Charles Schwab & Co: What were the key factors underlying Schwab's competitive advantage until the mid-1990s? How have these factors reinforced each other?
1. Different Customer Group. In 1975, brokerage commissions were deregulated. Schwab took the advantage of the new opportunities and focused on providing informed investors with low-cost access to security transactions. This was a new approach compared to full-service brokerage firms.
2. Technology. Schwab invested heavily in technology as a way to lower costs. In 1985, Schwab was ...view middle of the document...
b) SchwabLink, a service for fee-based financial advisors with back-office custodial services. Also, the relationship with independent, fee-based advisors allowed Schwab to reach more customers, to sell more products.
c) OneSource, the Schwab Mutual Fund program, a revolutionary fund supermarket that helped customers purchase Schwab and non-Schwab no-load mutual funds with greater ease and without paying transaction fees. It was also an exceptional distribution channel for the fund providers, especially the smaller ones who lacked substantial advertising budgets. Schwab's advisor partners had a broader selection of funds from which to choose.
Due to all this technology services, Schwab attracted more customers, advisors and providers, therefore expanded its revenue base.
3. Better Spreads. Schwab’s purchase was a forward-integrating move that allowed the firm to procure better spreads than many of its competitors.
4. Good Reputation.
The heavy investments in technology and automation systems allowed the company to build extremely cost-effective operations.
1. Much of these cost savings were passed on to customers in the form of lower commissions.
2. Schwab also used its low cost structure to fund aggressive marketing campaigns, typically featuring the likeness of Charles Schwab.