Charles schwab AMP

Last Updated: 01/10/01Copyright 2000 by Marketspace LLC

Exhibit 2-1: Framework for Diagnosing Market Opportunity

Seed Opportunity in Existing or New Value Seed Opportunity in Existing or New Value SystemSystem

Seed Opportunity in Existing or New Value Seed Opportunity in Existing or New Value SystemSystem

Uncover Opportunity Nucleus:Uncover Opportunity Nucleus:Identify Unmet and Underserved NeedsIdentify Unmet and Underserved Needs

Uncover Opportunity Nucleus:Uncover Opportunity Nucleus:Identify Unmet and Underserved NeedsIdentify Unmet and Underserved Needs

Identify Target SegmentsIdentify Target SegmentsIdentify Target SegmentsIdentify Target Segments

Declare Company’s Resource-Based Declare Company’s Resource-Based Opportunity for AdvantageOpportunity for Advantage

Declare Company’s Resource-Based Declare Company’s Resource-Based Opportunity for AdvantageOpportunity for Advantage

Assess Competitive, Technical and Financial Assess Competitive, Technical and Financial Opportunity AttractivenessOpportunity Attractiveness

Assess Competitive, Technical and Financial Assess Competitive, Technical and Financial Opportunity AttractivenessOpportunity Attractiveness

Make Go / No Go AssessmentMake Go / No Go AssessmentMake Go / No Go AssessmentMake Go / No Go Assessment


Supporting Slide 2-A: Requirements of an Effective Segmentation

MeaningfulMeaningfulMeaningfulMeaningful

ActionableActionableActionableActionable

SubstantialSubstantialSubstantialSubstantial

MeasurableMeasurableMeasurableMeasurable

Customers must demonstrate needs, aspirations or behavioral patterns that are similar within a segment and different across segments

– A distinction between a price-sensitive and a quality-seeking segment is meaningful, since the two segments demonstrate distinguishable sets of needs

A company must be able to reach customers within each segment through effective and targeted marketing programs

– A customer segment consisting of customers with blue eyes is not actionable, since it is very hard to identify and reach only customers with blue eyes

Segments must be large and profitable enough to make the investment in serving them worthwhile

– myCFO.com is targeted towards high net worth individuals, helping them manage their portfolios. Even though the number of those individuals is small, the $ amount managed is sizeable, thus constituting a substantial segment

Key characteristics of the segments (e.g., size and spending patterns) must be easy to measure

Source: Philip Kotler, Marketing Management, 1997 (Chapter 9, page 269)

In order for a customer segmentation to be effective, it must be meaningful, actionable, measurable and substantial


Table 2-1: Segmentation Approaches

Segmentation Type Description Examples — Variables

Geographic

Divides the market into different geographical units

Country / region / city, city size, density (urban, suburban, rural), ISP domain

Demographic Divides the market on the basis of demographic variables

Age, gender, income, occupation, education, nationality, family status, Internet connectivity

Firmographic Divides the market on the basis of company-specific variables

Online / offline business, number of employees, company size, job function, purchasing process

Behavioral Divides the market based on how customers actually buy and use the product

Online / offline shopping behavior, web-page or site customer arrived from, website loyalty, prior purchases

Occasion (Situational) Divides the market based on the situation that leads to a product need, purchase or use

Routine occasion, special occasion, time (time of day, day of week, holidays), location (From home, on the road), event (when writing a business plan, when shopping), trigger (out of supply)

Psychographic Divides the market based on lifestyle and / or personality

Personality (laid back, type A), lifestyle (thrill seekers, fun lovers, recluse), affinity (community builders, belongers, outcasts)

Benefits Divides the market based on benefits or qualities sought from the product

Convenience, economy, quality, ease of use, speed, information, selection


Supporting Slide 2-B: Geographic Segmentation — Description

Geographic segmentation divides the market into distinct geographical units, such as nations, states or regions

