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Pricing: Sample Case Project
Case: Online Broker Services PricingCourse Topic: Price Level (Chapter 6)
Company: Robinhood
© Stephan Sorger 2015: www.stephansorger.com; Pricing: Sample Case Project; 1
Disclaimer:• All images such as logos, photos, etc. used in this presentation are the property of their respective copyright owners and are used here for educational purposes only• Some material adapted from: Nagle et al, “The Strategy and Tactics of Pricing,” 5th Edition
Mini-Case #6D: Forbes: “Forget $10 Trades, Meet Robinhood: New Brokerage Targets Millennials…”http://www.forbes.com/sites/halahtouryalai/2014/02/26/forget-10-trades-meet-robinhood-new-brokerage-targets-millennials-with-little-cash/
Team 13: Homer Simpson, Bart Simpson, Marge Simpson, Lisa Simpson, Charles Montgomery Burns
Company
Robinhood is an online stock trading platform charging $0 per trade
Source: Forbes, 2/2014: http://www.forbes.com/sites/halahtouryalai/2014/02/26/forget-10-trades-meet-robinhood-new-brokerage-targets-millennials-with-little-cash/
© Stephan Sorger 2015: www.stephansorger.com; Pricing: Sample Case Project; 2
SituationSuccess criteria and value: Metric being maximized or minimized: •Primary: Member growth: 2/2014: 150,000; 5/2014: 330,000+•Secondary: Provisioning speed (getting users up and running)
Source: GrowthHackers: 5/2014: https://growthhackers.com/slides/robinhood-300k-signups/
© Stephan Sorger 2015: www.stephansorger.com; Pricing: Sample Case Project; 3
Situation
Overview of industry and its trends: Current events and direction
Source: Forbes, 2/2014: http://www.forbes.com/sites/halahtouryalai/2014/02/26/forget-10-trades-meet-robinhood-new-brokerage-targets-millennials-with-little-cash/
© Stephan Sorger 2015: www.stephansorger.com; Pricing: Sample Case Project; 4
•1.5M active traders who trade 10x/mo•Dominated by big competitors•Priced about $5-$10/trade •Cost about $0.03/trade•Trend: Dissatisfaction with finance co.
Situation
Overview of top 3+ competitors: Strengths and weaknesses of principals
© Stephan Sorger 2015: www.stephansorger.com; Pricing: Sample Case Project; 5
Competitor Price Strength Weakness
E-Trade $7.99+ Strong brand $5,000 acct minimum
Schwab $8.95+ Large assets $1,000 acct minimum
Scottrade $7 A bit cheaper $32 for broker assist
TDAmeritrade $9.99 Investment platform $45 for broker assist
Source: Etrade.com: https://us.etrade.com/e/t/prospectestation/pricing?id=1206010000Source: Schwab.com: http://www.schwab.com/public/schwab/investing/pricing_services/fees_minimumsSource: Scottrade.com: https://www.scottrade.com/online-brokerage/trading-fees-commissions.htmlSource: TDAmeritrade: https://www.tdameritrade.com/pricing.page
Situation
Overview of company: Important background and recent developments
© Stephan Sorger 2015: www.stephansorger.com; Pricing: Sample Case Project; 6
Source: Forbes, 2/2014: http://www.forbes.com/sites/halahtouryalai/2014/02/26/forget-10-trades-meet-robinhood-new-brokerage-targets-millennials-with-little-cash/Source: robinhood.com
•Free stock trading; No $10 fee•Encrypted for security•Financial Industry Regulatory Authority (FINRA)•Securities Investor Protection Corporation (SIPC)•Fast execution•Real-time quotes
Situation
Current pricing strategy/approach: Pricing methodology and consumer response
© Stephan Sorger 2015: www.stephansorger.com; Pricing: Sample Case Project; 7
• $0 per trade• Less than competitors• Makes money through interest from margin accounts and cash
Source: Robinhood.com: https://robinhoodapp.zendesk.com/hc/en-us/articles/203579955-How-is-Robinhood-similar-to-other-online-brokerages-such-as-E-Trade-Schwab-and-Scottrade-Source: Forbes: http://www.forbes.com/sites/greatspeculations/2014/10/15/can-zero-commission-trading-app-robinhood-challenge-large-brokerages/
“…Robinhood received overwhelming customer response…” Forbes, October 2014
Problem
Symptoms: Identification of symptoms present in the company and/or industry
© Stephan Sorger 2015: www.stephansorger.com; Pricing: Sample Case Project; 8
Millennials saving at -2%: Spending more than they have•60% of Millennials say they distrust financial markets (CapitalOne)•Comparison: Workers between 35-44 have savings rate of 3%
Source: CNN Moneyhttp://money.cnn.com/2014/11/10/pf/millennials-negative-savings/
-2%
Problem
Underlying problem: Identification of the underlying problem causing symptoms
© Stephan Sorger 2015: www.stephansorger.com; Pricing: Sample Case Project; 9
Old Model• Trading on PC• Trust in finance• Baby-boomers driving economy• Competition: Banks, Brokerages
New Model• Trading on iPhone• Distrust in finance• Millennials driving economy• Competition:Robo-Advisors, ETFs
Source: Forbes: http://www.forbes.com/sites/greatspeculations/2014/10/15/can-zero-commission-trading-app-robinhood-challenge-large-brokerages/
“Great” Recession: 2008 - on
Why are Millennials saving less?
Problem
Decision: Identification of type of decision that needs to be made: new service?
