Charles Scwab Case Analysis

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Charles Schwab Corporation (A) Case Analysis As David Pottruck, would you cut prices on January 15, 1998? What alternatives did he have? In 1997 the market of online trading was already segmented in two categories: 1. Very price sensitive customers preferring deep discounted commissions 2. Less price sensitive customers giving more value to the products and services Customer profile of both categories is also different. Very price sensitive segment consisted of younger, less wealthy and self directed individuals. The other segment included comparatively older and wealthy individuals. Therefore, the 1st category is doing online trading on the basis of self research. While the latter segment is more interested in advice and proper service rather than the self directed nature of online trading. Schwab’s 80% revenue comes from 20% customers who mostly belong to the second category because they traded on Schwab because of its offline business consisting of branches and offices located in the city. Company’s dilemma is that it serves both the segments. In our opinion, company should not adopt the strategy of combining both the segments in one new offering at discounted $29.95 commission. It might have been wise to wait before going ahead with the price cut from $39.95 to $29.95 because of the following reasons 1. Reduction of commission may start the price war by offering even less than $8 by some of its competitors, as the analyst believe that the marginal cost of completing a trade was between $3 to $5 2. New offering i.e. $ 29.95 may not be able to retain and attract the very price sensitive customer segment because they are trading on self directed basis. They may not be willing to pay for advice/ additional services in new offering 3. New offering is expected to cannibalize its offline and full service online business which is projected to

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