Charles Schwab & Co. Inc
By Sutherland, M. & Du Bois, K.
The success of the Charles Schwab Corporation ("CSC") hinged on the deregulation of the brokerage commission by the United States of America GovernmentÃ¯Â¿Â½. No regulation on the chargeable trading commission, created opportunities for all the traders in the retail investment sector. As an entrepreneur, Charles Schwab identified this change as key to enter a new market. CSC differentiated from the competition and chose to sell low cost access to investors and not advice on trading. Using technology as a tool, CSC grew to a multi-billion dollar firm with 6.1 million customers in 1999Ã¯Â¿Â½. The focus of our analysis will fall on how this was achievedÃ¯Â¿Â½ - and if this advantage can be maintained.
Key discontinuities and limits applied to CSC and how these affected their business response.
Since 1977, CSC ventured into new territory by changing the product they offered in comparison to other brokers.
Rather than advising their clients on which securities to buy and when to sell, CSC decided to provide clients with low cost and a safe way to access and control their own investments. This strategy was new to the investment industry, since the understanding was that clients were generally un-informedÃ¯Â¿Â½.The investment businesses, at that time, believed in face-to-face contact with the customers in order to develop a dependency on the information that was only available at the investment housesÃ¯Â¿Â½. The use of the internet, and readily available access to data by the public through online banking and trading companiesÃ¯Â¿Â½, created a problem for CSC.In this regard, the graph below indicates discontinuity of the business model.
According to our analysis the discontinuities can be explained as follows:
The discontinuity on the graph is between the existing business models of CSC namely low cost...