Case Analysis of Ameritrade

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Case Analysis of Ameritrade Problem Statement: The main problem of the company is to determine the cost of capital of the investment in order to make sure that whether the cost cutting strategy would work in the future. Analysis of the Problem: The basic strategy designed by the management includes three main aims- like for instance cutting the prices of the service offered, enhancing the technology and finally increasing on the advertisement budget. Now once they decrease the price substantially from $29.95 to $8 per trade market order, they are actually becoming the low cost provider of the internet trading service. These low-price strategies will surely cut-off the competition but at the same time it will ensure certain doubts in the minds of the price sensitive customers. The doubts will be mainly regarding the quality of service provided by the firm. Hence in order to do so, the company needs to introduce a massive technology enhancement as it will only ensure a hundred percent reliability of the service. Then once the company installs this enhancement they need to communicate it to the consumers and increasing advertising budget is the only feasible alternative. The strategy designed by the management looks logical but however the margin of error in this case is very low. That means it depends on the probability of increased amount of sale which will eventually give the desired return. Moreover if we observe the situation financially the company is taking a huge risk by not only incurring two major investment but also is gambling with the chances of reducing the operating profit as they have decided to decrease the price per service unit. Thus by taking an overall view it can be said that the decision adapted by the management is associated with great deal of risk. Now the actual risk in the decision making should be evaluated by analyzing the

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