In the Internet space, geographic barriers are to a large extent lifted

However, there still are many industries where local relationships and distribution channels play a key role, maintaining the need for a local focus

– Webvan is currently operating in Atlanta, Chicago, Sacramento and San Francisco; entry into new geographical markets will require the building of the necessary home- delivery infrastructure

– Many construction sites have a local or regional focus, since relationships with local or regional contractors and suppliers are of critical importance

Country

Region

Urban vs. Rural

Density

Climate

DescriptionDescriptionDescriptionDescription

Segmentation Segmentation ExamplesExamples

Segmentation Segmentation ExamplesExamples

Source: Philip Kotler, Marketing Management, 1997 (Chapter 9, page 257)


Exhibit 2-9: Schwab — Defining Existing or New Value System

How?

Making markets more efficient

Compressing or eliminating steps in current value systems

Enabling ease of access

Disrupting current pricing power

Customizing offerings

Extending reach / access

Building community

Collaborating across multiple people, locations and time

Introducing new-to-the-world functionality or experience

ReleaseTrapped

Value

Create NewValue


Supporting Slide 2-J: Schwab — Needs-Based Segmentation

Source: Jeffrey Veen, Hot Wired Style, Monitor Analysis

“Saving for a Goal”“Saving for a Goal”

Saving for retirement

Saving for college

Saving for house down payment

Saving for retirement

Saving for college

Saving for house down payment

“Traders”“Traders”

Hobby investors

Active traders

Hobby investors

Active traders

“Financial Planning”“Financial Planning”

Estate planners

Tax planners

Trust fund managers

Estate planners

Tax planners

Trust fund managers

Schwab’s market segments fall into three categories


Professional<$150k

Professional>$150k

Professional<$150k

Professional>$150k

Exhibit 2-11: Schwab — Segmentation (1997 Timeframe)

Buy and Hold

Current Offline Schwab

Customer

High Net Worth (<$1M)

Mar

ried

No

t S

ch

wa

b C

us

tom

er

Other White Collar

Frequent Trades

Sin

gle

Blue Collar

RetireeUniversity Student

Ch

ild

ren

> 3

0N

o

Ch

ild

ren

< 3

0

Mature( > 55)

High Priority Secondary Priority Tertiary Priority De-emphasize

C I

J K

D

E

A

G

H

F

M

L

N

O PB


Segments Schwab Merrill Lynch Ameritrade DLJ Direct

B. High Net Worth

Independent financial advisors

Advice for platinum members

High-quality information service

Advice and access to analysis

Portfolio management

No advice

Limited research Bare-bones

service

Comprehensive research

High-quality service

Service professional assigned to clients with at least $1M in assets

G. Buy and Hold (>$150K)


High level of service

Moderate price

High price Access to

analysis

Lowest price ($8 / trade)

Limited research tools (company profiles and earnings estimates)


IPO center allowing investors to participate in IPOs

Moderate price

J. Frequent Traders (<$150K)

High quality of information

Reduced prices for frequent traders

Multiple channels for trading (phone, online, branch)

Eventually:

Velocity software (introduced August 1999)

Very high price

Lowest price ($8 / trade)

Limited research

Eventually:

Multiple channels for trading (including online, telephone, Web and wireless)

Free real-time quotes and current financial news

No price reduction for frequent traders

Eventually:

Marketspeed 3.0 providing faster trade execution

Wireless alerts and trading

Real-time quotes, streaming news

High performance level Medium performance level Low performance level

Exhibit 2-12: Schwab — Competitor Map to Segments


Exhibit 2-13: Schwab.com Overall Opportunity Assessment

PositiveFactor

NeutralFactor

NegativeFactor

CompetitiveVulnerability

TechnicalVulnerability

Magnitude ofUnmet Need

InteractionBetween

Segments

Likely Rate ofGrowth

TechnologyVulnerability

Market Size Level ofProfitability


Exhibit 3-1: Components of a Business Model

Value ClusterValue Cluster

Marketspace OfferingMarketspace Offering

Resource SystemResource System

Financial ModelFinancial Model


Supporting Slide 3-B:

