when the growth curve went straight up.

  What entrepreneurs do for a living is entrepreneur. We want to prove that our model is better. We want to attack the establishment and we believe that creating wealth is not the object of what we do but the result. I believe that if we create value for our consumers, they will create wealth for us.

  We’re delivering the best service and convenience by every channel for business and retail consumers. It’s the way we deliver; it’s the hours; it’s never just one thing. It’s all the points of touch, not the one point of touch. Our seven-day-a-week branch bank opening hours makes a tremendous statement to the consumer. If you were to ask customers about Metro Bank they would say this is the bank that opens seven days a week and we are the bank that welcomes dogs in the branch. The British public, more than the US public, believes that if you love my dog, you must love me too.

  Quite coincidentally, at this point in our interview the door opened and a small dog came running into the room only to bound into Vernon Hill’s lap where it stayed for the rest of the interview.

  Image 4.3 Vernon W Hill II and Sir Duffy II

  Say ‘hi’ to Sir Duffy. Sir Duffy twee
ts every day and people tweet back to him too. Some people think this is a marketing gimmick. It isn’t. Great brands create an emotional attachment with their customers and that’s when I believe you create real value. We do this through things like killing all the stupid bank rules, and letting our customers bring their dogs into the bank. This isn’t about marketing; it’s about how you run your business.

  https://www.metrobankonline.co.uk/Discover-Metro-Bank/About-Us/

  We have three main elements to how we run Metro Bank. First, you have to create a differentiated business model where the customer sees clear value. Second, you have to build a culture to match your model. We see so many businesses where the model and the culture are opposed to each other. And then, finally, you have to fanatically execute the model. The number that used to scare me the most in the United States was that we were getting 21 million in-store visits a month from customers. Think about that number. That’s like one-third of Britain walking through our doors every month. How do we make 21 million people happy and, if something goes wrong, how do we make that person more of a fan by the way we respond?

  Let’s take our differentiated business model. Our competitors are busy closing branches whilst we are opening new ones. Our first job is to get people to switch banks and we’re just passing the 500,000 level this week. Every survey, and my experience, tells me that the branch is the public face of the brand and where the account switching happens. But once you’ve switched, we have to deliver to you the best experience across every channel – online, mobile, telephone, ATM – and we have to let you pick the channel. But the growth numbers we’ve seen in Britain prove that the branch is your public face. It’s for the same reason that Apple built stores.

  The culture is designed to deliver the model. And if your model is superior service and convenience, you have to recruit, train and manage people to deliver uncommon service and convenience. We have a few little things we use as part of our recruitment. If you’re applying for a job and you don’t smile during the first job interview, you’re out. It’s not that hard to train people to deliver retail banking. It’s the way they deliver that is important and that comes from within. Remember, we are selling essentially a commodity product and we have to turn it into a non-commodity product. So we recruit, we train, we manage, we promote, to bring out the best in people.

  Train, train, train and train some more. You simplify the delivery. When you’re at a branch you’ve got 19-year-olds opening accounts. So our philosophy is that we can’t have a rule that we can’t easily explain to an 18- or 19-year-old. You try opening a bank account in the big five in Britain – there is so much mumbo-jumbo that you don’t know what the hell is going on. So first of all your model has to be clear, it has to be simple and then you have to reward people for executing it.

  British banks have morphed into a product sales channel. Their customers are targets of opportunity for the next sale. The only performance they measure is product sales. We don’t sell products. If you ask us for one we will provide it, but we reward our people for delivering service and convenience. We mystery-shop our stores physically every other day. We report net promoter scores both at the store and the corporate level. We also measure deposit growth per store, not sales per store, deposit growth.

  The final part is execution. Our job is to deliver this unique service and convenience experience and to comply with the rules. And there is an endless amount of rules and regulations and they are going to get worse. So our management job is to comply but in a way that doesn’t degrade the customer experience. I’ll give you a simple example. Every customer thinks that if they wish to switch banks they need to show proof of ID, as well as proof of their address, their utility bill etc. There’s no truth to that whatsoever. You need one form of photo ID by law. With modern IT you can check all the other stuff. We can open your current account in 15 minutes. You walk out with your debit and credit card printed and your PIN number. Our competitors struggle to open an account in 10 or 12 days. If you have designed your business around service and convenience, you have to do all the other things, make money and comply with the regulations but not degrade the customer experience. It’s very easy. When Commerce Bank got very big, I spent half of my time making sure we didn’t become a bank – because I wanted to deliver a fun retail experience. I want to build fans and I don’t want to let any of the endless regulations I have to comply with degrade my service experience. For example, security is a big deal but you don’t have to let it inconvenience the customer. Our mobile app has a cute little feature. If you lose your card tonight, you can turn your card off. And when your wife finds your card tomorrow morning, you can turn the card back on.

