Branch Design: What is the right model for you?

Branch design has been undergoing significant change. Gone, by and large, are the days of the 10,000 sq. ft branch where you could shoot a cannon through the lobby without hurting anyone. However, the battle still rages as to what is the "right" branch design. Is the cookie cutter approach, most notably practiced by Commerce Bancorp, the right way to go? The Burger King model Commerce has used proved to be extraordinarily successful, and many others are considering emulating this approach. Bank of America and Washington Mutual adopted master branch designs, including the famed Occasio branch, to match a desired customer flow.

On the other hand, most banks still customize the branch "look" to the community and uses it is aimed to serve. This results in higher branch buildup costs than the monolithic approach, but bank executives feel it is important to mass customize their approach to each market.

Branch design has become more important than ever with the avalanche of de novo branches that has engulfed the industry. The high price of acquisitions (most recently seen at 6 times book) has deterred many potential acquirers and diverted attention to organic growth. The success of the Commerce and TCF model has also whetted many appetites for de novos. The result: an anticipated branch glut, and the increasing relevance of branch design.

Further, the quest for improved service, the 'in' mantra for most banks, has raised questions about traditional branch design: does it create the right 'fell'? Is it conducive to the level of customer service the bank wants? Does the design enhance sales output or is it supportive of the transaction model?

As you divine your own path to success, consider the Ritz Carlton and the Four Seasons hotel franchises. Both are highly successful, both are aimed at the top end of the market, but the hotel design is dramatically different.

The Ritz Carlton hotels researched the wishes of their target customer base long before the first hotel was built. They concluded that prospective patrons are interested in going to a hotel that feels like home, a place that is predictable in the best of ways. They wanted to know what it would look and feel like, and had several items that were of special importance to them: fluffy towels, for example.

The Ritz solved for this equation by building hotels that look alike regardless to location. The Cabo San Lucas hotel looks the same as the Ritz Carlton in Naples. The buildings have a distinct look about them, and it consistent across landscapes and communities. The interior is also similar: antique paintings, heavy mahogany, blue glasses in the dining rooms and those fluffy towels everywhere. A repeat guest knows what to expect from the Ritz not only in terms of service and rice point, but also in terms of look and feel.

The Four Seasons hotels, on the other hands, opted for a customized look. Their hotels reflect the local area, most notably in Bali. They have two hotels there, one on the beach and one in the mountains, and each one looks and feels dramatically different. One is a Balinese village, which has all the modern amenities but looks like a traditional village. The other is ultra modern and is snuggled into a mountainside, completely integrated into the environment. The two hotels could not be more different, yet they are an hour's drive apart.

Both hotel chains are successful, in part because their aim and brand promise are clear. One promises you a consistent feel wherever you go, and it works. The other offers top-of-the-line service and amenities, but the look and feel of each property will be different.

Banks should choose their own path in a similar vain. What kind of customer experience and brand promise are you after? Is the McDonalds model (100% predictable, which is comforting to some) the right one for you? Would you like any customer to step into any branch and know it's your bank? R, conversely, do you wish to integrate your branches into the communities they serve to the fullest, giving each one a distinct feel? This is not about duplicating other banks' success by adopting their branch model. Instead, it is an important strategic decision that each bank needs to make for themselves.