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Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Exhibit 2-1: Framework for Diagnosing Market Opportunity
Seed Opportunity in Existing or New Value Seed Opportunity in Existing or New Value SystemSystem
Seed Opportunity in Existing or New Value Seed Opportunity in Existing or New Value SystemSystem
Uncover Opportunity Nucleus:Uncover Opportunity Nucleus:Identify Unmet and Underserved NeedsIdentify Unmet and Underserved Needs
Uncover Opportunity Nucleus:Uncover Opportunity Nucleus:Identify Unmet and Underserved NeedsIdentify Unmet and Underserved Needs
Identify Target SegmentsIdentify Target SegmentsIdentify Target SegmentsIdentify Target Segments
Declare Company’s Resource-Based Declare Company’s Resource-Based Opportunity for AdvantageOpportunity for Advantage
Declare Company’s Resource-Based Declare Company’s Resource-Based Opportunity for AdvantageOpportunity for Advantage
Assess Competitive, Technical and Financial Assess Competitive, Technical and Financial Opportunity AttractivenessOpportunity Attractiveness
Assess Competitive, Technical and Financial Assess Competitive, Technical and Financial Opportunity AttractivenessOpportunity Attractiveness
Make Go / No Go AssessmentMake Go / No Go AssessmentMake Go / No Go AssessmentMake Go / No Go Assessment
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Supporting Slide 2-A: Requirements of an Effective Segmentation
MeaningfulMeaningfulMeaningfulMeaningful
ActionableActionableActionableActionable
SubstantialSubstantialSubstantialSubstantial
MeasurableMeasurableMeasurableMeasurable
Customers must demonstrate needs, aspirations or behavioral patterns that are similar within a segment and different across segments
– A distinction between a price-sensitive and a quality-seeking segment is meaningful, since the two segments demonstrate distinguishable sets of needs
A company must be able to reach customers within each segment through effective and targeted marketing programs
– A customer segment consisting of customers with blue eyes is not actionable, since it is very hard to identify and reach only customers with blue eyes
Segments must be large and profitable enough to make the investment in serving them worthwhile
– myCFO.com is targeted towards high net worth individuals, helping them manage their portfolios. Even though the number of those individuals is small, the $ amount managed is sizeable, thus constituting a substantial segment
Key characteristics of the segments (e.g., size and spending patterns) must be easy to measure
Source: Philip Kotler, Marketing Management, 1997 (Chapter 9, page 269)
In order for a customer segmentation to be effective, it must be meaningful, actionable, measurable and substantial
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Table 2-1: Segmentation Approaches
Segmentation Type Description Examples — Variables
Geographic
Divides the market into different geographical units
Country / region / city, city size, density (urban, suburban, rural), ISP domain
Demographic Divides the market on the basis of demographic variables
Age, gender, income, occupation, education, nationality, family status, Internet connectivity
Firmographic Divides the market on the basis of company-specific variables
Online / offline business, number of employees, company size, job function, purchasing process
Behavioral Divides the market based on how customers actually buy and use the product
Online / offline shopping behavior, web-page or site customer arrived from, website loyalty, prior purchases
Occasion (Situational) Divides the market based on the situation that leads to a product need, purchase or use
Routine occasion, special occasion, time (time of day, day of week, holidays), location (From home, on the road), event (when writing a business plan, when shopping), trigger (out of supply)
Psychographic Divides the market based on lifestyle and / or personality
Personality (laid back, type A), lifestyle (thrill seekers, fun lovers, recluse), affinity (community builders, belongers, outcasts)
Benefits Divides the market based on benefits or qualities sought from the product
Convenience, economy, quality, ease of use, speed, information, selection
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Supporting Slide 2-B: Geographic Segmentation — Description
Geographic segmentation divides the market into distinct geographical units, such as nations, states or regions
In the Internet space, geographic barriers are to a large extent lifted
However, there still are many industries where local relationships and distribution channels play a key role, maintaining the need for a local focus
– Webvan is currently operating in Atlanta, Chicago, Sacramento and San Francisco; entry into new geographical markets will require the building of the necessary home- delivery infrastructure
– Many construction sites have a local or regional focus, since relationships with local or regional contractors and suppliers are of critical importance
Country
Region
Urban vs. Rural
Density
Climate
DescriptionDescriptionDescriptionDescription
Segmentation Segmentation ExamplesExamples
Segmentation Segmentation ExamplesExamples
Source: Philip Kotler, Marketing Management, 1997 (Chapter 9, page 257)
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Exhibit 2-9: Schwab — Defining Existing or New Value System
How?
