Case study Charles Schwab Charles Schwab founded the discount brokerage named for him in 1974. The companys
Question:
Case study
Charles Schwab
Charles Schwab founded the discount brokerage named for him in 1974. The company’s no-frills investment offerings were predicated on Charles Schwab’s distaste for traditional brokers, who he labeled “hucksters of inside information, always trying to get me to buy this product or investment.” Until 1993, Schwab’s brokers were instructed not to offer investment advice, but rather to refer curious customers to publicly available research from Standard & Poor’s or Morningstar.
Schwab benefited from the online trading boom. Long before any of the traditional brokerage houses considered an e-commerce move, in 1997 Schwab was one of the first discount brokerages to offer online trading. It offered online trades at $29.95 for the first 1,000 shares, compared with the per-trade fees that exceeded $100. Starting at zero in 1995, online trades accounted for 85 percent of all trades executed by Schwab by 2001. The company’s retail assets grew threefold to almost $1 trillion during the same time period, putting it in league with the biggest brokerages in America. Between 1997 and 2000, daily trades rose 183 percent, while profits increased 112 percent during that time frame.
Schwab’s marketing activities helped the company become a household name synonymous with online trading. Early ads used real Schwab customers and employees in testimonial advertisements. In 1999, the company enlisted celebrity spokespersons to advertise its full-service online investing offerings. The humorous ads featured sports stars such as football player Shannon Sharpe and tennis star Anna Kournikova in cameo roles as Schwab customers who surprised competitors with their knowledge of investing principles. The tagline served to reinforce Schwab’s difference from online-only brokerages: “We’ve created a smarter kind of investing. We’ve created a smarter kind of investor.” These ads were part of Schwab’s $200 million marketing budget for 1999.
In 2001, as online trading slowed in the wake of the dot-com crash, Schwab sought to expand its business by providing its customers with a greater number of services. Rather than rely on a high volume of low-cost trades to drive revenues, Schwab began focusing on providing investment advice to its clients. In new brokerage offices, Schwab placed financial advisers from whom clients could seek investment tips and other services for a fee. Schwab also considered offering proprietary stock research for its customers. Industry experts expected these new services would recast Schwab in a role more similar to traditional brokerage houses. A former Schwab executive predicted, “Schwab will be a lot closer to Merrill Lynch than it is to the Schwab of yesterday.”
(Sources: John Gorman, “Charles Schwab, Version 4.0,” Forbes, January 8, 2001, pp. 89–95. Charles Gasparino and Ken Brown, “Schwab’s Own Stock Suffers from Move into Online Trading,” Wall Street Journal, June 19, 2001, p. A1. Rebecca Buckman and Kathryn Kranhold, “Schwab Serves Up Sports-Themed Ads,” Wall Street Journal, August 30, 1999, p. B9.)
Questions
- What changes in the marketing environment does the Schwab marketing effort reflect? How has Schwab effectively anticipated the needs of the market?
- Draw on recent economic developments to anticipate where the next changes likely will be for Schwab. Consider what past and future events might have a substantial impact on the way it operates in the future.
Accounting
ISBN: 978-0324188004
21st Edition
Authors: Carl s. warren, James m. reeve, Philip e. fess