Pricing: Sample Case Project - Stephan Sorger · Situation Success criteria and value: Metric being...

transcript

Pricing: Sample Case Project

Case: Online Broker Services Pricing Course Topic: Price Level (Chapter 6)

Company: Robinhood

Disclaimer:

• All images such as logos, photos, etc. used in this presentation are the property of their respective copyright owners and are used here for educational purposes only

• Some material adapted from: Nagle et al, “The Strategy and Tactics of Pricing,” 5th Edition

Mini-Case #6D: Forbes: “Forget $10 Trades, Meet Robinhood: New Brokerage Targets Millennials…” http://www.forbes.com/sites/halahtouryalai/2014/02/26/forget-10-trades-meet-robinhood-new-brokerage-targets-millennials-with-little-cash/

Team 13: Homer Simpson, Bart Simpson, Marge Simpson, Lisa Simpson, Charles Montgomery Burns

Company

Robinhood is an online stock trading platform charging $0 per trade

Source: Forbes, 2/2014: http://www.forbes.com/sites/halahtouryalai/2014/02/26/forget-10-trades-meet-robinhood-new-brokerage-targets-millennials-with-little-cash/

Situation

Success criteria and value: Metric being maximized or minimized:

•Primary: Member growth: 2/2014: 150,000; 5/2014: 330,000+

•Secondary: Provisioning speed (getting users up and running)

Source: GrowthHackers: 5/2014: https://growthhackers.com/slides/robinhood-300k-signups/

Situation

Overview of industry and its trends: Current events and direction

•1.5M active traders who trade 10x/mo

•Dominated by big competitors

•Priced about $5-$10/trade

•Cost about $0.03/trade

•Trend: Dissatisfaction with finance co.

Situation

Overview of top 3+ competitors: Strengths and weaknesses of principals

Competitor Price Strength Weakness

E-Trade $7.99+ Strong brand $5,000 acct minimum

Schwab $8.95+ Large assets $1,000 acct minimum

Scottrade $7 A bit cheaper $32 for broker assist

TDAmeritrade $9.99 Investment platform $45 for broker assist

Source: Etrade.com: https://us.etrade.com/e/t/prospectestation/pricing?id=1206010000

Source: Schwab.com: http://www.schwab.com/public/schwab/investing/pricing_services/fees_minimums

Source: Scottrade.com: https://www.scottrade.com/online-brokerage/trading-fees-commissions.html

Source: TDAmeritrade: https://www.tdameritrade.com/pricing.page

Situation

Overview of company: Important background and recent developments

Source: robinhood.com

•Free stock trading; No $10 fee

•Encrypted for security

•Financial Industry Regulatory

Authority (FINRA)

•Securities Investor Protection

Corporation (SIPC)

•Fast execution

•Real-time quotes

Situation

Current pricing strategy/approach: Pricing methodology and consumer response

• $0 per trade

• Less than competitors

• Makes money through

interest from margin

accounts and cash

Source: Robinhood.com: https://robinhoodapp.zendesk.com/hc/en-us/articles/203579955-How-is-Robinhood-similar-to-other-online-brokerages-such-as-E-Trade-Schwab-and-Scottrade-

Source: Forbes: http://www.forbes.com/sites/greatspeculations/2014/10/15/can-zero-commission-trading-app-robinhood-challenge-large-brokerages/

“…Robinhood received overwhelming customer response…”

Forbes, October 2014

Problem

Symptoms: Identification of symptoms present in the company and/or industry

Millennials saving at -2%: Spending more than they have

•60% of Millennials say they distrust financial markets (CapitalOne)

•Comparison: Workers between 35-44 have savings rate of 3%

Source: CNN Moneyhttp://money.cnn.com/2014/11/10/pf/millennials-negative-savings/

Problem

Underlying problem: Identification of the underlying problem causing symptoms

Old Model

• Trading on PC

• Trust in finance

• Baby-boomers

driving economy

• Competition:

Banks, Brokerages

New Model

• Trading on iPhone

• Distrust in finance

• Millennials

driving economy

• Competition:

Robo-Advisors, ETFs

“Great” Recession: 2008 - on

Why are Millennials saving less?

Problem

Decision: Identification of type of decision that needs to be made: new service?

Obstacle Description

Relationship Interact with broker Interact with iPhone

Location Do trades at home Do trades while mobile

Balances Minimum balance of $5000+ Minimum balance of $0

Fees High fees Low fees or $0 fees

New service that addresses obstacles to saving

Analysis

Thought process: Support of thought process with research from previous sect.