Making markets more efficient
Compressing or eliminating steps in current value systems
Enabling ease of access
Disrupting current pricing power
Customizing offerings
Extending reach / access
Building community
Collaborating across multiple people, locations and time
Introducing new-to-the-world functionality or experience
ReleaseTrapped
Value
Create NewValue
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Exhibit 2-10: Schwab — Unmet and Underserved Needs (1997 Timeframe)
Plan Savings GoalPlan Savings GoalPlan Savings GoalPlan Savings Goal
Determine Optimal Asset AllocationDetermine Optimal Asset AllocationDetermine Optimal Asset AllocationDetermine Optimal Asset Allocation
Receive Ideas and RecommendationsReceive Ideas and RecommendationsReceive Ideas and RecommendationsReceive Ideas and Recommendations
Place OrderPlace OrderPlace OrderPlace Order
Sell StockSell StockSell StockSell Stock
Research StocksResearch StocksResearch StocksResearch Stocks
Track Portfolio PerformanceTrack Portfolio PerformanceTrack Portfolio PerformanceTrack Portfolio Performance
Receive DividendsReceive DividendsReceive DividendsReceive Dividends
Unmet and Underserved Needs
Planning tools to simplify goal setting
Tax ReportingTax ReportingTax ReportingTax Reporting
Aggregation of investment information
Place order and track status anytime, anywhere
Access real-time account information
Place order and track status anytime, anywhere
Download to tax software
Education on investing
Process Steps
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Supporting Slide 2-G: Schwab — Opportunity Attractiveness vs. Resource
Availability
High
Low High
Low
Opportunity Attractiveness
Resource Availability
Note: Opportunity attractiveness based on competition level and opportunity financials
Full Management
Low Price
Quality Advice
Customer Service
Quality Information
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Supporting Slide 2-H: Schwab — Resource Availability
Company Capabilities Partner Capabilities Overall
Segments
Capability highly addressing segment need
Capability moderately addressing segment need
Capability not addressing segment need
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Demographic Geographic Needs-Based Clickthrough-
Based
Meaningful
Actionable — Online
Actionable — Offline
Substantial
Measurable
Supporting Slide 2-I: Schwab — Effectiveness of Different Segmentation Methods
= Low = High
Segmentation MethodsSegmentation
Criteria
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Supporting Slide 2-J: Schwab — Needs-Based Segmentation
Source: Jeffrey Veen, Hot Wired Style, Monitor Analysis
“Saving for a Goal”“Saving for a Goal”
Saving for retirement
Saving for college
Saving for house down payment
Saving for retirement
Saving for college
Saving for house down payment
“Traders”“Traders”
Hobby investors
Active traders
Hobby investors
Active traders
“Financial Planning”“Financial Planning”
Estate planners
Tax planners
Trust fund managers
Estate planners
Tax planners
Trust fund managers
Schwab’s market segments fall into three categories
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Supporting Slide 2-K: Types of Needs and the Tools to Surface Them
Survey Focus Group Interview Observation ZMET
Standard Tools New Tools
ManifestedNeeds
LatentNeeds
Tool highly surfaces need
Tool moderately surfaces need
Tool does not surface need
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Professional<$150k
Professional>$150k
Professional<$150k
Professional>$150k
Exhibit 2-11: Schwab — Segmentation (1997 Timeframe)
Buy and Hold
Current Offline Schwab
Customer
High Net Worth (<$1M)
Mar
ried
No
t S
ch
wa
b C
us
tom
er
Other White Collar
Frequent Trades
Sin
gle
Blue Collar
RetireeUniversity Student
Ch
ild
ren
> 3
0N
o
Ch
ild
ren
< 3
0
Mature( > 55)
High Priority Secondary Priority Tertiary Priority De-emphasize
C I
J K
D
E
A
G
H
F
M
L
N
O PB
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Segments Schwab Merrill Lynch Ameritrade DLJ Direct
B. High Net Worth
Independent financial advisors
Advice for platinum members
High-quality information service
Advice and access to analysis