  All of these parts have to work together. Our first job is to get you to switch. Then it’s to deliver the best experience. So it’s all of the touchpoints. You can’t look at one. You have to look at all of them. And then it’s building the culture and finally executing every day. We have centralized the brand but decentralized the delivery. We have four or five regions now. The regional manager is a captain running our ship in their region. It’s their job to deliver it, it’s their job to be the Metro Bank in south London but they’re not allowed to change the model.

  We serve business customers as well as consumers. On the commercial side, customers want a banker. Business people want a banker who can handle their £5 million loan, who can take care of their mortgage for their house, can give their son or daughter a car loan, can solve their cash management problems, and if something goes wrong they can call and, if they’re not happy, they can call me. That has totally been lost out of the British banking system. I’ll give you a clear example. When you’re applying for a commercial loan, you meet the lending officer who really has no authority; it’s the credit officer who actually approves it. The British banks have a rule that the credit officer is not allowed to visit the borrower. We have a rule that the credit officer must visit the borrower. That’s the two sides of the same coin.

  Now, when we do something wrong, how we respond is very important. When we do something wrong we’ve got to make that customer more of a fan after we solve it. So we have to solve it right. We have a rule that says that it takes ‘One person to say “yes”, two people to say “no”.’ Now, that is a powerful statement. If you go downstairs and ask one of our store people a question, they’ve got two choices – ‘Yes sir, let me take care of it for you,’ or ‘Let me go and find somebody that can solve it for you.’ In other words they are effectively not allowed to say no. And we reinforce the message that they get in more trouble for not waiving a rule they should have waived instead of not enforcing it.

  As I think about the future, we have to service our customers’ banking needs in whatever channel they want, in whatever way they want. The business hasn’t changed fundamentally: we take deposits and we make loans. It’s how we deliver these products that really matters. Your number one objective is to create a business model that creates value for your customers. And if you get that right they will create wealth for you.

  So Metro Bank has thought about each touchpoint in the customer journey and where they can most effectively deliver their purpose, ‘To keep the customer at the heart of everything we do’. But note that Metro Bank does not try to compete against the high-street banks at every touchpoint of the financial services experience, just those that they have decided to play in.

  Don’t ‘flat line’ the customer experience

  This takes us to our final ‘F’, which is to avoid ‘flat lining’ the customer experience. When we work with organizations, one of the key steps we take is to research the current experience at each touchpoint. This creates a curved line that we like to call our heart line or ECG graph (EKG in the United States) because, like a real heart trace, it has peaks and troughs, and it is vital to avoid a flat line! A flat line at the bottom of the satisfaction scale means that you are performing very poorly and therefore unlikely to survive
against better competitors. A flat line in the middle means that you are undifferentiated and likely to be mediocre in terms of customer satisfaction and loyalty, a flat line at the very top of the satisfaction scale is very difficult to achieve consistently and very expensive if you do. There are a few brands, such as Ritz-Carlton for example, that excel at most touchpoints. Of course, the pain is then experienced when the customer comes to pay because it is only by charging a very high price point that the organization can afford the level of investment required to resource these touchpoints. Don’t gold plate your customer experience. Customer experience is a neutral term and does not imply gold-plated service. Ritz-Carlton offers a great customer experience but so too does Premier Inn in the midscale sector. Their business models and price points are very different and delivered in distinctive ways. So be careful not to upgrade your customer experience beyond the point that target customers want and are willing to pay for.

  For most brands it is about deciding where to ‘over-index’ and that depends on their strategy and their brand promise. Taking IKEA as an example, the pleasure of the helpful room layouts and affordability of the well-designed products is paid for by the ‘pain’ of the inconvenient store layout and requirement for self-assembly. But this is what makes the brand different and memorable. If you are a target IKEA customer (typically young couples equipping a home) you will love it, and if you are not (typically more affluent, older people with limited time), you will hate the experience. But love it or hate it, IKEA stands out from the crowd. It is this ‘light’ and ‘shade’ that create the memory of an experience. A play or book that generated exactly the same emotions in every scene would soon become boring. The ancient Greeks and Romans would design slight imperfections into their art because perfection and complete symmetry were considered boring. So, too, a customer experience that is the same at every touchpoint becomes unremarkable.