Halden Zimmermann-Merrill Lynch Summary 3/8

It would appear as though Merrill was concerned about introducing a reliable

product that was more in keeping with their full-service heritage and devoid of the

myriad glitches and shut downs that characterized other discount providers.

Aside from significantly lower pricing points, there is little to distinguish Merrill’s onlineHalden Zimmermann

service from that of Morgan Stanley Dean Witter in terms of timeline and in dimensions

of service. The implications of Merrill Lynch’s behavior seem more in line with a

strategy of preservation rather than innovation. The implications would thus be more

defensive in nature as they attempt to augment the growing needs of their traditional

customer niche.

 

Reactive or Proactive strategic initiative

Although Merrill Lynch has introduced Integrated Choice as an evolution of their

existing business model of being “all things to some people,” it may also be that their

motivation was more reactive in nature. This assertion is supported the wide body of

literature that supports the growing role of online trading and the aggressive strategies of

competitors like Schwab.

Wired News (4/99) reports Schwab’s market value as being $41 billion, or roughly $4

billion more than Merrill Lynch with much of it having been derived from online trading.

According to siliconvalley.com and devices.internet.com, Schwab had even committed to

offering clientele wireless trading through handheld devices such as the Palm VII. This

suggests Schwab understood the importance of attending to the consumers demands for

flexibility and execution. At the same time, Schwab was targeting the full service firms’

clients, particularly those of high net worth.

By 1999, Morgan Stanley Dean Witter had also rolled out an online trading service that

not only catered to upscale clientele, but also allowed the customer to vary the amount of

involvement with a broker.

Merrill Lynch would be hard pressed to argue against the deployment of an online

strategy in the face of such substantial competition. While Merrill Lynch’s strategy

is both innovative and sensitive to the role of their financial consultants, there is

arguably sufficient evidence to suggest they were reacting to obvious market trends and

competitive threats. If anything, it appears Merrill Lynch underestimated the ability and

scope of online trading with respect to high net worth individuals and of the market as

a whole. This may also serve to explain the rather aggressive pricing strategy of their

Unlimited Advantage offering (85 bps vs. 194 bps with Schwab’s similar offering) such

that Merrill Lynch is attempting to use these price points to help assuage the opportunity

costs associated with their affluent clientele and to prevent any migration of these

customers to other brokerages.

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