Portfolio management
No advice
Limited research Bare-bones
service
Comprehensive research
High-quality service
Service professional assigned to clients with at least $1M in assets
G. Buy and Hold (>$150K)
Comprehensive research
High level of service
Moderate price
High price Access to
analysis
Lowest price ($8 / trade)
Limited research tools (company profiles and earnings estimates)
Comprehensive research
IPO center allowing investors to participate in IPOs
Moderate price
J. Frequent Traders (<$150K)
High quality of information
Reduced prices for frequent traders
Multiple channels for trading (phone, online, branch)
Eventually:
Velocity software (introduced August 1999)
Very high price
Lowest price ($8 / trade)
Limited research
Eventually:
Multiple channels for trading (including online, telephone, Web and wireless)
Free real-time quotes and current financial news
No price reduction for frequent traders
Eventually:
Marketspeed 3.0 providing faster trade execution
Wireless alerts and trading
Real-time quotes, streaming news
High performance level Medium performance level Low performance level
Exhibit 2-12: Schwab — Competitor Map to Segments
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Exhibit 2-13: Schwab.com Overall Opportunity Assessment
PositiveFactor
NeutralFactor
NegativeFactor
CompetitiveVulnerability
TechnicalVulnerability
Magnitude ofUnmet Need
InteractionBetween
Segments
Likely Rate ofGrowth
TechnologyVulnerability
Market Size Level ofProfitability
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Exhibit 3-1: Components of a Business Model
Value ClusterValue Cluster
Marketspace OfferingMarketspace Offering
Resource SystemResource System
Financial ModelFinancial Model
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Point-Counterpoint
Single Benefit Cluster of Benefits
Clear, non-contradictory communication tocustomer
Partnerships can be assembled with “like-minded” firms
Back office systems must be tailored to distinctbenefits
Focuses employee hiring and retention Focuses the enterprise
Customers rarely desire one benefit In the online world, back-office systems can
easily be reconfigured for different benefits With an online presence, a firm can provide
multiple benefits - with no tradeoff ofperformance (e.g. provide broadest selectionand low price)
We have examples of firms that offer multiplebenefits such as portals (e.g. Yahoo!), ISPs (i.e.AOL), product sites (BN.Com) and informationservices (WSJinteractive)
Supporting Slide 3-A:
Point-Counterpoint: Single Vs. Cluster of Benefits
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Exhibit 3-2: Shattering Myth That Consumers Care Only About Prices On-
line
19
22
23
24
24
45
49
49
58
65
0 10 20 30 40 50 60 70
Product Price
Product Selection
Web Site Navigation & Locks
Product Information
Ease of Ordering
Privacy Policies
Product Content
Product Shipping & Handling
On-time Delivery
Customer Support
PERCENTAGE OF CUSTOMERS WHO CARE ABOUT ATTRIBUTE
AT
TR
IBU
TE
Source: JP Morgan Report: etailing and the five Cs
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Table 3-1: Consumer Decision Process — Flower Example
DisposalDisposal
LoyaltyLoyalty
SatisfactionSatisfaction
Purchase DecisionPurchase Decision
Evaluation of AlternativesEvaluation of Alternatives
Information SearchInformation Search
Problem - RecognitionProblem - Recognition
PRE-PURCHASE
PURCHASE
POST-PURCHASE
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Supporting Slide 3-B:
Consumer Decision Process — Flower Example
Flowers
DisposalDisposal
LoyaltyLoyalty
SatisfactionSatisfaction
Purchase DecisionPurchase Decision
Evaluation of AlternativesEvaluation of Alternatives
Information SearchInformation Search
Problem - RecognitionProblem - Recognition
Pre-Purchase
Purchase
Post-Purchase
Need recognition, potentially triggered by a holiday, anniversary or everyday events
Search for ideas and offerings, including:– Available on-line and off-line stores– Gift ideas and recommendations– Advice on selection style and match
Evaluation of alternatives along a number of dimensions, such as price, appeal, availability, etc.
