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Porter’s Five force analysis of Industry

Rivalry among competitors - Attractiveness: High

High rivalry among competitors No. of competitors Industry growth Fixed Cost Differentiations Switching cost Openness of terms of sells Excess Capacity Strategic stakes     

Attractiveness Low 1 less High High High Low Secret No information High 2 3 4 High 5 √ √ √ √

Fixed cost is high due to initial investment required to get licenses from BSE, NSE Reliability is a key differentiating factor Customers can choose among many incumbent players paying a nominal registration fees High Initial capital investment in business makes it strategically risky Market is yet to realize full potential due to low internet penetration

Barriers to Entry – Attractiveness: Moderate

Attractiveness Barriers to entry Economies of scale Product differentiation Brand equity Switching cost Access to channels of distribution Capital requirement Access to technology Government protection High medium High Low Difficult High Difficult High Low 1 √ 2 3 4 √ √ √ √ √ √ √ High 5

building a brand is a difficult task in trading industry  Technology is complex considering computational speed and expertise required  Initial investment required is high to acquire the license  SEBI impose strict rules and regulation in trading business Bargaining power of Buyers: Attractiveness: Moderate Attractiveness Bargaining power of buyers Number of buyers Availability of substitute Switching Cost Buyer's threat of backward integration Industries threat of forward integration Contribution to quality Contribution to cost Buyer's profitability Large less Low low low High High High Low 1 2 3 4 √ √ √ √ √ √ √ High 5 √ Bargaining power of Suppliers: Attractiveness: Moderate Attractiveness Bargaining power of suppliers No of suppliers Availability of substitute Switching cost Supplier's threat of forward integration Industries threat of forward integration Contribution to quality Contribution to cost Industries importance to supplier Less Less High Low Low medium low High Low 1 √ √ √ √ √ √ √ 2 √ 3 4 High 5 Threat from substitutes – Attractiveness: Moderate . Large number of transaction makes the process cost effective hence economies of scale is required  Brand equity based on trust on services.

Industry standard software platform BSE.       . Low cost structure Business model is focused on saving brokerage charge. Although this was famous in developed market but in Indian traders never tried this model. NSE has standardized the platform in which transactions will be carried out hence reliability. Reliability is a key factor in this business. Electronically fast real time transaction Zerodha’s Servers are located in close proximity of Mumbai stock exchange hence transactions are fast and real-time.Attractiveness Threat of substitute Availability of close substitute Switching cost Less Less Low 1 2 √ 3 4 High 5 √ VERDICT: Industry attractiveness is moderate considering all the forces SWOT Analysis Strength  First mover advantage No other player tried this business model ever before so Zerodha had the first mover advantage. Industry understanding Founder Nitin was in trading business for last 15 years. People have started believing on their low cost business model. He is having a good understanding about the business. Reliable and simple Economic time’s articles about their business model brought reliability and trust. Personal network of traders To run a trading business founder must have contacts in trading community. The way things are get done in trading industry is known in Zerodha. During initial years this network helped Zerodha to acquire initial 100-200 customers. Nitin has a huge network in the trading community. Typically Zerodha saves 90% of brokerage charge in most of the transactions.

People from semi urban area also trying do trading using internet platform. When business cycle goes through recession volumes come down and it leads to lesser profit. In next 10 year India going to have second largest internet user base. Small institutional customers can be targeted initially. To increase its business Zerodha can start targeting institutional customers. Price elasticity of customers is a key concern for Zerodha. No personal interaction with customers No personal interaction with customers leads to low customer loyalty. It has reduced their operating expenses. When traders discuss about Zeordha’s positive factors in those forums it gives word of mouth publicity. Presence in all forums Zerodha’s presence in all kind of trading forum is a key strength. People trade in credits and when they don’t pay it become a bad debt for Zerodha.  . Highly risky business Environment Zerodha business model is based on higher number of transaction. No marketing expenses No marketing expense because Zerodha don’t advertise in any media. Word of mouth publicity is the key marketing strategy for them. So if there is a low cost service people may move to new platform.   Weakness  Bad debts issue Being in trading business organization runs on high risk of bad debt. Trading being risky business it makes zerodha susceptible to different types of economic shock. Taxes charged is Low As transaction charge is low customers usually pay lesser service charges compared to traditional brokerage firms. Zerodha can try to tap this potential. Institutional customers Trading solution is aimed to individual customers.   Opportunity  Increasing customer base Internet penetration in Indian market is increasing.

In near future market will witness entry of many new players into the market. London and New York. Zerodha has opened an office in Singapore but it should to open an office in London Threats  Few more startup copying exactly same business model Such a huge bottom line has attracted a number of new players in the market. If global economy takes a triple dip then it will create a severe impact in the industry as well in Zerodha. International expansion To tap international institutional customers they have to open offices in international trading hubs like Singapore. it will disturb the ecology. They are just trying to copy the exact business model. With zero initial registration charge and lower transaction cost they are trying to gain market share. Existing institutions entry into the market If companies like Sharekhan try into enter into this segment. But new startups don’t have technical capability and brand value. But companies like compositeedge are trying to play a price game.   . But Zerodha has already developed a customer trust. Bad economic conditions worldwide Zerodha can get hit by Global economic recession.