Q1.

What alternatives did David Pottruck just have before Jan

15,1998?As David Pottruck would you cut prices on Jan 15,1998?
Offer internet trading with full service options at $19.95 to compete with E*Trade and DLJdirect
Offer at $29.95 with quality customer service and investment resources to justify this price
Offer at $39.95 and later reduce to $29.95 to face market competition
Enter price war with Suretrade and AmeriTrade at low cost (around 8$)
Not exercise any option as the options cause cannibalization of offline customers/not receive good response
from Wall Street
Rebrand the internet offering e.schwab to other to help differentiate with the regular service and project it as a
separate entity w.r.t. Schwab
Cutting price to 29.95 is justified since, Projected cannibalization of its offline and full service online business
would cost $125 million in revenue, but they believed that they had the system capacity to handle the
projected increase in online trading if it were to offer $29.95 Internet trading to all of its customers.
Differentiation strategy would be more costlier and may not grab much customer confidence as e.schwab
does.
Q2. What were the key IT issues in front of Dawn Lepore?
Majorly, the issue was to adapt or change the current commission charging system, which could
handle only a single pricing structure, to handle price flexibility and larger number of pricing
schedules.
In spite of high growth in online trading System availability remained constant
The end users found it difficult to work on windows systems, and the customer care representatives
spent most time helping them navigate the systems.
To ensure effectiveness in the modular architecture practiced in Schwab as any development project
required integration of front end and back end systems.
To establish and review proper connectivity between the corporate project staff that worked in San
Franciscos office ( Front End ) and that worked in data centers and support centers in Untied States
(Back end ).
To bring the heavy investment in training of IT employees ($2000/IT member) in tandem with the
proportion of Gen-Xers in the IT staff even though Schwab favored experienced employees, primarily
baby boomers well versed with financial knowledge .
Consistent customer service had to be maintained by adapting the modular architecture to the
proposed changes.
 Q3)What is your opinion on their being a late entrant in the
online trading services market?Did they do the right thing?
Internet represented a transformational technology for financial services industry.

SwabMay have derived a competitive advantage by fully embracing technology early on.

Internet trading was in the midst of intense price competition (as low as $8/ trade)

Multi channel approach gave it a higher cost structure- competing with barebones online brokerages e.g. E*trade

Cannibalization of offline and full service online businesses cost the firm $125 million in revenue in first year alone

Reduced money for advertising and marketing

Heavy traders migrating to deep discount online brokers

Schwab-technology driven company- can adopt internet with ease

Internet trading premium- had to be sacrificed

It was the right time to enter the online trading service market as :

The wall street Investment bank (with execption of DLJ)were reluctant to enter this business and hence Schwab had an advantage

Schwab has financial stability to enter the market , their revenues were good and the company had a stable performance in the last 3 years.

New competitors were coming up and were using very low commissions, any delay in entering the service would have created a huge lag for Schwab to enter into the business
later.