Purchase decision Message selection (medium and content)
Post-sales support– Order tracking– Customer service
Education on flowers and decoration Post sales perks
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Exhibit 3-8: Schwab Egg Diagram
Schwab Learning Center Live Events Principles of Investing Understanding Market Cycles “Did You Know” Q&A
Schwab Signature Services
Schwab AdvisorSource Options Service Global Investing Service
Online chat with Customer Service Representatives
Customer Service via phone Customer Service via email Customer Service at Branch My Watch List
Margin Loans Money Transfers Automatic Investing Options Service After Hours Trading Account Protection Bill Payment
Overall General Goal
Planner Investor Profile Sample
Investment PlansRetirement Retirement
Planner IRA Analyzer
Product Offering
On-Line Investment Process
Get educated about
investing Plan
investments
Decide on Investment
Perform Investment
Post Investment
Support
Perform Research
Estate Estate Tax and
Probate Calculator Alternatives ComparisonCollege College PlannerTax Tax Strategies IRS Withholding
Calculator
Overall Quotes and Charts Analyst CenterStocks and Options Stock AnalyzerBonds and Treasuries Schwab BondSource
ServicesCDs and Money Markets SchwabOne
Annuities Schwab Select
AnnuityLife Insurance Insurance Needs
Calculator
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Exhibit 3-9: Schwab Resource System
Optimize Staff in
Branches
Optimize Staff in
Branches
Lower PricesLower Prices
Train IT Staff
Train IT Staff
24x7 Access
24x7 Access
Media General
Media General
S&PS&P
Hoovers
Hoovers
PhonePhone
BranchBranch
OnlineOnline
Charge For Value
Added Services
Charge For Value
Added Services
Provide Lower
Commission for Frequent
Traders
Provide Lower
Commission for Frequent
Traders
Innovative Products
Innovative Products
Center of Knowledge and
Innovation
Center of Knowledge and
Innovation
Investment in R&D
Investment in R&D
Cutting Edge Technology
Cutting Edge Technology Investment in ITInvestment in IT System ReliabilitySystem Reliability Multiple Points of
Access
Multiple Points of Access
Hire IT Staff
Hire IT Staff
Competitive Commission Rates
Competitive Commission Rates
Streamlined Operations
Streamlined Operations
Learning
Center
Learning
Center
= Resources
= Capabilities
= Core Benefits
Superior Service
Superior Service
Partnerships with Content Providers
Partnerships with Content Providers
Invest in CSR Trainin
g
Invest in CSR Trainin
g
Align CSR Compensation
with Quality of Service
Align CSR Compensation
with Quality of Service
Customer ServiceCustomer Service
OnesourceOnesource
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Exhibit 3-10: Schwab Resource System
= Company needs to outsource or partner
= Company can perform in-house
Optimize Staff in
Branches
Optimize Staff in
Branches
Lower PricesLower Prices
Train IT Staff
Train IT Staff
Capable IT StaffCapable IT Staff
24x7 Access
24x7 Access
Media Genera
l
Media Genera
l
S&PS&P
Hoovers
Hoovers
PhonePhone
BranchBranch
OnlineOnline
Charge For Value
Added Services
Charge For Value
Added Services
Provide Lower
Commission for Frequent
Traders
Provide Lower
Commission for Frequent
Traders
Innovative
Products
Innovative
Products
Center of Knowledge and
Innovation
Center of Knowledge and
Innovation
Investment in R&D
Investment in R&D
Cutting Edge Technology
Cutting Edge Technology
Investmentin IT
Investmentin IT
System Reliability
System Reliability
Multiple Points of Access
Multiple Points of Access
