Charles Schwab Case Study

1. The Switchboard
Business Design
By Group 5:
• Cheryl Correa (F11014)
• Gitanjali (F11018)
• Neha Thomas (F11035)
• Ramya Chittigala (F11045)

2. CONTENTS
• Introduction – How it all started
• Business Designs:
1. The Discount Brokerage Design
2. Serving the Financial Planners
3. OneSource: The Switchboard Business Design
• Bridging the Communication Gap – Talk to Chuck Campaign

3. How it all started
• 1971 - Charles Schwab started ‘First Commander’
• Initial business model similar to a conventional brokerage
• No brand, No technology, No client base
• 1975 - SEC outlawed fixed commissions
• Schwab seized opportunity – business design changed to
‘discount broker’

4. Timeline
• 1971- Started the brokerage, First Commander
• 1975 – Started the discount brokerage
• 1984 – Had 20% of discount brokerage market
• 1985-89 – The Schwab Institutional Enterprise
linking independent advisors
• 1989 – TeleBroker system introduced
• 1992 – Charles Schwab OneSource launched
• 1995 – e.Schwab launched

5. The Discount Brokerage business
• Conventional brokers - high fee due to Advice, Counseling and
Trading capabilities
• Listening Gap: No option for low-cost trades due to ‘Bundled’
package (Advice + Trading functions)
Closing the Gap - Discount brokerage (to unbundle Advice and
Trades)

6. Value-added Discounter model
• Need for differentiation – ‘Why does the customer want to buy
from me?’
• Customer-centric service-design:
• Salaries instead of Commissions
• Reliable information to customers
• Addressed investors need: Inexpensive Access to Market
• Gave customers what they wanted ONLY, no additional costs
• Up-to-date technology: More easily executable trades

7. • Emphasis on greater value to customers influenced Customer-
Perception
• Re-invested Profit in:
- Building brand-name and branch network
- Establishing local presence
- Computers & Technology
- Investor-support
- Advertising: Charles Schwab on TV, radio, billboard and print ads
• Addressed Competition by:
- Strong differentiation
- Sharing services with new customers instead of hard-selling new
products to existing customers

8. Second Business Model: Serving
the Financial Planners
Market Environment
• Change in customer behaviour in the late 1980s – from savings to
investment
• Need for unbiased, independent financial advisors
• Mushrooming of independent advisors – individual and partnership firms
What did Schwab do?
Developed New Ways to deliver – Using Financial Planner
Created a new channel to the investors/customers through independent
advisors.
Leveraged the strength of the financial planners to grow his own business.

9. Gaps in the Existing Service
Model
• Listening Gap – Most traditional firms didn’t recognise the change needs
of the customers
Closing the Gap – The Schwab Institutional Enterprise linking
Charles Schwab & company with independent financial
advisors.
• Service Performance Gap – The financial advisors were not
technologically capable of meeting the necessary customers needs
through efficient back end operations
Closing the Gap – Schwab stepped in to become the back- office
operation for many financial planners and thereby gained more
customers for itself.
• Communication Gap – Changing investor behaviour rendered traditional
methods of communications unsuccessful
Closing the Gap – Communication about Schwab services
through financial advisors/planners.

10. Benefits Schwab Gained
• Customer selection increased – financial planners as well as
investors
• Converting ‘perceived’ competitors into clients
• Created a large pool of virtual sales force at no cost
• Stayed ahead of competitors by taking advantage of their lack
of response
• Increased profits

11. The Next Leap - OneSource
WHY?
• Enormous expansion in the Mutual fund market space
• both in investments and rising of numerous fund companies
• Caused mainly 2 problem to customers:
• Dizzying array of mostly unbranded fund options
• High overall transaction fee (load fee + brokerage fee)
• The transaction fee proved to be not just a financial barrier but a
psychological one
• Complexity for customers to relocate assets among funds
• Also Schwab focused on business model that had a floor of
recurring revenue

12. OneSource
WHAT?
• “There were thousands of salespeople out there selling load
funds, with huge commissions,” explains Chuck Schwab. “We
wanted to create a way for people to buy a variety of mutual
funds directly through us — have lots of choice, diversification
— in a way that they could do it conveniently and at low cost.”
• This gave rise to ONESOURCE in July 1992

13. Service Adjuncts
• Offered a no-load, no-transaction fee policy – “Discounted
Mutual Funds”
• All funds in OneSource was accessible through a single phone
call and was tracked in a single account statement
• Had a double advantage for both investors and mutual fund
companies – Acted as a switchboard between the two
• All backend work was carried out by Schwab for the fund
companies thereby saving cost and time

14. The Switchboard Business
Design

15. Industry Response
Mainly 3 types of responses:
• Denial :
• No response, Thought that OneSource would be just a passing fad
• Fee Structure:
• Full service brokerage firms introduced new share classes with
their funds with low or no fees
• Imitation :
• Replication of same Business Model
• Eg: Fidelity included 370 funds

17. Technology and Schwab
• 1989 – Tele Broker
• Voice Broker
• 1993 – Street smart Software
• 1995 – e.Schwab
• Complete account specifically designed for active traders
• Used an e.schwab account to do trading at any time without the
assistance of any account reps

18. Future of Schwab
• OneSource as a gateway to bank customers - a customer
segment unlikely to get
• SchwabLife Insurance Services – “Discount Life Insurance”
• AdvisorSource Program – advices clients with > $100,000 in
their portfolio
• Bought over UK firm – ShareLink Investment Services as
expansion to new markets

19. Schwab’s Communication in the
21st Century
• Competition from low-cost providers causing withdrawals for
Schwab Investor Services customers
• New target market: Mass affluent
• Fairly knowledgeable about investing, want quality services
yet are cost-conscious
• Communication strategies: Product-oriented, dispersed
campaigns
• Multiple campaigns conflict with each other

20. Talk to Chuck Campaign
• Aimed to increase awareness levels among the target
customers
• Reposition the company as a value-for-money alternative to
traditional high fee charging financial services firms
• Communicate that the firm’s objectives are imbibed by each
employee of the company.
http://www.youtube.com/watch?v=_8rNyK1vGKQ

21. Campaign Attributes
• Easy to pronounce and remember
• References a known personality, whose values can be seen
• Personifies trust, integrity, professionalism, and
approachability, confidence in ability to serve customer needs,
a personal touch and an overall care for the client as a person
• Encourages investors to have straightforward conversations
with a company employee about common issues in taking
investment decisions
• An informal feel that projects the feeling of being able to
confide in a close friend

23. Communication Strategy
Characteristics
• Target is new and existing customers who can invest $50,000
to $2 million
• Affective component: Changing current investor attitudes
towards financial services firms
• Behavioral component: Call and talk to a Schwab
representative
• Essentially a pull strategy

24. Conclusions
• Be sensitive to evolving customer needs
• Be proactive
• Ask the right questions
• Be innovative – Seize opportunities
• Be in constant touch with the customer