Charles schwab


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Charles Schwab Case Study

  • Hi Jenny! The Charles Schwab (Charles M Schwab) is different from Charles R Schwab mentioned in the PPT. Charles M Schwab was an American steel tycoon while Charles R Schwab was the founder of the American brokerage and banking company, Charles Schwab Corporation
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  • Charles Schwab is a great manager. Here is another story about him:
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Charles schwab

  1. 1. The Switchboard Business DesignBy Group 5:• Cheryl Correa (F11014)• Gitanjali (F11018)• Neha Thomas (F11035)• Ramya Chittigala (F11045)
  2. 2. CONTENTS• Introduction – How it all started• Business Designs: 1. The Discount Brokerage Design 2. Serving the Financial Planners 3. OneSource: The Switchboard Business Design• Bridging the Communication Gap – Talk to Chuck Campaign
  3. 3. How it all started• 1971 - Charles Schwab started ‘First Commander’• Initial business model similar to a conventional brokerage• No brand, No technology, No client base• 1975 - SEC outlawed fixed commissions• Schwab seized opportunity – business design changed to ‘discount broker’
  4. 4. Timeline• 1971- Started the brokerage, First Commander• 1975 – Started the discount brokerage• 1984 – Had 20% of discount brokerage market• 1985-89 – The Schwab Institutional Enterprise linking independent advisors• 1989 – TeleBroker system introduced• 1992 – Charles Schwab OneSource launched• 1995 – e.Schwab launched
  5. 5. The Discount Brokerage business• Conventional brokers - high fee due to Advice, Counseling and Trading capabilities• Listening Gap: No option for low-cost trades due to ‘Bundled’ package (Advice + Trading functions) Closing the Gap - Discount brokerage (to unbundle Advice and Trades)
  6. 6. Value-added Discounter model• Need for differentiation – ‘Why does the customer want to buy from me?’• Customer-centric service-design: • Salaries instead of Commissions • Reliable information to customers • Addressed investors need: Inexpensive Access to Market • Gave customers what they wanted ONLY, no additional costs • Up-to-date technology: More easily executable trades
  7. 7. • Emphasis on greater value to customers influenced Customer- Perception• Re-invested Profit in: - Building brand-name and branch network - Establishing local presence - Computers & Technology - Investor-support - Advertising: Charles Schwab on TV, radio, billboard and print ads• Addressed Competition by: - Strong differentiation - Sharing services with new customers instead of hard-selling new products to existing customers
  8. 8. Second Business Model: Servingthe Financial PlannersMarket Environment • Change in customer behaviour in the late 1980s – from savings to investment • Need for unbiased, independent financial advisors • Mushrooming of independent advisors – individual and partnership firmsWhat did Schwab do?Developed New Ways to deliver – Using Financial PlannerCreated a new channel to the investors/customers through independentadvisors.Leveraged the strength of the financial planners to grow his own business.
  9. 9. Gaps in the Existing ServiceModel• Listening Gap – Most traditional firms didn’t recognise the change needs of the customers Closing the Gap – The Schwab Institutional Enterprise linking Charles Schwab & company with independent financial advisors.• Service Performance Gap – The financial advisors were not technologically capable of meeting the necessary customers needs through efficient back end operations Closing the Gap – Schwab stepped in to become the back- office operation for many financial planners and thereby gained more customers for itself.• Communication Gap – Changing investor behaviour rendered traditional methods of communications unsuccessful Closing the Gap – Communication about Schwab services through financial advisors/planners.
  10. 10. Benefits Schwab Gained• Customer selection increased – financial planners as well as investors• Converting ‘perceived’ competitors into clients• Created a large pool of virtual sales force at no cost• Stayed ahead of competitors by taking advantage of their lack of response• Increased profits
  11. 11. The Next Leap - OneSourceWHY?• Enormous expansion in the Mutual fund market space • both in investments and rising of numerous fund companies• Caused mainly 2 problem to customers: • Dizzying array of mostly unbranded fund options • High overall transaction fee (load fee + brokerage fee) • The transaction fee proved to be not just a financial barrier but a psychological one• Complexity for customers to relocate assets among funds• Also Schwab focused on business model that had a floor of recurring revenue
  12. 12. OneSourceWHAT?• “There were thousands of salespeople out there selling load funds, with huge commissions,” explains Chuck Schwab. “We wanted to create a way for people to buy a variety of mutual funds directly through us — have lots of choice, diversification — in a way that they could do it conveniently and at low cost.”• This gave rise to ONESOURCE in July 1992
  13. 13. Service Adjuncts• Offered a no-load, no-transaction fee policy – “Discounted Mutual Funds”• All funds in OneSource was accessible through a single phone call and was tracked in a single account statement• Had a double advantage for both investors and mutual fund companies – Acted as a switchboard between the two• All backend work was carried out by Schwab for the fund companies thereby saving cost and time
  14. 14. The Switchboard BusinessDesign
  15. 15. Industry ResponseMainly 3 types of responses:• Denial : • No response, Thought that OneSource would be just a passing fad• Fee Structure: • Full service brokerage firms introduced new share classes with their funds with low or no fees• Imitation : • Replication of same Business Model • Eg: Fidelity included 370 funds
  16. 16. Technology and Schwab• 1989 – Tele Broker• Voice Broker• 1993 – Street smart Software• 1995 – e.Schwab • Complete account specifically designed for active traders • Used an e.schwab account to do trading at any time without the assistance of any account reps
  17. 17. Future of Schwab• OneSource as a gateway to bank customers - a customer segment unlikely to get• SchwabLife Insurance Services – “Discount Life Insurance”• AdvisorSource Program – advices clients with > $100,000 in their portfolio• Bought over UK firm – ShareLink Investment Services as expansion to new markets
  18. 18. Schwab’s Communication in the21st Century• Competition from low-cost providers causing withdrawals for Schwab Investor Services customers• New target market: Mass affluent• Fairly knowledgeable about investing, want quality services yet are cost-conscious• Communication strategies: Product-oriented, dispersed campaigns• Multiple campaigns conflict with each other
  19. 19. Talk to Chuck Campaign• Aimed to increase awareness levels among the target customers• Reposition the company as a value-for-money alternative to traditional high fee charging financial services firms• Communicate that the firm’s objectives are imbibed by each employee of the company.
  20. 20. Campaign Attributes• Easy to pronounce and remember• References a known personality, whose values can be seen• Personifies trust, integrity, professionalism, and approachability, confidence in ability to serve customer needs, a personal touch and an overall care for the client as a person• Encourages investors to have straightforward conversations with a company employee about common issues in taking investment decisions• An informal feel that projects the feeling of being able to confide in a close friend
  21. 21. Communication StrategyCharacteristics• Target is new and existing customers who can invest $50,000 to $2 million• Affective component: Changing current investor attitudes towards financial services firms• Behavioral component: Call and talk to a Schwab representative• Essentially a pull strategy
  22. 22. Conclusions• Be sensitive to evolving customer needs• Be proactive• Ask the right questions• Be innovative – Seize opportunities• Be in constant touch with the customer