Hire IT Staff
Hire IT Staff
Competitive Commission
Rates
Competitive Commission
Rates
Streamlined Operations
Streamlined Operations
Learning
Center
Learning
Center
Superior Service
Superior Service
Partnerships with Content
Providers
Partnerships with Content
Providers
Invest in CSR Trainin
g
Invest in CSR Trainin
g
Align CSR Compensation
with Quality of Service
Align CSR Compensation
with Quality of Service
Well-Trained CSRs
Well-Trained CSRs
OnesourceOnesource
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Downsized branch staff
Downsized branch staff
High quality Investment Information
High quality Investment Information
Innovative productsInnovative products
Low priceLow price
Large, well trained sales force
Large, well trained sales force
Technology LeadershipTechnology Leadership
Supporting Slide 3-K:Schwab Activity System
Superior serviceSuperior service
Investment in ITInvestment in IT
24 x 7 Customer service
24 x 7 Customer service
Exceptional team of engineers
Exceptional team of engineers
In-house technology
development
In-house technology
development
Large investment in R&D
Large investment in R&D
System able to handle large
volume
System able to handle large
volume
Increase in trade
volume
Increase in trade
volume
Increase in non-trade revenue
Increase in non-trade revenue
Multiple points of access
Multiple points of access
On-lineOn-line PhonePhone BranchBranch
Comprehensive information
Comprehensive information
Partnerships with
content providers
Partnerships with
content providers
Hoovers Online
Hoovers Online
S&P Comstock
S&P Comstock
Media General
Media General
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Supporting Slide 3-L:
Schwab Value Proposition
“Use technology to offer innovative products and superior service at lower prices to investors
unwilling to pay for investment advice”
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Table 3-6: Partners Give/Get Matrix
Partners Benefits to Partner: “Give” Benefits to Schwab: “Get”Content Partners(e.g. Hoovers,S&P, MediaGeneral, H&Q)
Partners receive revenues from Schwab Exposure and branding on a major site Click-throughs
Best-in-class content essential for Schwab todifferentiate itself from other discount brokers
OnesourcePartners: MutualFund Managers
Access to large flow of business from Schwabcustomers
Significant reduction in marketing costs
Cement the relationship with the customer byacting as valuable “switchboard”
Schwab receives transaction fees from funds
Web SitePartners:Razorfish
Opportunity to work with high profile client On-going fee based relationship
Access to highly creative site designers Consistent customer experience and look &
feel Frees up internal resource
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Exhibit 3-11: Schwab Revenue Growth Choices
New
Existing
PR
OD
UC
TS
Existing New Existing New
Advanced Software ToolsAdvanced Software Tools
After-hours tradingAfter-hours tradingInternational ExpansionInternational Expansion
ON-LINE MARKETS OFF-LINE MARKETS
International ExpansionInternational Expansion
Learning CenterLearning CenterIn-Branch SeminarsIn-Branch Seminars
New Online Investment BankNew Online Investment Bank
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Supporting Slide 3-N : Business Model Choices Must Be Consistent With Sources of Competitive Advantage
Content Production
eBusiness Interface
Content Utilization
Content Production
eBusiness Interface
Content Utilization
Content Production
eBusiness Interface
Content Utilization