Consumer Decision Process — Flower Example

Flowers

DisposalDisposal

LoyaltyLoyalty

SatisfactionSatisfaction

Purchase DecisionPurchase Decision

Evaluation of AlternativesEvaluation of Alternatives

Information SearchInformation Search

Problem - RecognitionProblem - Recognition

Pre-Purchase

Purchase

Post-Purchase

Need recognition, potentially triggered by a holiday, anniversary or everyday events

Search for ideas and offerings, including:– Available on-line and off-line stores– Gift ideas and recommendations– Advice on selection style and match

Evaluation of alternatives along a number of dimensions, such as price, appeal, availability, etc.

Purchase decision Message selection (medium and content)

Post-sales support– Order tracking– Customer service

Education on flowers and decoration Post sales perks


Exhibit 3-8: Schwab Egg Diagram

Schwab Learning Center Live Events Principles of Investing Understanding Market Cycles “Did You Know” Q&A

Schwab Signature Services

Schwab AdvisorSource Options Service Global Investing Service

Online chat with Customer Service Representatives

Customer Service via phone Customer Service via email Customer Service at Branch My Watch List

Margin Loans Money Transfers Automatic Investing Options Service After Hours Trading Account Protection Bill Payment

Overall General Goal

Planner Investor Profile Sample

Investment PlansRetirement Retirement

Planner IRA Analyzer

Product Offering

On-Line Investment Process

Get educated about

investing Plan

investments

Decide on Investment

Perform Investment

Post Investment

Support

Perform Research

Estate Estate Tax and

Probate Calculator Alternatives ComparisonCollege College PlannerTax Tax Strategies IRS Withholding

Calculator

Overall Quotes and Charts Analyst CenterStocks and Options Stock AnalyzerBonds and Treasuries Schwab BondSource

ServicesCDs and Money Markets SchwabOne

Annuities Schwab Select

AnnuityLife Insurance Insurance Needs

Calculator


Exhibit 3-9: Schwab Resource System

Optimize Staff in

Branches

Optimize Staff in

Branches

Lower PricesLower Prices

Train IT Staff

Train IT Staff

24x7 Access

24x7 Access

Media General

Media General

S&PS&P

Hoovers

Hoovers

PhonePhone

BranchBranch

OnlineOnline

Charge For Value

Added Services

Charge For Value

Added Services

Provide Lower

Commission for Frequent

Traders

Provide Lower


Traders

Innovative Products

Innovative Products

Center of Knowledge and

Innovation


Innovation

Investment in R&D

Investment in R&D

Cutting Edge Technology

Cutting Edge Technology Investment in ITInvestment in IT System ReliabilitySystem Reliability Multiple Points of

