Charles Schwab took full advantage of deregulation in 1975 in order to offer products and services previously unavailable to low-end or marginal customers. Government regulation had previously forced brokerages to cater to high-end, or wealthy, customers and thus excluding middle class investors. The onset of deregulation allowed Schwab to shift its business model and begin catering its services to this largely neglected consumer market.
Based upon the information presented in the case, Schwab's core competency is the ability to offer its services to a wide variety of customers utilizing several transaction methods. Schwab was able to drive innovation in the investment industry through its use of technology. This technology investment was largely demonstrated by the purchase of a mainframe computer when the size of the customer base did not justify its purchase. Throughout the company's history several of the products offered, as a result of this technology investment, such as TeleBroker, SchwabLink, and e.Schwab allowed the company to expand its market share while remaining an innovator in the industry and ahead of its competition. All these products combined to allow Schwab to provide low cost services to its customer base as the company realized the consumers were becoming more intelligent with regards to investment decisions as our society moved toward the, "information age." The ability to rely upon the customers" knowledge allowed a more flexible pricing structure in its products allowing it more flexibility in its target customer base than a large full service brokerage such as Merrill Lynch.
On the surface Merrill Lynch's foray into the world of low-cost Internet trading appears to position them for taking market share from both Schwab. However, I believe that prior to Internet trading, the customer base both brokerages targeted were distinct to one another and thus this new offering should not impact the customer base of Schwab.
