CHARLES SCHWAB CORPORATION (A)

Submitted by Group 2 , Section B : DARSHAN.S 2012PGP097 HARSHVARDHAN V - 2012PGP131 JOGA PREETAM 2012PGP144 NIKLESHKUMAR SHAHU 2012PGP228 OMKAR BIBIKAR - 2012PGP237 KARAN RATHOD - 2012PGP301

Q1. What alternatives did David Pottruck have just before January 15, 1998? If you were in his situation, would you cut prices on January 15, 1998? David Pottruck has to decide whether to go for offering discounted Internet trading to entire customer base with full services at $29.95 per trade. One thing he can do is to form a separate e-business model to pursue their new Internet strategy. Would not suggest to go with plan of offering entire range of services at $29.95 to all customers and should not enter into price war with $8.00 per trade broker. Because Charles Schwab has been able to gain customers, increase trade volumes and able to maintain their leadership with the current strategy even after the entry of online brokerages such as E-Trade, AmeriTrade. Charles Schwabs multichannel approach gave it a higher cost structure, fighting a price war with bare bone online brokerages could be disastrous. Schwab would not get any market premium for stocks even after going for expanded Internet strategy. Charging customers different prices for different service levels is justified, rebranding of e-Schwab could change customers and employees perception of violation of companys founding principles.

Q2: What were the key IT issues in front of Dawn Lepore?

Schwabs plan to offer significantly discounted internet trading to its entire customer base , accompanied by full complement of customer services will put forward the following IT issues : Making the IT architecture scalable to handle the projected increase in online trading if the company were to offer $29.95 internet trading to all its customers Schwabs legacy commission system was an issue which needed upgrading. The company had devised a Work-around for its e.Schwab product which would no longer be adequate if the company moved ahead with the given proposition Integrating the Electronic Brokerage and traditional brokerage infrastructure like branch offices, telephone based brokerage services . This would help in cases like that of Schwab branch employees not having access to the e.Schwab accounts. IT staff recruitments were also a key issue as the increased online trading will lead to increased IT infrastructure requirement and subsequently additional manpower to work with the system.

Q3: What is your opinion on Merrill Lynch being a late entrant in the online trading services market? Did they do the right thing?
Possible reasons for Merrill Lynch being the late entrant. Merrill lynch had significantly higher investment in it research group (14000 brokers and 600 professionals) Hence they perceived the cost of cannibalization of their offline business was extremely high if they offer low priced internet trading. Their margins would have eroded. From average $125 per trade, now they would have been making $29.95. Their was a fear of job losses among brokers & professionals. They had a confidence that the value offered by their investment advice and proprietary products was higher than the savings offered by low cost internet trading. They perceived their client profile was different with higher AUM and higher need for professional advice. Did they do right thing? Yes, Merrill Lynch did the right thing entering online trading services market albeit late. The old system led brokers to take on fewer clients and encourage frequent trading. Where as the online trading would bring more clients. Hence the brokers will sell more of proprietary products. So the overall fee generated should be more. The worlds biggest advice seller entering into online trading offering services at the charges at par with Charles Schwab , would easily entice customers away from Charles Schwab.