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Quote of the day: "The fishermen know that the sea is dangerous and the storm terrible, but they have never found those dangers sufficient reason for remaining ashore." Vincent Van Gogh

And from Trois Hart, SVP at Star Financial: "We haven't lost as much as has been reported. It wasn't there in the first place".

In response to my article about Treasury Management, George Walker, CIO of First Community Bank, wrote: "I was puzzled a bit by some of the things you said in this weeks article. While I agree that TM Ops and Sales must be aligned I'm not sure that I agree with putting customer support under a sales organization. In our organization we have tried both. What we have found (from the ops viewpoint of course!) is that the sales organization isn't doing the processing nor do they understand how the technology works well enough to support the customer. What ends up happening too much is the customer gets handed off to ops and ops end up supporting the customer. Sometimes there is a disconnect from the customer standpoint. Complex products are complex to support... I believe that a well aligned sales-ops partnership works best.

While strong marketing and sales is important, our bank's success has been build around knowing the customer, serving the customer and maintaining a long term relationship with the customer... through thick and thin! Our best advertising is our customers. That strategy was missing a bit over the past few years in many banks I think but now its dead on to getting and retaining customers. "

And Stan Uchida from Park National wrote: "I could not agree with you more on your last message regarding Treasury Management (or Cash Management). Having worked for both a regional bank and community bank, I can tell you that Treasury Management (TM) often is an afterthought. Most banks (large and small) focus on loan growth. This is partly due the income generated by loans. I have always tried to stress the following for TM and deposits. First TM revenues tend to stay constant. Second DDA income will rise or fall depending on the interest cycle. Revenue on a loan will decline over time and profitability is depending on the interest cycle. Third, this is one part of banking that non-banks cannot do. There are a lot of non-bank companies who make loans.

I have heard over the years excuses loan officers give as to why they don't want to deal with TM services and DDAs.

1. I am not paid to get deposits. Answer: This is rather a short sighted response. Banks make money on both loans and deposits. Without deposits, a bank's overall cost of capital will increase. Also, not every company or individual needs a loan but they do need a DDA. Once you get the DDA, the loans follow. Your bank is also forgoing fee income if you don't sell TM services.
2. I don't have time, or I don't want to deal with DDA or TM issues. Answer: As a loan dog, I don't quite understand this excuse. First, as the relationship manager, I want to know if there are issues with an account. I have seen where large relationships are lost (both loans and DDAs) because of dissatisfaction with TM service or DDA issues and the account officer was not aware of the problems. If you are the point person for the relationship, shouldn't you know of any issues? Also, I want my customer to call me for even the most trivial of problems. This allows me to have valuable contact with my customer. It shows that I take service very seriously and it helps to build good will. This good will capital comes in handy if a competitor comes in and offers lower loan rates.
3. My customers complain about checking account fees. Answer: When I hear this complaint, I usually come to the conclusion that the customer does not value the relationship. True, there are some penny pitchers out there, but as a bank we need to make money; we are not a non-profit. I also view this complaint as an opportunity to review the relationship. Ask why the customer is getting fees. Often the account type is not correct. In other cases, the customer may be causing their own issue by drawing on uncollected funds.
4. We are a community bank; we shouldn't charge for everything. Answer: First, look in the phone book and try to find a not-for-profit bank. We as banks must and should make money. There is a cost to our services, and our shareholders expect a return. Second, most folks don't like having a discussion on fees with clients, yet what we do has a value. Community bank fees are often lower than those charged by larger banks. This comment is sometimes taken to avoid having a tough conversation with a customer and is used to justify the write-off of service charges. We as community bankers should develop a strategic focus on TM sales and pricing. Not wanting to charge for the services is not a good strategy.

There are other issues for community banks and TM. One is the lack of management commitment on TM sales for all of the reasons given above. Another are the systems used. Most of us rely on third party vendors while the larger institutions have developed their own systems. It has been my observation that many of the third party vendors' focuses are on loan and DDA processing platforms. It appears that TM is an add-on and is not given adequate focus or development. This begs the question as to why we as community bankers have not demanded a better set of TM services from the various vendors."

