Beyond “Products & Services” in Banking

By B. Joseph Pine II

No industry has more commoditized itself over the past three decades than banking. Banks pushed people out of branches to use automatic teller machines in order to reduce personnel costs. They pushed them out of branches – the one physical space where they could actually control the experience provided to customers – to use telephone response systems, again in a bid to save money. They pushed them out of branches and onto the Internet to further reduce transaction costs. That’s no way to create a lasting relationship. Is it any wonder consumers treat financial offerings as mere commodities to be bought and sold on price, price, price?

Consider, however, a true commodity: the coffee bean. If you convert its commodity price from a per ton to a per cup basis, you will find that a cup of coffee costs just two or three cents for those who treat it as a commodity . When a manufacturer roasts, grinds, packages, and puts those same beans on a grocery store shelf, turning them into a physical good, the price jumps

to between five and 25 cents a cup (depending on brand, quality, and package size). Brew the ground beans in a vending machine, kiosk, or corner coffee shop somewhere and that service now sells for fifty cents to a dollar, maybe $1.50 per cup.

But serve that coffee at a Starbucks or other experiential coffee shop – where the ordering, creation, and consumption of the cup happens with a sense of theatre and within an inviting environment where people want to hang out – and consumers gladly pay anywhere from $2 to $8 for each cup. Businesses that ascend to this fourth level of value beyond commodities, goods, and services establish a distinctive experience that envelops the purchase of the coffee, increasing its value (and therefore its price) by several orders of magnitude over the original commodity.

A New Level of Economic Value
Experiences are in fact a distinct economic offering, as distinct from services as services are from goods. Experiences result when a company uses tangible goods as props and intangible services as the stage for engaging each customer in an inherently personal way, and thereby create a memory, the hallmark of every experience. Experiences include vacationing at one of Disney’s theme parks around the world, dining at theme restaurants such as the Hard Rock Cafe, staying at boutique hotels like one of Ian Schrager’s properties, shopping at experiential destinations, such as Times Square in New York – and sipping a cup of coffee at the ING Direct Cafe.

Dutch bank ING’s North American arm (now owned by Capital One) decided that the industry was so commoditized that it didn’t even bother to create branches, choosing to work with customers over the phone and the Internet as so many had become accustomed. But it did want to create places where people actually wanted to spend time talking with bankers, so it created a number of cafes in the US where “financial baristas” serve coffee as they engage visitors in conversation about their financial needs and explain ING Direct’s capabilities for savings accounts and mortgages. The cafes work, generating scores of millions of dollars in new accounts every year at zero cost to ING Direct, for it created places so worth experiencing that customers gladly pay for their coffee, tea, biscotti, and sundry items of memorabilia (mugs, pens, hats, bags, and the like) – so much so that the purchases cover the cost of the places.

Customer Experiences of the Unpleasant Kind
Most banks around the world find themselves so far removed from this fourth level of economic value that they must heed a fundamental principle: The easiest way to turn a service into an experience is to provide poor service – thus creating a memorable encounter of the unpleasant kind. And the surest way to provide poor service is to treat individual clients via rote, impersonal activities that do not vary no matter who they are or what they really need. Customers have received such treatment ever since service providers embraced the very same principles of mass production that manufacturers used to dramatically lower costs. And it’s become even worse as the forces of commoditization that hit manufacturing now attack services.

But the opposite principle holds true: mass customizing a service can be a sure route to staging a positive experience. If you design a service that is so appropriate for each particular person, a service that is exactly what the customer wants and needs at this moment in time, then you cannot help but make him go “Wow!” and turn it into a memorable experience. And that is key to forming lasting relationships with consumers. It’s not about the “products and services” you want to push out to consumers (especially since banks actually have no “products” and generally commoditized services); it’s about creating unique experiences within them based on knowing more about consumer wants and needs than anyone else – perhaps even more than they know themselves.


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