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BirdsEye View

 There is one amazing hotel, a family-owned and run hotel, that is one of our very favorites. This is due primarily to the outstanding food offered in the hotel's various restaurants, as well as the gorgeous setting and beautifully appointed rooms.

A recent visit to the hotel reaffirmed the gorgeous setting. Alpine valleys and beautiful forests do not change. However, much else did indeed change. As Dick and I reflected on the newly-designed experience, we reached a realization that applies to all businesses that combine important product features and functionality with a unique customer experience and delivery system, including banking.

The hotel was established in the '40s by a woman who took over a guesthouse in a small village in Europe. She and her descendants relentlessly renovated and added capacity to the hotel over the years, with major enhancements every two years or so. A key element in the hospitality industry is number of beds. This hotel started with 25 beds in 1951 and currently has well over 200 beds, numerous restaurants, countless activities and even a petting zoo. It caters to both multigenerational families and to older clientele that enjoy the old-time grandeur of the place and its half-pension (room, breakfast, dinner and an afternoon tea included in one price). This pricing bundle is very typical in many gorgeous spa hotels across Europe.

Over time the clientele has rebalanced more toward the family scene, especially over the summer, but the majority of the off-season trade is provided by older customers. This desirable shift took place after years of major investments in family-friendly facilities. Like many banks, the hotel was looking to reduce the average age of its customers. The major capital expense associated with this shift bore fruit, but it came at a price. The hotel's all-inclusive value proposition for its older clientele could no longer be supported in its fullest format as CapEx grew. Things started changing, but they were noticed primarily by long-time customers. Examples:

• Shampoo, conditioner etc. bottles shrank to less than one serving size
• Soap became so small that it would fall between the soap holder grates
• The lavish salad, cheese and cold cuts and bread dinner buffet was eliminated
• Room service charges a $15 delivery charge per person for any food delivery, no matter how small
• Nearly all beverages are not included in the meal costs except for breakfast, or even in the room minibar, including tea and coffee
• Air conditioning installation throughout the hotel was slowed down, since most summer clientele spends their time at the pools areas
• Long-tenured staff has been replaced with less expensive and less experienced trainees and short-termers
  

We found the changes disappointing, even though we are not looking for an all-inclusive, longer-term stay. We came to the hotel for its flagship 3 Michelin restaurant, the afternoon cake buffet and the spacious, beautiful rooms. The diminution of the product, though, affected us greatly. We also didn't appreciate the newly instituted nickel-and-dime policies of the hotel.

As we reflected upon the changes and our disappointment, I was struck by the similarities between our industry's struggle to balance technology spend with fundamental value proposition and customer experience considerations and this hotel’s situation. Hotel management spared no expense in expanding capacity and working hard at shifting the customer base. It continued to employ enough people to deliver on the friendly customer experience it is known for. But something had to give, and that diminution negatively impacted its most profitable customers.

Our industry is no different. At forums, we hear time and again concerns about an aging customer base and the difficulty in attracting younger customers. Technology spend continues to grow to ensure relevance to younger customers, but the largest depositors are typically older and less inclined to use the technology or engage emotionally with its offering. They remain loyal to their branches and their staff. Service diminution is a costly decision for them, as is skimping on product features and functionality, including rates.

Must we therefore invest all across the board, and fund these investments by dragging our feet on rates paid on deposits, headcount reduction and branch closures? My perspective is, be crystal clear on the customer segments you'd like to attract, and only after that decision is made, tailor technology and experience-related spends to attract even more effectively the target segments you're after. For example, Home Owners Associations need MIS technology as a non-negotiable aspect of their banking relationship. They have too many members to rely on manual systems. Doing business with this deposit-rich segment necessitates technology investment. By contrast, skewing older in your consumer book might alleviate the need to make immediate major technology investments and allow you to pace those over time.

An upfront clear targeting strategy will better guide your Capital Expenditures to strike a better balance between technology and physical plant expenses vs. the other aspects of the customer experience you're committed to delivering.