Access

Multiple Points of Access

Hire IT Staff

Hire IT Staff

Competitive Commission Rates

Competitive Commission Rates

Streamlined Operations


Learning

Center

Learning

Center

= Resources

= Capabilities

= Core Benefits

Superior Service

Superior Service

Partnerships with Content Providers

Partnerships with Content Providers

Invest in CSR Trainin

g


g

Align CSR Compensation

with Quality of Service



Customer ServiceCustomer Service

OnesourceOnesource


Exhibit 3-10: Schwab Resource System

= Company needs to outsource or partner

= Company can perform in-house

Optimize Staff in

Branches

Optimize Staff in

Branches

Lower PricesLower Prices

Train IT Staff

Train IT Staff

Capable IT StaffCapable IT Staff

24x7 Access

24x7 Access

Media Genera

l

Media Genera

l

S&PS&P

Hoovers

Hoovers

PhonePhone

BranchBranch

OnlineOnline

Charge For Value

Added Services

Charge For Value

Added Services

Provide Lower


Traders

Provide Lower


Traders

Innovative

Products

Innovative

Products


Innovation


Innovation

Investment in R&D

Investment in R&D



Investmentin IT

Investmentin IT

System Reliability

System Reliability



Hire IT Staff

Hire IT Staff

Competitive Commission

Rates

Competitive Commission

Rates



Learning

Center

Learning

Center

Superior Service

Superior Service

Partnerships with Content

Providers

Partnerships with Content

Providers


g


g





Well-Trained CSRs

Well-Trained CSRs

OnesourceOnesource


Downsized branch staff

Downsized branch staff

High quality Investment Information


Innovative productsInnovative products

Low priceLow price

Large, well trained sales force

Large, well trained sales force

Technology LeadershipTechnology Leadership

Supporting Slide 3-K:Schwab Activity System

Superior serviceSuperior service

Investment in ITInvestment in IT

24 x 7 Customer service

24 x 7 Customer service

Exceptional team of engineers

Exceptional team of engineers

In-house technology

development

In-house technology

development

Large investment in R&D

Large investment in R&D

System able to handle large

volume

System able to handle large

volume

Increase in trade

volume

Increase in trade

volume

Increase in non-trade revenue

Increase in non-trade revenue

Multiple points of access

Multiple points of access

On-lineOn-line PhonePhone BranchBranch

Comprehensive information

Comprehensive information

Partnerships with

content providers

Partnerships with

content providers

Hoovers Online

Hoovers Online

S&P Comstock

S&P Comstock

Media General

Media General


Supporting Slide 3-L:

Schwab Value Proposition

“Use technology to offer innovative products and superior service at lower prices to investors

unwilling to pay for investment advice”


ProcessesProcesses

AssetsAssets

SystemsSystems

PeoplePeople

Source:Christensen, Clayton M. 2000. Meeting the Challenge of Disruptive Change. Harvard Business Review 78, no. 2 (March-April).

MAPPING THERESOURCE SYSTEM

DELIVERY SYSTEM

Supply ChainsSupply Chains

Exhibit 6-4: The Delivery System Needs to Support and Reinforce the

Resource System


Exhibit 6-13: Schwab IT Infrastructure

Source: Tempest, Nicole and Warren McFarlan. 1999. Charles Schwab Corporation (A). Case no. 9-300-024, 9 September. Boston: Harvard Business School Publishing.


Exhibit 6-14: Timeline for Schwab Innovations

1979 1985 1989 1991 1992 1993 1995 1996 1997 1998 1999 2000

Entire trade clearing system brought in-house

Equalizer: DOS based product enabling PC users to trade stocks on-line

Telebroker: 24x7 quote and order placement by telephone

SchwabLink: Service for fee-based financial advisors

OneSource: Mutual fund program allowing investors to purchase Schwab and non-Schwab funds free of charge

Streetsmart: Windows-based software allowing on-line trading of equities, bonds and mutual funds

October 1995eSchwab:

Electronics software package dialing into Schwab system

June 1995Advisor

Source: Referral service for fee-based advisors

March 1996Upgraded

eSchwab: First major brokerage firm to offer trading via the Internet

September 1997Customized asset

allocation tool available on-line

October 7, 1997SchwabLink

available on the web

October 1, 1997First speech

recognition service for investors

January 27, 1998MoneyLink:

Electronic funds transfer service

May 14, 1998First U.S. website

enabling order placement in Chinese

January15, 1998Schwab.com

launches

January 20, 1998IRA Analyzer

launches

September 21, 1998CD ROM Tool for

retirement setup and monitoring

November 23, 1998Web tool to track and

benchmark investor performance

April 16, 1999New site

based on user input

April 27, 1999Retirement

Planner on-line

August 14, 1999Velocity software

trading system for active investors

September 8, 1999New web tools for

investment advisor offering

May 24, 1999MySchwab launch

August 19, 1999Plans for cross-

platform wireless trading

November 9, 1999Paperless trading with

eConfirms

October 20, 1999After Hours trading

November 23, 1999Velocity 2.0 launch

December 1, 1999Enhanced Analyst

Center

December 22, 1999New on-line mutual

fund tools

February 3, 2000Learning Center:

