Charles Schwab Corporation (a)
Content
CASE OVERVIEW
Primary Business Segments • Investor Services • Advisor Services • Corporate & Retirement Services Multi Channel Presence Pioneered the concept of Discount Brokerage firm •Well constituted IT Department •No Outsourcing •1300 Full time Employees •70% of its IT Staff were babyboomers (unusual!) •Regular Investment in Technology and IT Infrastructure
Known for Product and Service Innovations • OneSource – No Transaction Fee Mutual Fund Supermarket • Equalizer – DOS based Electronic Brokerage Channel •TeleBroker – Automated Brokerage Phone Service •StreetSmart (Windows Based)
•Decision: Whether to launch an integrated brokerage solution or not? •Pricing- $39.95 or $29.95? •Cannibalization cost: $125mn •To stop heavy traders from migrating to deep discount online brokers
As David Pottruck, would you cut prices on January 15, 1998? What alternatives did he have?
• Yes, we would recommend providing an Internet based integrated solution and lowering the prices to $29.95 because
– Online Brokerage Accounts are projected to grow to 14.4mn (480%) by 2002 – Rise in number of online brokerage players (1560 in 1996) – Heavy increase in Price sensitive customer segment – These customers wanted to take the trading decisions by themselves – They appreciate more value-added products and services at a decent premium – To prevent cannibalization of business from 20% traders who accounted for 80% of revenues – Can use existing branch network to build credibility
What is your opinion on Merrill Lynch being a late entrant in the online trading services market? Did they do the right thing? • No, they lost substantial business opportunity because of entering late
– Schwab’s online accounts as a % of total accounts soared from 8.8% (1995) to 25% (1997) – Schwab’s assets in online accounts increased from 12.82% (1995) to 22.84% (1997) – DLJdirect had made a significant presence in Online Brokerage space by foraying into it at the right time – The market was becoming more price sensitive and with increasing Internet penetration, the number of customers has been increasing – Down the line it is set to become a business of volumes
Thank You
Primary Business Segments • Investor Services • Advisor Services • Corporate & Retirement Services Multi Channel Presence Pioneered the concept of Discount Brokerage firm •Well constituted IT Department •No Outsourcing •1300 Full time Employees •70% of its IT Staff were babyboomers (unusual!) •Regular Investment in Technology and IT Infrastructure
Known for Product and Service Innovations • OneSource – No Transaction Fee Mutual Fund Supermarket • Equalizer – DOS based Electronic Brokerage Channel •TeleBroker – Automated Brokerage Phone Service •StreetSmart (Windows Based)
•Decision: Whether to launch an integrated brokerage solution or not? •Pricing- $39.95 or $29.95? •Cannibalization cost: $125mn •To stop heavy traders from migrating to deep discount online brokers
As David Pottruck, would you cut prices on January 15, 1998? What alternatives did he have?
• Yes, we would recommend providing an Internet based integrated solution and lowering the prices to $29.95 because
– Online Brokerage Accounts are projected to grow to 14.4mn (480%) by 2002 – Rise in number of online brokerage players (1560 in 1996) – Heavy increase in Price sensitive customer segment – These customers wanted to take the trading decisions by themselves – They appreciate more value-added products and services at a decent premium – To prevent cannibalization of business from 20% traders who accounted for 80% of revenues – Can use existing branch network to build credibility
What is your opinion on Merrill Lynch being a late entrant in the online trading services market? Did they do the right thing? • No, they lost substantial business opportunity because of entering late
– Schwab’s online accounts as a % of total accounts soared from 8.8% (1995) to 25% (1997) – Schwab’s assets in online accounts increased from 12.82% (1995) to 22.84% (1997) – DLJdirect had made a significant presence in Online Brokerage space by foraying into it at the right time – The market was becoming more price sensitive and with increasing Internet penetration, the number of customers has been increasing – Down the line it is set to become a business of volumes
Thank You
