Halden Zimmermann-Merrill Lynch Summary 2/8

The catalyst which initiated the Merrill Lynch team to review changing their strategy

for customer interfaces was directly related to the changing industry environment. The

explosive growth of the NYSE and NASDAQ gave rise to notion that even the mostHalden Zimmermann

novice of investors could profit in trading without costly advice or service. Perhaps

even more important, there was increased competition for the more profitable affluent

customer base (i.e., “trade up to Schwab” campaign) traditionally coveted by Merrill

Lynch. These customers also possess the highest opportunity costs given their “affluent”

financial status and, thus may be inherently attracted to the availability of time saving

online options. The Porter 5 forces chart (Exhibit 1) details further the threats to Merrill

Lynch’s market position.

It follows then that Merrill Lynch would be willing to take a risk in restructuring its

customer base given the combination of their unique resources and threats they are faced.

Given the importance of the affluent customer base to Merrill Lynch’s success, one could

easily conclude that failure to initiate an online strategy would have eventually risked

damaging its key unique resources more than implementing such a strategy would have.

Defensive or Offensive Strategic Implications

Merrill Lynch’s online offering appears to be generating more defensive strategic

implications. They also faced hurdles that were largely indigenous to traditional full-
service brokerages, including a longstanding internal culture associated with their

financial consultants and an educated and affluent customer base that requires a higher

level of service. Since the management of these relationships proved to be an integral

part of their success, one could readily appreciate how Merrill Lynch might be reluctant

to pursue any modicum of change around this formula. Indeed, The Industry Standard

(12/1998), quotes Merrill Lynch’s spokeswoman Bobbie Collins as saying “online

trading has never been a priority for Merrill Lynch or its clients.”

When they decided to commit to online trading in 1998, via Asset Power and Financial

Advantage Service, it was delayed three times until its eventual introduction a year later

in 1999.

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