Tires, Coffee and Computers

Eight lessons community banks can learn from Les Schwab, Starbucks and Apple

By Donald H. Wood

Arriving in Oregon a few years ago, I pulled into a Les Schwab tire store after realizing I had a flat tire. I was greeted by an enthusiastic young man who stated that they would repair the tire, and he directed me to a waiting room. The tire was repaired quickly and the young man informed me that there was no cost.

I reminded him that I had purchased the tires on the East Coast; he stated that was fine and he hoped that the next time I bought tires I would consider Les Schwab. I have purchased every tire since at Les Schwab.

Speaking of customer loyalty, the average Starbucks customer visits the store more than twice per day to purchase a product. I never realized I needed an iPad and an iPod until Steve Jobs and Apple “told” me that I could not get along without them!

As I sit in a Les Schwab store waiting for new tires to be installed, sipping on my Starbucks coffee, listening to music on my iPod and writing on my iPad, I wondered how these three companies were able to take a commodity product and turn it into a desired product for which a loyal customer base will pay a premium. Apple products are not cheap, and certainly one can purchase a computer that fits one’s needs for a fraction of what a Mac computer costs. There are many tire wholesalers where one can purchase tires for less than Les Schwab charges, and paying more than $3 for a cup of coffee at Starbucks seems outrageous, especially when competitors are in every city block.

I have been a banker for 30 years, so I began to wonder why banks have not been able to differentiate themselves from others, charge a premium for a commodity product and still maintain a loyal customer base. There might be a few local community banks that have been able to create such an atmosphere (naming them would be difficult), but certainly no regional bank has been able to create such an environment. Because every product can be copied in a very short period of time, all banks are left to compete on location, convenience, rate and that ambiguous term, “service.”

What lessons can banks learn from Les Schwab, Starbucks and Apple?

1 Develop a clear vision. Each of the founders of these companies had a strong vision. Each articulated that vision, and everything he did—and still does in the case of Les Schwab and Starbucks—was done to further that vision. Too often, bank executives can’t or don’t articulate a clear vision, and in many cases the vision gets diluted by short-term decisions. In one instance, a large national bank had eight different “visions” within two years. Recently, I asked the CEO of a bank about how his employees would respond if they were asked about the company’s vision; I received a blank stare.

2 Hire the best. Les Schwab, Starbucks and Apple hire “A” players who exhibit the characteristics of the company’s particular vision. Go into Starbucks and you’ll find the majority of employees are in their 20s, part time, articulate, outgoing, smiling and able to listen well. This is not by chance, but rather it is the result of a clear vision of who is to work at Starbucks, a rigorous hiring process and a world-class onboarding procedure.

3 Leverage experience. Hiring the right “A” players who exhibit and believe in the vision is a great start. Keeping those individuals, and benefiting from their experience, supports the vision of these three companies. Imagine the advantage for a tire warehouse that employs individuals who have spent 20 years knowing tires has over its competitors! One community bank I am familiar with needed to reduce expenses and laid off the most experienced bankers to reduce those expenses. A similar tactic was tried by Circuit City—before it went bankrupt.

4 Train incessantly. Visit an Apple retail store (first, look at the lack of customers throughout the shopping mall while the Apple store is packed) and you will find myriad highly trained and knowledgeable employees. Apple, like Starbucks and Les Schwab, believes in training employees in multiple skills, including product knowledge and how to listen to customers. In-depth training programs—except for teller training—throughout the banking industry have disappeared.

5 Promote innovation. Apple’s iProducts and Starbucks’ Frappuccinos are world-famous innovations. Recently, Starbucks introduced a new coffee drink that does not look or taste like coffee. When was the last bank innovation?

6 Listen to employees. In more than 40 years of working, I have worked for only one company that had a formal program for employee input. Starbucks’ famous Frappuccino, which produces over $2 billion in revenue a year, was created by a determined and tenacious employee and championed by a senior manager who listened.

7 Keep it simple. A recent consumer survey indicated that consumers are tired of the complexity of products and services that they purchase, which are accompanied by pages of instructions and disclaimers. Just try loading your photos on a PC and then “photoshopping” the pictures versus loading them on an Apple product where you can immediately start having fun.

8 Emphasize service. Research indicates that in retail stores staffing up means higher sales per square foot. At Les Schwab, an employee literally runs to meet you when you drive up. Inside an Apple retail store, employees dressed in jeans and T-shirts are friendly, personable and excited to talk with even an older person who is not computer literate. Starbucks believes in “your right to have it your way.”

Recently, a financial industry analyst stated that “community banks will ultimately never be able to compete with large national banks in serving consumers” and that he “expected to see most of the community banks disappear over the next few years.”

If community banks are to survive, then they need to approach their commodity business like the companies mentioned here. The world has changed, and community banks should embrace the changing environment if they are serious about growth and sustained success. endmark

Donald H. Wood recently retired as a wealth manager for a community bank in Spokane, Wash.