Source: Forbes: http://www.forbes.com/sites/greatspeculations/2014/07/25/td-ameritrade-q3-earnings-asset-based-revenues-make-up-for-low-trading-volumes/

Commission-based business Asset-based business

Charge on purchases & sales Charge on assets under management

“Commission” a bad word Reference value of 1% - 2% seems low

Screenshot from Forbes.com

Analysis

Approach Description and Examples

Commission Payment based on % of purchases & sales of equities: ETrade

Strength: Only pay when changes are made

Weaknesses: Possible conflict of interest

Question: What value is represented by the trade?

Online Internet-based purchases and sales of equities

Strength: Cheaper than using broker

Weakness: Lacks insight of broker

Asset-based 1% - 3% fee on assets for ongoing management: RIA Firms

Strength: Reduced conflict of interest

Weakness: Little accountability; No penalty if money lost

Obvious choices: Identification of typical approaches

Source: Forbes: http://www.forbes.com/sites/greatspeculations/2014/07/25/td-ameritrade-q3-earnings-asset-based-revenues-make-up-for-low-trading-volumes/

Analysis

Approach Description; Examples

Robo-Advisor Low-fee (0.15%) asset-based management: Betterment

Strength: Benefits of ongoing management without high fees

Weakness: Little/no human insight; Lose when market drops

Free Charge $0 for trades of equities: Robinhood

Strength: Breaks down obstacles to saving

Weakness: Find way to monetize; Little/no human insight

Unexpected choices: Identification of other approaches

Recommendations

Strategies: General approach to address problem, based on analysis

Source: Robinhood.com: https://robinhoodapp.zendesk.com/hc/en-us/articles/203579955-How-is-Robinhood-similar-to-other-online-brokerages-such-as-E-Trade-Schwab-and-Scottrade-

Penetration Pricing Charge $0 for trades

Charge $0 for low account balance

Charge $0 for assets under management

(except for interest on cash)

Recommendations

Element Description

Product/Service Efficient service; Remove humans; Remove storefronts

Price Penetration pricing

Place Apple app store (see screenshot); Android coming soon

Promotion Public relations and article placement in Forbes, etc.

Tactics: Specific actions to implement strategy: product, price, place, promotion

Source: iitunes.apple.com: https://itunes.apple.com/us/app/robinhood-$0-commission-stock/id938003185?ls=1&mt=8

Recommendations

Resource Description

Time In one year, amassed hundreds of thousands of users

Money Venture backed by Google Ventures, Andreessen Horowitz

Personnel Under-resourced provisioning team

Hundreds of thousands of potential users in backlog

Resource impact: Time and money to execute strategy, eg redesign project

Recommendations

Criteria Description for Existing Industry

Users Number of users; Bring closer to existing competitors:

ETrade: 2.9M accounts; $200B+ in customer assets

TDAmeritrade: 5.8M accounts; $470B in customer assets

Schwab: 8.8M accounts; $1.95T in customer assets

Age Typical age of investors for traditional vehicles: 35+

Success criteria: Expected change in success criteria, increase users by 20%

Source: nerdwallet.com: http://www.nerdwallet.com/blog/investing/2013/etrade-vs-td-ameritrade-schwab-compare-online-brokers/

Recommendations

Type Description for Robinhood

Users As of March 2015, 800,000 users on a waitlist

Age Average age: 26, as reported by Robinhood.com

Technology Current: iPhone mobile app; Android mobile app planned

Metric: Recommended metric to measure success, eg # new users

Source: nerdwallet.com: http://money.cnn.com/2015/03/12/investing/robinhood-app-free-trading-millennials/

Conclusion

Learnings Description

Strengths High user growth

Average age agrees with Millennial target market

Weaknesses Significant backlog; Poorly resourced?

Possible source of dissatisfaction

Opportunities Pull market share away from competitors

Threats Fallout from next market correction

Learnings: Identify what you learned from the case; eg inelastic pricing

Conclusion

Applications: State how learnings can be applied to other similar situations

Applications Description

Pricing Penetration pricing works!

If you need to build a large user base in a hurry

Resources Penetration pricing will bring in many users

Must be ready to service users; Robinhood not ready

Business model Creative way to monetize users

Alternative to commission and asset-based business models

Contingencies Little evidence of contingency planning

Not ready for users; Will they be ready for next recession?

Pricing: Sample Case Project - Stephan Sorger · Situation Success criteria and value: Metric being...

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