Retail banks calling up their customers for advertising their products is a common phenomenon. We are seldom interested in paying attention to their offers and often tend to get irritated. This is what makes cold calling a challenge. But, when greed for commission drives you to indulge in unfair practices, things might become worse.
We mostly trust companies who tend to stick to their core values of customer service in the long run. TATA, for example, is a brand that has been known to provide high-quality services to its customers through fair means. The general public has trusted the brand for generations. This is due to the quality of services it has rendered to its employees and the society as a whole. But when firms tend to deviate from their vision and mission policies, they might make quick money out of it, but that’s not a beneficial move in the long run. Wells Fargo is one such firm in the banking sector that failed to keep its promises.
In 2013, rumors had it that Wells Fargo is using aggressive tactics to meet its daily cross-selling targets. This mainly came from employees in the Southern California region. They were involved in opening bank accounts and selling credit and debit cards to consumers without their consent as an add-on service. Before we can move forward, let’s understand more about the term ‘cross-selling.’
Cross-Selling is the art of selling a different product or a service to an existing customer. It is an art that requires the advisors to be thoroughly familiar with the products they are selling. According to John Stumpf, who was then the CEO of Wells Fargo, cross-selling requires long term persistence, significant investment in systems and training, proper team member incentives and recognition, and taking time to understand your customers’ financial objectives. Cross-selling equips the bank with more information about the customer and allows for better decisions on credit, products, and pricing. Such customers prove to be more profitable for the bank as well.
Now, let’s get back to our story. So, Wells Fargo had daily sales targets to meet. The branch managers at the bank were assigned daily goals that had to be met, and if they weren’t, these would be carried forward to the next working day. The employees received incentives for cross-selling products – personal bankers received 15-20% of their salary while tellers received 3%. However, the sales strategy pressurized employees and made them go for unfair practices to achieve their targets and earn commissions.
When all of this came to the forefront, the board of directors and the senior management pushed all the blame to the employees at the bottom of the pyramid. According to them, they had never made a strategy that could pressure their employees to do something on these lines and that only 1% of the people were involved and they must be fired. The other 99% had got it right and the company would be taking all the necessary steps in the right direction. The company kept its promise by closing all such unauthorized accounts and returning the service fee to its consumers. They gave back $2.6 million to their customers in this process. Wells Fargo eliminated the cross-selling goals and promised to be more customer-centric. The firm, Shearman and Sterling, conducted an independent investigation on this matter. When the case was taken to courts, it called for a change in senior management.
The money involved in the cross-selling scandal was small, but the reputation damage was massive. Achieving cross-selling targets was a performance metric and that had not gone well with the employees. The Principal-Agent problem can be seen in this case where 1% of the employees were not working in line with the company’s goals, vision and mission statements.
As per 2016 estimates, Wells Fargo remains the top position holder in annualized TSR (Total Shareholder Return) ratings, with the 5-year return being 12%. The company made extensive changes in its policies and did away with the performance metric of cross-selling products. It accepted that incentive compensation was based on materially inaccurate financial information.
Brand value, Brand image and Brand equity are all derived from how your customers perceive your company and its services. If the general perception is not very good, a company might have to invest massive amounts to get the perception right. If the public, in general, feels well served, the returns are enormous. Any institution that renders services without the customer’s consent doesn’t become very popular. When short-term commissions are more incentivized than the long-term brand image benefit, sales targets tend to go awry and tend to tread down a wrong path.
Case Study: The Wells Fargo Cross-Selling Scandal by Brian Tayan (Stanford Closer Look Series)