The Switchboard Business Design

By Group 5:• Cheryl Correa (F11014)• Gitanjali (F11018)• Neha Thomas (F11035)• Ramya Chittigala (F11045)

CONTENTS• Introduction – How it all started

• Business Designs:1. The Discount Brokerage Design2. Serving the Financial Planners3. OneSource: The Switchboard Business Design

• Bridging the Communication Gap – Talk to Chuck Campaign

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’

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

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)

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

• 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

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 PlannerCreated a new channel to the investors/customers through independent advisors.Leveraged the strength of the financial planners to grow his own business.

Gaps in the Existing Service Model• Listening Gap – Most traditional firms didn’t recognise the change needs of the

customersClosing 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.

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

The Next Leap - OneSourceWHY?• 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

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

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

The Switchboard Business Design

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

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

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

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

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

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

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

Conclusions• Be sensitive to evolving customer needs

• Be proactive

• Ask the right questions

• Be innovative – Seize opportunities

• Be in constant touch with the customer