© Stephan Sorger 2015: www.stephansorger.com; Pricing: Sample Case Project; 10
Obstacle Description
Relationship Interact with broker Interact with iPhone
Location Do trades at home Do trades while mobile
Balances Minimum balance of $5000+ Minimum balance of $0
Fees High fees Low fees or $0 fees
New service that addresses obstacles to saving
Source: Forbes: http://www.forbes.com/sites/greatspeculations/2014/10/15/can-zero-commission-trading-app-robinhood-challenge-large-brokerages/
Analysis
Thought process: Support of thought process with research from previous sect.
© Stephan Sorger 2015: www.stephansorger.com; Pricing: Sample Case Project; 11
Source: Forbes: http://www.forbes.com/sites/greatspeculations/2014/07/25/td-ameritrade-q3-earnings-asset-based-revenues-make-up-for-low-trading-volumes/
Commission-based business Asset-based business Charge on purchases & sales Charge on assets under management“Commission” a bad word Reference value of 1% - 2% seems low
Screenshot from Forbes.com
Analysis
Approach Description and Examples
Commission Payment based on % of purchases & sales of equities: ETradeStrength: Only pay when changes are madeWeaknesses: Possible conflict of interestQuestion: What value is represented by the trade?
Online Internet-based purchases and sales of equitiesStrength: Cheaper than using brokerWeakness: Lacks insight of broker
Asset-based 1% - 3% fee on assets for ongoing management: RIA FirmsStrength: Reduced conflict of interestWeakness: Little accountability; No penalty if money lost
Obvious choices: Identification of typical approaches
© Stephan Sorger 2015: www.stephansorger.com; Pricing: Sample Case Project; 12
Source: Forbes: http://www.forbes.com/sites/greatspeculations/2014/07/25/td-ameritrade-q3-earnings-asset-based-revenues-make-up-for-low-trading-volumes/
Analysis
Approach Description; Examples
Robo-Advisor Low-fee (0.15%) asset-based management: BettermentStrength: Benefits of ongoing management without high feesWeakness: Little/no human insight; Lose when market drops
Free Charge $0 for trades of equities: RobinhoodStrength: Breaks down obstacles to savingWeakness: Find way to monetize; Little/no human insight
Unexpected choices: Identification of other approaches
© Stephan Sorger 2015: www.stephansorger.com; Pricing: Sample Case Project; 13
Recommendations
Strategies: General approach to address problem, based on analysis
© Stephan Sorger 2015: www.stephansorger.com; Pricing: Sample Case Project; 14
Source: Robinhood.com: https://robinhoodapp.zendesk.com/hc/en-us/articles/203579955-How-is-Robinhood-similar-to-other-online-brokerages-such-as-E-Trade-Schwab-and-Scottrade-Source: Forbes: http://www.forbes.com/sites/greatspeculations/2014/10/15/can-zero-commission-trading-app-robinhood-challenge-large-brokerages/
Penetration Pricing Charge $0 for tradesCharge $0 for low account balanceCharge $0 for assets under management(except for interest on cash)
Recommendations
Element Description
Product/Service Efficient service; Remove humans; Remove storefrontsPrice Penetration pricingPlace Apple app store (see screenshot); Android coming soonPromotion Public relations and article placement in Forbes, etc.
Tactics: Specific actions to implement strategy: product, price, place, promotion
© Stephan Sorger 2015: www.stephansorger.com; Pricing: Sample Case Project; 15
Source: iitunes.apple.com: https://itunes.apple.com/us/app/robinhood-$0-commission-stock/id938003185?ls=1&mt=8
Recommendations
Resource Description
Time In one year, amassed hundreds of thousands of users
Money Venture backed by Google Ventures, Andreessen Horowitz
Personnel Under-resourced provisioning teamHundreds of thousands of potential users in backlog
Resource impact: Time and money to execute strategy, eg redesign project
© Stephan Sorger 2015: www.stephansorger.com; Pricing: Sample Case Project; 16
Recommendations
Criteria Description for Existing Industry
Users Number of users; Bring closer to existing competitors: ETrade: 2.9M accounts; $200B+ in customer assetsTDAmeritrade: 5.8M accounts; $470B in customer assetsSchwab: 8.8M accounts; $1.95T in customer assets
Age Typical age of investors for traditional vehicles: 35+
Success criteria: Expected change in success criteria, increase users by 20%
© Stephan Sorger 2015: www.stephansorger.com; Pricing: Sample Case Project; 17
Source: nerdwallet.com: http://www.nerdwallet.com/blog/investing/2013/etrade-vs-td-ameritrade-schwab-compare-online-brokers/
Recommendations
Type Description for Robinhood
Users As of March 2015, 800,000 users on a waitlist
Age Average age: 26, as reported by Robinhood.com
Technology Current: iPhone mobile app; Android mobile app planned
Metric: Recommended metric to measure success, eg # new users
© Stephan Sorger 2015: www.stephansorger.com; Pricing: Sample Case Project; 18
Source: nerdwallet.com: http://money.cnn.com/2015/03/12/investing/robinhood-app-free-trading-millennials/
Conclusion
Learnings Description
Strengths High user growthAverage age agrees with Millennial target market
Weaknesses Significant backlog; Poorly resourced?Possible source of dissatisfaction
Opportunities Pull market share away from competitors
Threats Fallout from next market correction
Learnings: Identify what you learned from the case; eg inelastic pricing
© Stephan Sorger 2015: www.stephansorger.com; Pricing: Sample Case Project; 19
Conclusion
Applications: State how learnings can be applied to other similar situations
© Stephan Sorger 2015: www.stephansorger.com; Pricing: Sample Case Project; 20
Applications Description
Pricing Penetration pricing works!If you need to build a large user base in a hurry
Resources Penetration pricing will bring in many usersMust be ready to service users; Robinhood not ready
Business model Creative way to monetize usersAlternative to commission and asset-based business models
Contingencies Little evidence of contingency planningNot ready for users; Will they be ready for next recession?
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