ETrade Securities, Inc.

Case Solution

Rajiv Lal, Chuck Glew, Mark Lotke, Mario Palumbo, Marc Schwartz
Stanford Graduate School of Business ()

ETrade pioneered the deeply discounted electronic brokerage business and has seen phenomenal growth through the extensive use of technology to achieve significant cost advantages over traditional companies. ETrade’s strategy was to pass on these cost savings through automation to its clients, as the fixed costs paid off across a larger number of accounts. In 1996, a flood of new competitors created websites and ETrade was dethroned as the price leader. While some ETrade executives feel they should lower prices further and go straight to eBroker, others believe the company faces a greater challenge with Charles Schwab’s entry into the market. Defending against Schwab would require focusing resources on improving its product / service offering, which could jeopardize ETrade’s low price position. ETrade has to decide where it can create a profitable and sustainable position along the price-quality (service) compromise.

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