Liat and I just came back from Japan, where we had an amazing time in Kyoto hosted by my good friend Hiroshi Ueno and his family (especially his charming wife, Naoko). We then holed in at the Peninsula hotel in Tokyo for five days, during which Liat slept at least 12 hours a day 4 days running, and I joined her for one day as well. One glorious day we did nothing but chill in our room and watch movies. Now THAT'S what I call vacation. You might ask why do we need to go to Japan to do that, but we find that this is the only way we get to indulge this way. We also had amazing food, including the coolest restaurant in Tokyo. Robotaya. Both food and Liat pictures are posted on www.anatbird.com.

Article synopsis: Differentiation is a noble and realistic goal for banks , and it pays off too.

Achieving Differentiation Economically

One of my favorite hotels in the world is the Peninsula Bangkok. The hotel is beautiful, the rooms magnificent, the river views stunning. There are many reasons for the hotel's appeal, but its true differentiation is its people.

Our industry has struggled for years with achieving true differentiation and doing so economically. Few trailblazers such as Commerce NJ and Umpqua have successfully built differentiated brands that stood for a clearly understood value proposition. Customers and prospects knew what the banks were about and flocked to them.

Most banks claim we have a product that cannot be differentiated, and certainly can't be done so economically. As I have pondered this quandary, my relationship with the Peninsula Hotels came to mind. Here's why.

Years ago Dick and I traveled to Hong Kong. The city's most famous hotel, a clear "Grande Dame", is the Peninsula Hotel. When we arrived, just another couple among many, we were greeted by the then Rooming Manager, an energetic and highly professional woman names Rainy Chen. Rainy also saw to it that we got upgraded to a fabulous suite overlooking the bay. We had a fantastic time. There are other fabulous hotels in Hong Kong, but there was no reason for us to try them out. The Penn had everything we could possibly want: great facilities, superb food, wonderful scones at Tea Time, and the personal welcoming touch and amenities we highly value.

A year later we decided to check out Bangkok for the first time. We heard that the Peninsula opened a hotel there a few months earlier. I emailed Rainy and she arranged our reservations. Upon arrival we were greeted warmly and upgraded to a suite.

Today, the Peninsula Bangkok is our "base" for all Southeast Asia travel. We stay at a Peninsula whenever we go to a city that has such a hotel. We travel to cities we've not been when a Peninsula opens there. Every time, we find my exercise step waiting for me in the room, a tea kettle, tons of Splenda etc.etc. In time, the hotels started raising their prices as they became more established. In certain cities they are downright expensive. Yet, we are hooked.

Rainy Chen is the one person who got our business. She is now the first woman General Manager at the flagship hotel in Hong Kong. She continues to take amazing care of us, and we continue to come back, upping the ante (i.e. room rate) each time.

All banks have such stories, but very few institutionalize this approach to building relationships. The Peninsula is a business that fosters making upfront investments in building relationships with frequent travelers (I guess our Platinum AMEX card gave us away the first time). They do many things that others will rightly consider uneconomical, but those are a part of a long term strategy for client retention. It works. When friends travel to Asia or look for a special experience, I recommend the Peninsula and they take amazing care of them, making me look like a hero and creating new Peninsula fans.

This approach is not unspoken. Every executive in the company understands this is the goal and diligently works toward it every day. Countless small elements enter into the equation. Philip Sedgwick's business philosophy is a prime example of how details translate the corporate strategy into daily behaviors and how the competitive edge is continuously honed.

Philip is the Executive Chef at the Peninsula Bangkok. He is an outstanding chef, a great host, and, most uncommonly, an excellent business executive. He considers his business to be not about food, but about unmatched client experience and creating repeat business. Consequently, making great food isn't enough. That, per se, isn't a compelling differentiator. The elements below, on the other hand, are:

• Part timers vs. full timers. Hotels, like banks, can hire full time staff, or they can hire a far less expensive hourly staff. This is true in hotel kitchens as well. Sedgwick's staff boasts 85% permanent staff. His major competitor across the street is at 50%. Sedgwick's costs are higher, but his training expense is far lower. More importantly, the staff can better execute the corporate strategy. They know when to remove the plates as buffet diners go for the refill and how to fold the napkins each time a guest leaves the table. They all understand the prime directive: "Whatever the customer wants...". They never say "no". This is a major challenge when a guest like me comes along, who wants buckets of whipped cream which isn't over-whipped, bread that's slightly over-baked for that extra crunch, etc. Their "can do" attitude makes the place my favorite restaurant in town. Even if the food might be better elsewhere, no one will take care of me as they do or give me every little thing I want (and there are SO many of those little things...).