Content Production
eBusiness Interface
Content Utilization
Content ProductionContent ProductionContent ProductionContent ProductionContent Production
Content UtilizationContent UtilizationContent UtilizationContent UtilizationContent Utilization
Business Model Options (Not Mutually Exclusive)
Forward-Integrated Producer
Backward-Integrated
User
Supply Aggregator
Demand Aggregator
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Traditional Mass Marketing Television (network, cable, local) Print media National and local radio Athletic event sponsorships
Table 5-6: Schwab Marketing Communications
Broad
Individualized
Off-line On-lineCommunication Media
Audience Focus
Direct Targeted direct mail Calls made to investors who
demonstrate difficulty (e.g. large periods of inactivity)
“Red hot” calls for emergency investment decisions
Personalized Personalized web pages
(mySchwab.com)
General Approaches Banner ads Affiliate sites Sponsorship of sites (e.g. Schwab
sponsorship of Mini Center on Babycenter) Leveraging customer base (e.g. investor
customer base leveraged for on-line banking) Free information on site Innovative approaches (e.g. on-line
commissions donated to Breast Cancer Foundation)
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Exhibit 5-14: Assessment of Key Branding Elements for Schwab and
E*Trade
= Very Low = Low = Moderate = High = Very High
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Exhibit 5-14: Assessment of Key Branding Elements for Schwab and
E*Trade (continued)
= Very Low = Low = Moderate = High = Very High
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Key Attributes Rating Rationale Rating Rationale
1. Relevant
Provides investors with highquality information, service andsophisticated technologies andtools that help them makeeducated decisions about theirinvestments
Offers investors high qualityinformation and service andtechnology that empowers them totake more control of theirinvestments
2. Distinct
Well known as an establishedbrokerage services providerwhose primary focus is oncustomers
Distinct entrepreneurial feel tobrand message, achieved throughaggressive marketing strategy(“Someone will win the lottery, justnot you … it’s time for E*Trade”)and innovative marketing events
3. Consistent
Consistent message: “we arecreating a smarter type ofinvestor”
Marketing message has changedfrom “Someday, we will all investthis way” to “it’s time for E*Trade”,to helping investors think aboutwhat they can do with the moneyearned through E*Trade
4. Memorable
Popular public figures featured inSchwab advertisements (e.g.Anna Kournikova) spike interestand memorability
Aggressive one-liner marketingquotes that grasp attention andmake an impression
Catchy E*Trade logo
Exhibit 5-15: Assessment of Key Brand Attributes for Schwab and
E*Trade
Schwab.com etrade.com
= very low = low = moderate = high = very high
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
ProcessesProcesses
AssetsAssets
SystemsSystems
PeoplePeople
Source:Christensen, Clayton M. 2000. Meeting the Challenge of Disruptive Change. Harvard Business Review 78, no. 2 (March-April).
MAPPING THERESOURCE SYSTEM
DELIVERY SYSTEM
Supply ChainsSupply Chains
Exhibit 6-4: The Delivery System Needs to Support and Reinforce the
Resource System
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Exhibit 6-13: Schwab IT Infrastructure
Source: Tempest, Nicole and Warren McFarlan. 1999. Charles Schwab Corporation (A). Case no. 9-300-024, 9 September. Boston: Harvard Business School Publishing.
