The document describes the business model evolution of Charles Schwab from a conventional brokerage to a discount brokerage to serving financial planners and launching the OneSource platform. It discusses how Schwab identified gaps in existing models and designed new services like the discount brokerage and institutional services for financial planners to better serve customers with lower costs and greater convenience. The document also summarizes Schwab's Talk to Chuck advertising campaign aimed at positioning the company as a cost-effective alternative through an approachable spokesperson.

1. The Switchboard
Business Design
By Group 5:
• Cheryl Correa (F11014)
• Gitanjali (F11018)
• Neha Thomas (F11035)
• Ramya Chittigala (F11045)

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. 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. 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. 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. 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. • 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. Second Business Model: Serving
the Financial Planners
Market 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 firms
What did Schwab do?
Developed New Ways to deliver – Using Financial Planner
Created a new channel to the investors/customers through independent
advisors.
Leveraged the strength of the financial planners to grow his own business.

9. Gaps in the Existing Service
Model
• 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. 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. The Next Leap - OneSource
WHY?
• 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. OneSource
WHAT?
• “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. 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. The Switchboard Business
Design

15. Industry Response
Mainly 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

17. 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

18. 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

19. Schwab’s Communication in the
21st 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

20. 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.
http://www.youtube.com/watch?v=_8rNyK1vGKQ

21. 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

23. Communication Strategy
Characteristics
• 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

24. Conclusions
• Be sensitive to evolving customer needs
• Be proactive
• Ask the right questions
• Be innovative – Seize opportunities
• Be in constant touch with the customer