Online stockbroking is a commonly used phenomenon in today’s era. In a technology market such as this, marketers should be encouraged to think laterally and be very creative. The ‘obvious’ will emerge and be recorded, but researchers should be encouraged to go beyond this.
The market structure, in terms of key players, their relative size and offerings, could all be turned upside down with the entry of one or more radical new players. And the technology itself, and consumer’s adoption of it, could change quite dramatically.
The trick may be for Macquarie to be the one that shakes up the market – it is a relatively small player so perhaps it doesn’t have too much to lose and a great deal to gain. Obviously thought must be given to protecting the very strong Macquarie brand to maintain client and investor (they are a listed company) loyalty.
What are the major opportunities and threats presented by the online broking market?
The opportunities and threats here are by no means exhaustive and are indicative only.
Opportunities in online broking market:
- If the consumer proposition is right, there is an opportunity to leapfrog the competition and establish Macquarie as the leading on-line broker. All offerings in this market are similar so a breakthrough could well shake up the market.
- Broking should only be thought of as one element of this service. The real opportunity may be in providing a range of fully integrated financial services – investment, insurance etc. that are all linked.
- Technology will also present enormous opportunities. For example, the mobile phone and WAP technology that was mentioned in the case has the potential to transform our online behaviour. Macquarie needs to stay at the forefront of these developments and ideally lead the market on several them. A range of alliances with technology companies is one avenue to making this a reality.
- Regional expansion beyond Australia is also an opportunity. That is, offering Australian client’s access to overseas opportunities, and serving clients offshore e.g. Asia-Pacific.
- The revenue generation opportunities also go beyond earning fees/commissions from clients. Macquarie could develop its site as a financial services portal, which has links to a range of other branded financial services. Thus, Macquarie could become an on-line distributor and earn fees from the supply side of the industry. Its strength now is in its high-quality client base.
- Macquarie can also leverage the technology and history of service with the client base of its other related business groups. Currently DirecTrade is part of the Equity Markets Group, but clients and even employees of the Investment Group, the Banking and Property Group, the Funds Management Group.
- As governments (including Australian Federal and State governments) choose to provide more of their services online, consumers will be ‘forced’ to accept the Internet as a means of communication and commerce. Increasing Internet use should continue the increase in demand of online trading services.
Threats in online broking market:
- The growth of share investment been associated with the dramatic growth of technology companies that have enjoyed very high market valuations.
- The share market (and interest in trading the market) can vary greatly according to environmental threats such as interest rate fluctuations. The relative strength of competitive investments such as the property market, Government fiscal policy that deals with the tax advantages/obligations of owning and trading shares, international opportunities that Macquarie cannot exploit and the level of general business and consumer confidence.
- The downside of technology is that backing the wrong horse leaves you out in the cold. Whether it is current Internet technology, WAP or some other development, Macquarie could choose the wrong standard.
- This is especially true in the emerging mobile technology market which requires substantial investment as well as a critical mass of customer acceptance before profitability can be achieved. History has shown that the rapidly changing technology market can make some platforms and services obsolete in a short space of time.
- Consumer attitudes towards using the Internet, in whatever form, may become negative. Fears over security, particularly with such large amounts of money at stake, the development of more dangerous viruses, worms and clever hackers, and fears of continually eroding personal privacy could all turn people off trusting cyberspace with their finances and personal details.
There are several competitive threats from current and potential new entrants.
Who do you see as the major competitive threats to Macquarie?
Competitive threats could come from current competitors and new entrants. Current competitors are all trying to achieve meaningful differentiation; hence the takeovers and new services being offered by ComSec, the high level of customer service at Sanford and the pairing of online traders with commercial banks such as ANZ and E*Trade.
It seems a key to retaining customers in online trading is this pairing with commercial and retail banks that command large market shares in a related industry and have a relatively stable and loyal customer base.
Perhaps the biggest threats are from those firms not yet on the ‘radar screen’. These could be international firms, like Charles Schwab, or firms in some other, but related, business.
For example, the entry point into the market may be information. Thus, Bloomberg or Reuters may extend their financial data provision services to include online trading (or enter an alliance with a firm who provides that capability).
New competitors could also come in the form of technology companies like Nokia that are converging their expertise in mobile communication with various consumer services.
For both types of competitors (current and new), the major threat is that they will be the first to exploit the opportunities described in question 1. Speed is critical in this market and the traditionally conservative and risk-averse banks like Macquarie could be left behind.
The new breed of dot.com companies tend to act first and evaluate later. Those who succeed leave the established firms, who are still doing their feasibility studies, far behind.
Perhaps Macquarie’s biggest competitive threat is its own conservatism in not allowing it to become the radical competitor it fears most.
What customer issues would you like to research further?
The customer data we currently have is quite descriptive and doesn’t get into many of the ‘why’ and ‘how’ questions. For example:
- Motivations behind investment generally and share trading. Short-term gains? Long-term security? For fun? In conjunction with property? As an income?
- The emotions behind investment and share trading. Is it something enjoyable and exciting, frustrating, scary etc?
- How people currently go about investing. Who do they take advice from? Where do they collect information (if any) from? Do they use brokers and on-line facilities, or one or the other? What is the value of information?
- Experiences so far with on-line investing. Has it been a positive experience? Frustrating? Lived up to or exceeded expectations?
- Overall attitudes to, and experiences with, the Internet. Are people comfortable with it? See it as a necessary evil? Use it extensively or only when they have to? What types of things do they use it for?
- Security concerns: What will make consumers feel more secure about providing their personal and financial information? What can online traders do to enhance the perception of security?
- Mobile: Is there a demand for mobile trading information? Is there a demand for mobile share trading? What are the most important features? How much of a premium are customers willing to pay for mobile trading? What type of mobile device is most suited and popular?
- Overall: what is their ‘wish list’ for on-line broking/investing in the future?
What are some of the alternatives for positioning Macquarie’s on-line service? Who could be its primary target market?
Broad positions:
- One general positioning is as the cheap, discount broker that does nothing except execute trades for the lowest price. No extras would be provided, such as stock information etc. The success of this positioning depends on the delivery of an acceptable service at a very low cost and will therefore turn the brand into a mass market, high volume competitor.
- This is not likely to be the best option for Macquarie given its existing premium image (why not exploit the great brand the firm has built; becoming a low-cost provider may damage other businesses under the same brand).
- At the other end of the spectrum, Macquarie could try to corner the high-end of the market, and concentrate on its current ‘Inner Circle’ clients and others with a similar profile i.e. high net worth who demand high levels of service and are willing and able to pay for it.
- This group does not represent a high number of trades, but its members do trade much larger amounts (this has implications for pricing structures).
The question of what specific benefit-position Macquarie should target will to some extent emerge from consumer research.