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Exhibit 6-14: Timeline for Schwab Innovations
1979 1985 1989 1991 1992 1993 1995 1996 1997 1998 1999 2000
Entire trade clearing system brought in-house
Equalizer: DOS based product enabling PC users to trade stocks on-line
Telebroker: 24x7 quote and order placement by telephone
SchwabLink: Service for fee-based financial advisors
OneSource: Mutual fund program allowing investors to purchase Schwab and non-Schwab funds free of charge
Streetsmart: Windows-based software allowing on-line trading of equities, bonds and mutual funds
October 1995eSchwab:
Electronics software package dialing into Schwab system
June 1995Advisor
Source: Referral service for fee-based advisors
March 1996Upgraded
eSchwab: First major brokerage firm to offer trading via the Internet
September 1997Customized asset
allocation tool available on-line
October 7, 1997SchwabLink
available on the web
October 1, 1997First speech
recognition service for investors
January 27, 1998MoneyLink:
Electronic funds transfer service
May 14, 1998First U.S. website
enabling order placement in Chinese
January15, 1998Schwab.com
launches
January 20, 1998IRA Analyzer
launches
September 21, 1998CD ROM Tool for
retirement setup and monitoring
November 23, 1998Web tool to track and
benchmark investor performance
April 16, 1999New site
based on user input
April 27, 1999Retirement
Planner on-line
August 14, 1999Velocity software
trading system for active investors
September 8, 1999New web tools for
investment advisor offering
May 24, 1999MySchwab launch
August 19, 1999Plans for cross-
platform wireless trading
November 9, 1999Paperless trading with
eConfirms
October 20, 1999After Hours trading
November 23, 1999Velocity 2.0 launch
December 1, 1999Enhanced Analyst
Center
December 22, 1999New on-line mutual
fund tools
February 3, 2000Learning Center:
Interactive education tool for on-line learning
March 7, 2000Schwab and Barclays
announce internet-based foreign exchange service
March 15, 2000Schwab expands advice
offering with Portfolio consultation
March 31, 2000Schwab and Dow
Jones unveil on-line Chinese news and research service
May 7, 2000Stock Analyzer
launched, offering third party equity analyst recommendations and earnings projections
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Exhibit 7-10: Charles Schwab -- Customer Acquisition Stage
Step 1: Articulate the Business Strategy
“Use technology to offer innovative products and superior service at lower prices to investors unwilling to pay for investment advice”
Schwab Learning Center Live Events Principles of Investing Understanding Market
Cycles “Did You Know” Q&A
Schwab Signature Services
Schwab AdvisorSource Options Service Global Investing
Service
Online chat with Customer Service Representatives
Customer Service via phone Customer Service via email Customer Service at Branch My Watch List
Margin Loans Money Transfers Automatic
Investing Options Service After Hours
Trading Account
Protection Bill Payment
Overall General Goal
Planner Investor Profile Sample
Investment Plans
Retirement Retirement
Planner IRA Analyzer
Product Offering
On-Line Investment Process
Get educated about
investing
Plan investments
Decide on Investment
Perform Investment
Post Investment Support
Perform Research
Estate Estate Tax and
Probate Calculator Alternatives
ComparisonCollege College PlannerTax Tax Strategies IRS Withholding
Calculator
Overall Quotes and Charts Analyst CenterStocks and Options Stock AnalyzerBonds and Treasuries Schwab BondSource
ServicesCDs and Money Markets SchwabOne
Annuities Schwab Select
AnnuityLife Insurance Insurance Needs
Calculator
1. Value Proposition
2. Marketspace Offering
High quality Investment Information
High quality Investment Information
Innovative productsInnovative products
Low priceLow price
Technology LeadershipTechnology Leadership
Superior serviceSuperior service
3. Resource System
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Exhibit 7-11: Schwab Desired Outcome Summary
MARKET OPPORTUNITY
•Significant Opportunity•Financially Attractive Segment•Competitively Attractive Segment
BUSINESS MODEL
•Value Proposition vs. Competition•Offer vs. Competition•Capabilities vs. Competition•Sustainability of Value Proposition
CUSTOMER INTERFACE & OUTCOMES
•Lower Customer Acquisition Costs•Transition Customer Base•Outperform competition on Interface Perceptions
•Customer Satisfaction & Loyalty
IMPLEMENTATION & BRANDING
•Brand Associations vs. Competition•Best-in-class IT Infrastructure•Ability to Deliver Brand Promise
FINANCIAL EVALUATION
