What Financial Firms Can Learn From The Grateful Dead

A few years ago, I wrote something called “What Bankers Can Learn From The Grateful Dead.” This comment, from Ron Bensley Jr. on Modern Marketing, reminded me of that:

Latteland Community Credit Union (pseudonym) recently imposed an 8% fee for using their formerly-free coin machines. From a marketing and member-relations standpoint, this was a poor decision. The no-fee Latteland CU coin-counting machines were part of what made this CU special and unique to its members.”

My take: This isn’t just an issue about “nickel and diming” customers with fees (RB’s pun, not mine). It’s a business model issue. It’s a lack of understanding — on the part of the CU — about how it makes money. Not understanding your business model — and changing it when it’s succeeding — is worse than any transaction, service, or even data privacy mistake your firm could commit.

What does this have to do with the Grateful Dead? Back in 1965, record companies ruled the music industry. You made money back then (whether you were the company or the artist) by selling records. Bands went on tour simply to drive record sales. There were no festivals, no Bonnaroo, no Police reunions, no $150 concert tickets. And you certainly couldn’t bring a tape recorder into a concert to tape it. Not that you’d want to — most concerts were simply faithful reproduction of the albums.

The Dead turned this business model on its head. They toured incessantly. Played a different show every night. Sometimes for four or more hours. And let fans tape concerts and freely share those tapes. They cut studio albums simply to fulfill contractual obligations.

They innovated a new business model in their industry and built what the Net Promoter groupies call “customer advocates”, what Ken Blanchard calls “raving fans”, or what the rest of the world calls “Deadheads.”

The lesson? They never changed their business model. They didn’t say, after 10 years, “you can’t record concerts anymore” or “we’re going to stop playing concerts and start recording more in the studio and support ourselves with record sales.” (They did take a break at the 10 year mark, but when they resumed, they pretty much toured regularly for the ensuing 19 years).

By changing it’s business model — how it makes money — Latteland is risking what’s made it successful. And it isn’t alone. Colin recently commented on Barclay’s decision to impose a fee on cardholders with inactive accounts. By doing this, it’s changing its model — with potentially devastating effects.

These firms need to take a lesson from the Dead. I’d even be happy to share a few concert tapes with them. And share part two of the lesson: Vertical integration (the Dead took over their ticket sales and merchandising efforts).

Footnote: A few months after I published the brief in 2001, a client (a bank) that wasn’t renewing its contract cited the brief as a reason why. I bring that up because there’s an executive of that bank that has left comments on this site before, and might be reading this — and I wanted to remind him of that.

11 thoughts on “What Financial Firms Can Learn From The Grateful Dead

  1. Ron,

    Bad Profits. That’s what the Net Promoter Score will help you avoid. Bad profits are those that are made at the expense of the member relationship. Latte Land CU doesn’t get it. (and I’ll bet some CFOs are reading this thinking I don’t get it).

    My brother-in-law told me this past week-end that he is moving all his business from Navy Fed to USAA. Why? Bad profits. He recently got charged a $1.00 aborted transaction fee. What the hell is that you ask? You see he accidentally pulled out the wrong card (VISA Check card instead of his ATM card) and entered the wrong pin. When the ATM rejected it, he tried again only to discover he had the wrong card in the machine. He’s retired Navy, has been with Navy Fed for over 20 years. (PS — USAA has the highest Net Promoter Score in the world at 81%)

    I’ve actually been in credit union meetings where they pull the fee schedule out and start making up new ones. They’re desperate for income. Few can make it on margin anymore, so what are ya gonna do? What’s next? Charging someone to talk to a teller???

    What a long strange trip it’s been…..

  2. Denise:
    For three years running, USAA has scored the highest in Forrester’s survey on ITS definition of customer advocacy — “doing what’s best for the customer, and not the firm’s bottom line at the expense of the customer.”
    THAT’S WHY the firm’s NPS score is so high. NPS is the EFFECT, not the CAUSE.
    When you measure the CAUSES of effects, you’ve built a mechanism to alert you when things go astray. When all you measure is the EFFECT, it’s TOO DAMN LATE.
    Bring your boxing gloves to Indianapolis.

  3. Ron,

    How does your “customer advocacy” research keep a credit union from being all things to all people? Or trying to?

    Some members want Sunday hours, others want the teller to know their name, others want the account log-in on the home page, every member wants to never pay a fee. How does the CU decide what business they are in?

    This is me getting in shape for the match in Indy. Or as I like to call it the ROI Smack Down….

  4. Wonderful post! The Dead just proved that when you create a powerful community and give them what they want (rather than trying to get what you can out of them) you can become successful beyond imagination. Just because everyone else is doing things one way doesn’t mean that it’s the best way.

  5. It is not wise to try and be all things to all people. Just as Christine says, we need to understand our customers and give them what they want/need. Unfortunately, too many companies, including credit unions, do what they think their customers want without really asking them. Of course, how you ask them is just as important. “Do you want to bank without fees?” “Sure!” Perhaps this approach: “What do you appreciate most about this bank? Are there things you wish we did that we don’t now? What are we doing that ticks you off?”

    Having honest conversations with our customers will always help move us in the right direction.

    The Dead understood their fans very well, and they delivered what their fans were looking for: great music.

    What do credit union and bank customers really want?

  6. Becky — Thanks for the comment. You’re spot on. I would add one thing — they not only delivered great music (the product), but a great experience, and built a community around that experience.

    The funny thing is that, based on interviews I’ve read (and I’ve read a LOT), I don’t they would have said they “understood their fans very well” — I think they would have said ” we ARE our fans”. I don’t think they saw themselves apart from the Deadhead community.

  7. This was an excellent post. If you are doing your job, your members ARE your fans. A concert is a cooperative event. Before Rock and Roll a concert consisted of young kids sitting in a concert hall and quietly enjoying a 50 year old man crooning love songs.

    Chuck Berry, Little Richard, Jerry Lee Lewis and Elvis shook them out of their chairs. Made them jump up and scream. This was the rock revolution. These kids no longer enjoyed the music quietly – they were a screaming mob of fanatics that waited outside in the rain to get the next album. They would chase the artists to get the tiniest glimpse of them.

    And for what?

    Because the performer makes them feel good. The music gave them a cause to rally around. It gave them a purpose and a direction. This is what allowed the GD to pick up the following they had. For a while, there was “Music” and there was “Rock and Roll”. After “rock and Roll” the world was changed forever.

    So, are you rocking your members, or are they sitting there quietly enjoying your performance? Are your members fanatics or are they fans?

    I am just rambling, but I love the music analogy. Great post again Ron!

    Tony
    CUhype.com

  8. Ron, I agree: sometimes the best way to understand your customers is to be one of them (and in this case, fans!).

    Keep up the great posts, Ron!

  9. Great comparison and I think my former CEO made it before at a staff meeting years ago. And it is SO true that our own people must be huge fans of the CU if we ever expect our member to be that.

    Has anyone thought of formally adding deadheads to their field of membership? Might be a great promo for a community CU. “Even deadheads can join!”

  10. She’s still there. http://www.urwfcu.org. But I’m not sure she said that or if I was just thinking about them at the meeting and making a similar comparison. Either way it stuck and still does. But she might have said it, that CU was pretty open to alternative ideas and inspiration.

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