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Over the top and in the black


Over breakfast recently, a fellow executive detailed in disbelief how a manager at a First Republic Bank office in the Boston area gladly volunteered to drive one hour each way—just to have a customer’s wife sign a document that needed to be placed on file.

We wondered how that activity could be cost effective—particularly if repeated weekly or perhaps even daily by First Republic managers at 70 or so locations nationwide.  Granted, private banks are supposed to go the extra mile. But the extra 100 miles is a tad too far, right?

Well, First Republic’s net income just hit an all-time high, rising 29 percent in 2016 versus 2015. Its overall retention rate is 98 percent: That’s well ahead of the industry norm of 90 percent.  And, with its “strong client satisfaction equals referrals and very low client turnover” philosophy, the 30-year-old bank surpassed $70 billion in assets in 2016.

This isn’t another “why great service matters” story. Nor should it be brushed aside by other bankers who believe few lessons can be learned from a private bank. Rather, this is about strategy, focus and execution—all of which appear scarce these days.

Yet three crucial characteristics—strategy, focus and execution—populate the DNA of great companies.  These companies don’t simply do things well: They do things extremely well, seemingly to the point of going over the top. But by going above and beyond the practical, these companies generate more than just profits. They create loyalty, which is more valuable than ever before: a very practical end to their means.

Perhaps one of the best examples of “over the top” strategy is Zappos, the online shoe shop. Zappos allows customers up to one year to return purchases and even pays for the cost of having the shoes shipped back.  Most would argue that allowing up to one year to return shoes was generous enough, but not the founders of Zappos, Nick Swinmurn, Tony Hsieh and Alfred Lin. (Amazon certainly took notice, buying Zappos in 2009 for $928 million.)

Like Zappos, Apple’s customer loyalty and overall satisfaction rank higher than most companies.  Apple provides many similar over-the-top examples, from its store floors made of stone from a specific quarry outside of Florence, Italy, to the decision to make circuit boards more attractive (even though scant few ever see a circuit board).

This successful approach to doing business can be found in local brands, too. Tewksbury, Mass.-based Market Basket sells more groceries per square foot than any grocer in the country—twice as much, in fact, as the second highest.  As its CEO Arthur T. Demoulas once explained, why charge a nickel less for a pound of bananas when you can afford to charge a dime less than the competition?

Of course, Market Basket doesn’t allow customers to return items up to one year after their purchase (and certainly not bananas); Apple doesn’t send staff from its Genius Bar to your home; and First Republic doesn’t focus on offering the lowest rate on loans.

This is where corporate strategy and focus come into play.  These successful organizations selected a few activities important to the customer base, then focus on delivering them better than their competitors. Perhaps by luck, though probably by design, these activities generate powerful word-of-mouth advertising from their loyal customers.

It sounds simple, but this approach is difficult—particularly in banking. Risk represents a critical component in this industry. Unfortunately, risk management too often becomes risk avoidance that extends well beyond the important areas of credit, interest rate and technology concerns. Indeed, it seeps into every decision.

In addition to its managers’ willingness to drive 100 miles for a customer, First Republic always has fresh-baked cookies in its offices for customers who stop by to talk to a relationship manager.

If serving cookies were proposed at other banks, one of two things would occur: 

  • The idea would be subjected to a risk assessment, or 
  • Someone will ask at a meeting, “What happens if someone walks into the branch and they have a peanut allergy?”

In fact, they’d probably both happen at banks around the country.

Meanwhile outside the walls of most banks, startups are working on new ways to pay and borrow money. These disrupters aren’t necessarily trying to steal customers; they strive to build a better mousetrap.

That’s what happened to taxis. Along came Uber and Lyft, causing incredible disruption—seemingly overnight disruption to the livery industry. But ask yourself this question: Would the disruption have been as swift if cab drivers got out of the car to open doors or held an umbrella over a passenger’s head in the rain?

No business is immune from the threat of startups and disrupters.  Some are simply better insulated from it. And should they return us to the notion of service that goes (or drives) the extra mile, startups may return us to the least disruptive phenomenon of all: delighted customers.  

Joe Bartolotta is a Boston-based banking consultant focused on helping community banks develop corporate and consumer delivery strategies.