• Never skimp. Sedgwick abhors "nickel and diming". His value proposition is "economic opulence". For example, he'll buy Maine lobsters, a pricy ingredient, to put even in his buffet restaurant, but he can do it because he is a fierce negotiator and cut the supplier's price by over 50%.

• Attention to detail. Philip's smoked salmon is perfectly trimmed, such that you will never bite into that fishy tasting darker meat at the bottom of each slice. It's gone before you see it. His butter comes from Normandy, and is carefully sliced by a machine for a better look (customer value) and less waste (shareholder value).

• Clear targeting. The hotel is well known among Chinese travelers and other business guests, but did not have a strong local following. Sedgwick introduced an unbeatable deal for the locals: a Sunday brunch with free flowing champagne (the single most expensive drink in Bangkok). He wanted them to come to his restaurants and experience how unique and outstanding they are. Words could not do his food justice, so, in order to get prospects to experience the hotel and its dining, he offered something of value to the target market. They bit, by the droves, and the hotel, unlike its brethren, is much busier than economic times dictate, as are the restaurants.

• Innovation. The cuisine continues to evolve as the hotel works on appealing to a broader range of guests and reflect the changing tastes of the world. Sedgwick is on top of the "hot" trends. "Organic" isn't enough; "chemical-free" is (a food can be organic is up to 4.5% of its ingredients are still chemicals). The hotel introduced a set of "naturally fresh" dishes, including High Tea for the lean and mean crowd. I was sure it would flop, but found myself addicted to the multi-grain scones (you can laugh all you want; they are delicious).

• Listening to customer feedback. Customers said they wanted more fresh food, less pre-cooked, at the buffet. Sedgwick instituted three new stations: pick-your-own grill station, customize your noodle dish and a special make-to-order salad station.

• Anticipate customer needs. Sedgwick tirelessly thinks ahead and broaden his differentiation from other hotels. For example, he is contemplating customizing the mini-bar in the room to specific guest preferences that can be inputted in advance by the guest. As I mentioned, other Peninsula hotels I frequent already have done so, and the return on their investment is huge in terms of the incremental business I bring.

• Bucking the trend. Hotels are laying off people left and right. The Peninsula isn't. In fact, it's making additional investments, including in Philip's food budget, to continue and refine its customer experience. Those investments stand out more today than ever.

• Lure them in with a "tease rate", but don't compete on price. The hotel and its restaurants are undeniably expensive. They do not compete on price. They are among the most expensive hotels and dining spots in town, but even the cab driver that took us there from the airport knew to say in his non-existent English: "Number One." You can't buy that kind of advertising.

At this point you must be asking yourself, what does this ode to the Peninsula have to do with you, and how much did they pay me to write this article. The answer to the first question is: The Peninsula found ways to build its brand on sustainable but economical differentiation. They didn't just say "we differentiate on service" (sounds familiar?). Instead, they identified relationship-building variables and elements that went beyond "service" to areas where competitors could not compete. Most luxury hotels have plush bathrooms and bath sheet towels, but so very few create value for their target customers by giving them specifically what they want. Like the Ritz Carlton in its early days, The Peninsula uses continuous innovation, hiring practices and a clear mandate to delight customers to achieve tremendous retention and revenue results.

Banks can do the same. This requires a better understanding of the target market and its value drivers, as well as a deeper understanding of the profitability dynamics of various products and services. The Peninsula knows that it will break even with XX% occupancy, that food contributes XX% of its revenue stream, etc. Goaling your various lines of business in a similar fashion, and making timely changes when they do not deliver, is essential. So is being counter-cyclical, investing when times are tough and rising above the rest.