ISM-II

ISM-IICase 2, Submission by- Group 8

Q1. What alternatives did David Pottruck have just before January 15, 1998? As David Pottruck, would you cut prices on January 15, 1998?Companys Strategy : Use technology for increase in productivity, deliver innovative products and superior customer service.

Due to intense price competition in the brokerage services offered by the firm, David Pottruck is in a dilemma and he should figure out a strategy quickly for dealing with decline in earnings due to expanded market offer and invest in IT for handling pricing structure until system upgrade. Till then it should continue with current systems as company is anticipating growth of revenues of close to 24% and double increase in online accounts.

Expanded market offer at $29.95A new internet offering in which offer all customers low priced Internet trading (e.Schwab) with full complement of Schwabs customer service options.

Pros: Competitive Advantage: By pursuing aggressive strategy and securing early market position.Can stop heavy traders to migrate to deep discount online brokers.Great service for good price : Attract new investors from full-service online brokerages -> Schwabs low prices and quality services.Enough existing system capacity to handle projected increase in online trading for all customers.Support of Customer service representatives by providing uniform service level across all customers.

Cons:Cannibalization of full-service online and offline customers by online e.Schwab -> Decline in revenues by $125 million and profit by $100 million.Stakeholders response: Decline in share prices due to lower earnings and unfavorable response of employees who owned 40% of the company.Resource Constraints : Less money available for marketing and advertising when it is critical time for developing brand and market and upgrade due for IT system.Price leadership in service oriented Internet trading product: Once it has set a lower price, no possibility of increasing it back later.Price competition/wars with deep discount firms : Multi-channel approach gave Schwab with higher cost structure

Hold on with current strategy with 2 distinct offerings- e.Schwab and full service optionContinue with existing offerings until the market opportunity of expanded market offer becomes clear and it has strategy for dealing with resulting earnings impact.

Pros: Performance -> Schwab has almost 5 times the number of accounts than second largest competitor. Investors were pleased with current performance and there was no significant premium for pure-play internet brokerage.Existing IT systems are capable to handle one type of pricing structure. Viable to wait for upgrade to finish.No immediate effect on revenues and earnings.

Cons:Lose customers permanently to deep discount discount online brokersSuccumb to price-competition and lose its competitive edge by not being a first mover.

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

Modular IT structure : Maintaining consistency in back-end systems for all front end systems Scaling up of back-end systems to handle the growth in front end applications. Anticipation of increase in number of customers will be difficult with expanded market offer. Quantifying future developments in IT with new offering and augmented options for providing customer service. Legacy commission charging system due for upgrade. Works for only one type of pricing structure (minimum charge + cents per trade) and limited number of pricing schedules. Tweaked pricing structure for e.Schwab product. Impossible to add any new pricing options.

Q3. What is your opinion on their being a late entrant in the online trading services market? Did they do the right thing?

Fig.- Current Positioning of Charles Schwab Corporation along with choices in future in competitive scenario

Opportunity cost of being a late entrant in the online trading services market

Less enthusiasm among investors and analysts as Charles Schwab Corporation will lose competitive groundThere will be reduction in new client and active client accountsAssets under management will rise very slowly as investors will attempt to qualify for lower priced trades

Remarks for successful endeavour in competitive scenario

Charles Schwab Corporation needs to be sensitive to evolving customer needsIt needs to be proactive, thus entering late in the online trading services market isnt an optionIt needs to be more innovative to capture right market opportunities in right timeHence, it needs to be in constant touch with the customers, conduct market research to capture the evolving issues and avoid late entry as the outcome will be unfavourable