Interactive education tool for on-line learning

March 7, 2000Schwab and Barclays

announce internet-based foreign exchange service

March 15, 2000Schwab expands advice

offering with Portfolio consultation

March 31, 2000Schwab and Dow

Jones unveil on-line Chinese news and research service

May 7, 2000Stock Analyzer

launched, offering third party equity analyst recommendations and earnings projections


Exhibit 7-10: Charles Schwab -- Customer Acquisition Stage

Step 1: Articulate the Business Strategy

“Use technology to offer innovative products and superior service at lower prices to investors unwilling to pay for investment advice”

Schwab Learning Center Live Events Principles of Investing Understanding Market

Cycles “Did You Know” Q&A

Schwab Signature Services

Schwab AdvisorSource Options Service Global Investing

Service

Online chat with Customer Service Representatives

Customer Service via phone Customer Service via email Customer Service at Branch My Watch List

Margin Loans Money Transfers Automatic

Investing Options Service After Hours

Trading Account

Protection Bill Payment

Overall General Goal

Planner Investor Profile Sample

Investment Plans

Retirement Retirement

Planner IRA Analyzer

Product Offering

On-Line Investment Process

Get educated about

investing

Plan investments

Decide on Investment

Perform Investment

Post Investment Support

Perform Research

Estate Estate Tax and

Probate Calculator Alternatives

ComparisonCollege College PlannerTax Tax Strategies IRS Withholding

Calculator

Overall Quotes and Charts Analyst CenterStocks and Options Stock AnalyzerBonds and Treasuries Schwab BondSource

ServicesCDs and Money Markets SchwabOne

Annuities Schwab Select

AnnuityLife Insurance Insurance Needs

Calculator

1. Value Proposition

2. Marketspace Offering



Innovative productsInnovative products

Low priceLow price

Technology LeadershipTechnology Leadership

Superior serviceSuperior service

3. Resource System


Exhibit 7-11: Schwab Desired Outcome Summary

MARKET OPPORTUNITY

•Significant Opportunity•Financially Attractive Segment•Competitively Attractive Segment

BUSINESS MODEL

•Value Proposition vs. Competition•Offer vs. Competition•Capabilities vs. Competition•Sustainability of Value Proposition

CUSTOMER INTERFACE & OUTCOMES

•Lower Customer Acquisition Costs•Transition Customer Base•Outperform competition on Interface Perceptions

•Customer Satisfaction & Loyalty

IMPLEMENTATION & BRANDING

•Brand Associations vs. Competition•Best-in-class IT Infrastructure•Ability to Deliver Brand Promise

FINANCIAL EVALUATION

•Revenue•Profit•Cost•Balance Sheet

BusinessModel


Exhibit 7-12: Charles Schwab -- Customer Acquisition Stage

BusinessModel

BusinessModel

Implementation& Branding

Implementation& Branding CustomerCustomer FinancialFinancial

Build brand

Build brand

Increase system uptime

Increase system uptime

Train branch

staff

Train branch

staff

Improve customer service

Improve customer service

Increase customer

loyalty

Increase customer

loyalty

Increase profit

Increase profit

Optimize cost

Optimize cost

Increase revenue

Increase revenue

Investin

technology

Investin

technology

Increase number of

IT staff

Increase number of

IT staff

Increase customer satisfactio

n

Increase customer satisfactio

n

Increase usage

Increase usage

Acquire new

customers

Acquire new

customers

MarketOpportunity

MarketOpportunity

Avoid crowded markets

Avoid crowded markets

Play in attractive market

Play in attractive market

Target attractive segments

Target attractive segments

Leverage capabilitie

s to deliver offering

Leverage capabilitie

s to deliver offering

Provide unique

VP

Provide unique

VP

Provide attractive offering

Provide attractive offering

Documents

Charles schwab AMP