•Revenue•Profit•Cost•Balance Sheet
BusinessModel
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Exhibit 7-12: Charles Schwab -- Customer Acquisition Stage
BusinessModel
BusinessModel
Implementation& Branding
Implementation& Branding CustomerCustomer FinancialFinancial
Build brand
Build brand
Increase system uptime
Increase system uptime
Train branch
staff
Train branch
staff
Improve customer service
Improve customer service
Increase customer
loyalty
Increase customer
loyalty
Increase profit
Increase profit
Optimize cost
Optimize cost
Increase revenue
Increase revenue
Investin
technology
Investin
technology
Increase number of
IT staff
Increase number of
IT staff
Increase customer satisfactio
n
Increase customer satisfactio
n
Increase usage
Increase usage
Acquire new
customers
Acquire new
customers
MarketOpportunity
MarketOpportunity
Avoid crowded markets
Avoid crowded markets
Play in attractive market
Play in attractive market
Target attractive segments
Target attractive segments
Leverage capabilitie
s to deliver offering
Leverage capabilitie
s to deliver offering
Provide unique
VP
Provide unique
VP
Provide attractive offering
Provide attractive offering
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Table 7-4: Charles Schwab -- Customer Acquisition StageCurrent and Target Levels for Select Metrics
Revenue 1997 Actual 1998 Target CommentTotal revenue $2,299 2,529$
Revenue growth 24% 10%
Despite the decrease in Schwab's pricing for trades, increases in the number of accounts and number of trades per account should produce revenue growth, albeit at a reduced rate
Revenue breakdownTrading 62%Non-Trading 38%
Trading 59%Non-Trading 41%
An additional driver of revenue growth will be increases in margin loans to account holders. This will outpace the growth in trading revenues
Total trading volume 106m/day 132m/dayLower trading prices will result in a 25% growth in trading volume
Average fee per trade 64.27$ $51.41
1998 will be a year of transition for Schwab as customers migrate towards the web platform. Average fees per trade will drop by 20%
Profit
Post tax proft margin 19.50% 19.50%
Investments in technology will be offset by branch staff reductions and lower trade fulfillment costs
Pre tax profit growth 14% 10%Profit breakdown
Earnings per share 0.99$ 1.07$ Option packages granted to key staff will cause some EPS dilution
Earnings per share growth 14% 8%
*Source: Tempest, Nicole and Warren McFarlan. 1999.Charles Schwab Corporation (B). Case no. 9-300-507, 13 September. Boston: Harvard Business School Publishing.
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
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Exhibit 8-21: The Rise in Schwab’s Market to Sales Ratio
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Competitors in the Brokering environment
Full Service (Merril Lynch) $117Full Service (Merril Lynch) $117Advice & research & PersonalProf. productsOther servicesBricks (expensive)
Discount (Charles Swab) $ 64Discount (Charles Swab) $ 64Less adviceNo research Less opulentNo products
On-line E-trade $30 - $9On-line E-trade $30 - $9No advice No research No bricks No services
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Two major problems if Charles Schwab wants to move online
Cannibalization – Lower margin channel starts taking away higher margin clients
Channel contamination - Incur cost in one channel, get income from other
ESchwab and Schwab was fundamentally separate
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Should Charles Schwab merge channels –
Q1: Online growth (95% of millionaires had an online account)
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Pros and cons of channel merging
Pros of channel merging
Employees want itOnline grows
Cons of channel merging
Revenues
Cost
Stock (40% employee owned)
Overworked – low morale
Ends up dead
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
Charles Schwab decision (1997)
Charge $29.95 per trade up to 1000 shares for all customers with an online account
Do not aggressively promote on-line in order to remove focus from price competition
Give PC’s and Web access to all employees
Make customers migration one of the components to compute the bonus of Customer Service Representative
Last Updated: 01/10/01Copyright 2000 by Marketspace LLC
What happened after Schwab moved online?
500 000 accounts switch to-online in 5 monthsCommissions per trade fall significantly 3% fall in profit
Mid term
Trades pick up to $115 000 per dayAverage commission fall to $53 in Q4 98Revenues increase 19% during 1998Stock price rises 158% from July to Dec 98