Scharles Schwab Case - Group 5 - Section A
Scharles Schwab Case - Group 5 - Section A
Scharles Schwab Case - Group 5 - Section A
Number of Internet Users Worldwide Number of Firms Offering Internet Number of Online Brokerage Account
(Mn) Trading (Mn)
80 70 16 14.4
69 60
70 60 14
60 50 12
50 10
40
40 8
30
30 6
20 14 20 15 4 3
10 10 2
0 0 0
1995 1997 1996 1997 1997 2002e
Impact
Reduction in prices, margins, and commission
Shift of investment from people to technology
Evolution of Low Service – Low Price Models
Customer becomes more self-dependent
Increase in trade volume
Increase in popularity of portals like AOL and Yahoo among investors
The Way Forward
Continue with Existing Business Model Integrate All Product Offerings under
One-Standard Price
Features Features
Offer services under three different plans Offer one universal Internet trading account at
• Standard retail commission for $80/trade, $29.95 to all customers with all associated
with all services services
• Internet trading option with full customer
services at $64/trade Implications
• Internet trading option through e.Schwab at May result in immediate loss in revenue due to
$29.95/trade, without some services sales cannibalization of offline business
Decline in profits may result in fund crunch for
Implications marketing and advertisements
No immediate loss in revenue Will require upgrading the commission charging
Less risk, low investment option system and other IT investments
Service differentiation among customers In sync with changing market scenario, may
impacts customer service representatives’ provide early mover advantage
performance
Low service plans dilute Schwab’s brand name,
known for its customer service
Cause of concern if customers shift to deep
discount online brokers
Alternative We Propose
Spin off a new company ‘E-Click Trading Corp.’, as a subsidiary of the Charles Schwab Corp
• This new company offers internet trading accounts at discounted prices
• Existing company keeps offering High-Quality Premium Products as per the existing model
Use IT infrastructure of the existing company, but different brand name
One option of spinning off a new company could be acquiring one of the ‘bare-bone’ trading company
and integrating it with the new trading company (this decision is subject to more information on market
cap, IT infrastructure, funding sources, market presence, etc.)
Implications
Positive Negative
No brand dilution Lot of re-structuring required
Opportunity to cater to all customers May not be able to leverage Schwab brand
segments value in internet business
Better efficiency May create management difficulties
Immediate market entry and positioning Integration issues, if acquisition occurs
Merrill Lynch: ‘No’ to ‘E’
Structural Constraints
Commission based Payment Structure: The company paid its brokers
commissions on trades, rather than salaries. Internet option would have caused
resentment among the employees
High Cost Structure: ML has huge investments in research, sales and trading
divisions. Any move to low-cost internet trading was feared of causing huge
cannibalizations to existing offline business