How to turn customers into fans

“I’m Vernon Hill,” he announced, introducing the terrier as “ Lord Duffield, or ‘Duffy’ for short.” Hill burned with enthusiasm about one of his latest ventures, a business I’d never heard of, pet insurance. “It’s going to be one of America’s great growth industries!” he declared, remarking that the carrier had just covered Duffy for extensive dental work. The conversation then veered into a hilarious account of his golf game with Donald Trump, in which two flamboyant entrepreneurs vied to see who could most unnerve the other with unrepeatable wisecracks.

I soon discovered that Vernon Hill is the most creative, contrarian, tradition-busting banking executive on the planet. Starting with a single branch in 1973, Hill built Commerce Bank into the fastest-growing, most profitable banking franchise in America, posting annual returns of 23% over more than two decades, a feat exceeded only by Larry Ellison of Oracle (ORCL), Howard Solomon of Forest Labs (FRX), and Warren Buffett of Berkshire Hathaway (BRKA). In 2007, Hill sold Commerce, by then a giant in the Northeast, to Toronto-Dominion (TD) for $8.5 billion. Then, in early 2010, he exported his model to Britain by creating Metro Bank, the first new retail bank in the UK in over a century.

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In July of that year, I attended the rollicking grand opening of the Metro flagship opposite London’s buzzing Holborn Station. As the taxi approached branch, with its tall glass façade and merry bright colors, the driver gushed, “This looks like a bloomin’ disco, not a bank!” Stilt walkers were parading, Dixieland bands were tooting, dogs were lapping from bowls while their masters opened accounts, and visitors were devouring 8,000 bags of popcorn. The spectacle epitomized Hill’s vision that a culture of fun, friendliness, and service-with-a-grin are the way to win in banking.

Now, Hill explains his highly original strategy for creating great brands in a brief (156 page), breezy new book, FANS Not Customers. Its theme: The secret to success in any business serving the broad public is superb customer service. Hill’s approach is highly humanistic. To attract those ultra-loyal “fans,” rather than customers who’ll abandon you for a slightly better deal, a business must create a personal connection with patrons and breed a strong, emotional, even loving attachment. For Hill, forging that sturdy link is what builds a brand.

Hill credits a background in retailing for shaping his vision. He describes how he started his career scouting sites for McDonald’s restaurants, sometimes in the company of its legendary architect Ray Kroc. The book predictably praises the great brand pioneers such as Starbucks’ Howard Schultz and Home Depot’s Bernie Marcus and Arthur Blank. But Hill’s major contribution is describing how a service-is-everything approach is the way to go in the traditionally colorless, chilly fields of banking and insurance.

Here’s his pointed view on branch banking on both the U.S. and the U.K. The big compete for customers by striving to offer the best rates on deposits or home loans. Otherwise they all converge into mediocrity. Adding a quarter-of-a point on savings is no way to breed loyal customers. It’s renting their money until the bank across the square posts a higher yield.  “If I had to categorize the traditional banking industry,” he writes, “it is low growth, low cost, low service, with an emphasis on product and price. Banking is a utility.” Their growth, he charges, comes mostly through culture-destroying acquisitions. Banks, like the utilities they resemble, garner zero brand loyalty. No one has an emotional attachment to a Sprint or British Telecom. In the UK, four big banks dominate the market, and Hill leaves no rival unscorched. “The existing oligarchy used its monopoly power to under-invest in facilities, infrastructure and service,” he writes.

Hill marvels that customers who want to open an account must make an appointment. Nor do British banks even provide the U.S. staple of safety-deposit boxes, those picturesque giant vaults. The Brits have to buy their own boxes at hardware stores, and bring them to the branch. Closing around noon, just when folks want to visit a branch on their lunch break, is practically a London tradition.

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In FANS Not Customers’ glossary, hill includes an entry called Competitors’ Rules and Practices, defined as “stuff that drives customers at other banks crazy.” The memorable acronym in “CRAP.”

For Hill, the appeal of banking is that “it’s a government license to borrow money cheaply.” Hence, the goal should be to grow those cheap deposits. His strategy is precisely the opposite of the traditional approach: Don’t offer the lowest rates, don’t compete on price, don’t push credit cards and other products, though customers will want them if you treat them right.

It’s all about fabulous customer service, about doing the little things that bind people to a brand. Metro provides Magic Money Machines resembling jukeboxes that count coins at no charge. Dogs are welcome. Branches even hold “adopt-a-thons” where Brits can take home a spaniel or corgi. Kids are handed coloring books and lollipops. When a customer opens an account on his birthday, employees gather around to sing “Happy Birthday.” Employees have been known to recover a customer’s keys from a manhole and return a wallet lost in the branch to its owner in a pub the same evening.

Hill is especially vigilant on guarding two crucial pillars of the brand — design and training. In the tradition of Steve Jobs, whom he greatly admired, he reasons artistry is good for business, and critical in building a brand. Splurging on design is fundamental to the Metro culture. The branches all feature high ceilings, bright lighting, and no steps so Brits can park their bikes right next to a desk. Plexiglas partitions between teller and customer don’t exist. Adorning every branch is a giant mural, taken from an old photo, showing the neighborhood as it looked in the 19^th or early 20^th century.

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As for training, Hill uses what he calls the “smile trial.” If a candidate doesn’t grin at least once in the first two minutes of an interview, they won’t get a job.

Hill devotes a chapter to pet insurance business he touted when we first met. It’s Petplan USA, now the largest player in the US. with a market share of between 5% and 7%. The business is now growing at 50% a year, with plenty of room to expand. He marvels that one-third of all pets are insured in Britain, compared to around 1% in America.

So how do you attract “fans” to pet insurance? “This is a pet company not an insurance company,” says Hill. Once again, it comes down to customer service. Employees aren’t chosen for their mastery of rate schedules, but their love of animals. “All employees must be pet lovers first,” says Hill. In interviews, candidates are grilled on they feel when their own pets get sick. It’s hard to imagine an insurance field where appealing to emotions is the ticket to success, but Hill insists this is it. Petplan even plants a tree to commemorate canines that pass away.

I recently spoke to Hill to get an update on his progress in London. “We’ve got 16 branches and have opened 130,000 accounts,” he says. “We got to $1 billion in deposits on 26 months. It took us 18 years at Commerce.” Hill’s goal is $25 billion in deposits. “The British banks are still at the stage where they think we’re too small to matter, then they’ll say that we get big, we’ll get just as bad as they are.” That won’t happen, he insists. Then comes the “oh my God!” moment, Hill warns. Warning to the British banks: It’s closer than you think.