Read the mini-case on Zerodha. Answer the questions at the end of the case, regarding Zerodhas adopted
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Read the mini-case on Zerodha. Answer the questions at the end of the case, regarding Zerodha’s adopted strategies and explain in detail your views on its’ sustainable competitive advantage.
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It was in December 2015 that Nithin Kamath was contemplating the growth plans and future strategy of his company. He recollected how Zerodha had been instrumental in disrupting the Indian Brokerage Industry and had been growing rapidly for the past five years. The most disruptive thing which got them going was transparency and consistency in the pricing of their financial products. Major traditional broking houses had the reputation of opaqueness in the structure of brokerage charged by them. Due to their complex and customizable offerings, their brokerage scheme had become hard for an average retail investor to grasp. Zerodha's standardized and uniform offering along with transparency in the form of brokerage calculator allowed investors to calculate brokerage up front and helped them gain mileage in the initial years. Moreover, traditional brokers tried to leverage their advisory services. However, there was a dearth of qualified specialists and given the volatile nature of the stock market, blame of any loss was often pushed onto advisory services. Zerodha decided to eliminate the advisory service facility which aligned well with their overall strategy of one size fits all. This significantly reduced operational costs for them as well as helped them avoid any such blame and bad reputation. Zerodha decided to opt for the scheme of zero brokerage on equity delivery trades. The idea behind this was to get the virality going in the mind of customers. The message they wanted to send across to the customer was that there was no harm in trying something that is completely free. It was targeted at those customers who were relatively new to trading and were apprehensive of the trade brokers as well as financial markets. Kamath was at the same time wondering if these competitive advantages were sustainable for future growth of the company. He felt that there was a possibility that they might be easily mimicable and replicable. In that case, a new competitor would easily be able to erode Zerodha's market share and profits in future by coming up with similar offerings. HOW TO MAKE IT SUSTAINABLE? Kamath started an incubation center by the name of Rainmatter, which was an offshoot of Zerodha for the purpose of investing in fintech startups. He decided to invest in startups that would pitch them ideas for growing the capital market in India. Zerodha had a large and loyal customer base and the fintech startups would get access to the Zerodha customers to test their new product. One such proposal which was already lying with him was a startup called smallcase. It was a startup that planned to analyze the impact of any major change (say GST, a bad monsoon, etc.) on companies and identify which companies would benefit from it. It was meant to create a basket of such stocks which retail investors could purchase through Zerodha's platform. Such tools would make it easier for an investor to connect to capital markets. It was in December 2015 that Nithin Kamath was contemplating the growth plans and future strategy of his company. He recollected how Zerodha had been instrumental in disrupting the Indian Brokerage Industry and had been growing rapidly for the past five years. The most disruptive thing which got them going was transparency and consistency in the pricing of their financial products. Major traditional broking houses had the reputation of opaqueness in the structure of brokerage charged by them. Due to their complex and customizable offerings, their brokerage scheme had become hard for an average retail investor to grasp. Zerodha's standardized and uniform offering along with transparency in the form of brokerage calculator allowed investors to calculate brokerage up front and helped them gain mileage in the initial years. Moreover, traditional brokers tried to leverage their advisory services. However, there was a dearth of qualified specialists and given the volatile nature of the stock market, blame of any loss was often pushed onto advisory services. Zerodha decided to eliminate the advisory service facility which aligned well with their overall strategy of one size fits all. This significantly reduced operational costs for them as well as helped them avoid any such blame and bad reputation. Zerodha decided to opt for the scheme of zero brokerage on equity delivery trades. The idea behind this was to get the virality going in the mind of customers. The message they wanted to send across to the customer was that there was no harm in trying something that is completely free. It was targeted at those customers who were relatively new to trading and were apprehensive of the trade brokers as well as financial markets. Kamath was at the same time wondering if these competitive advantages were sustainable for future growth of the company. He felt that there was a possibility that they might be easily mimicable and replicable. In that case, a new competitor would easily be able to erode Zerodha's market share and profits in future by coming up with similar offerings. HOW TO MAKE IT SUSTAINABLE? Kamath started an incubation center by the name of Rainmatter, which was an offshoot of Zerodha for the purpose of investing in fintech startups. He decided to invest in startups that would pitch them ideas for growing the capital market in India. Zerodha had a large and loyal customer base and the fintech startups would get access to the Zerodha customers to test their new product. One such proposal which was already lying with him was a startup called smallcase. It was a startup that planned to analyze the impact of any major change (say GST, a bad monsoon, etc.) on companies and identify which companies would benefit from it. It was meant to create a basket of such stocks which retail investors could purchase through Zerodha's platform. Such tools would make it easier for an investor to connect to capital markets.
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Zerodha Zerodha is a financial services company that is registered with the Securities and Exchange Board of India SEBI and is a member of the National Stock Exchange NSE Bombay Stock Exchange BSE Mul... View the full answer
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ISBN: 978-0137024971
6th Edition
Authors: Anthony A. Atkinson, Robert S. Kaplan, Ella Mae Matsumura, S. Mark Young
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