Balance Sheet and Customer Segments Essay
Balance Sheet and Customer Segments
Exhibit 16 of the document showed DLJdirect’s income statement from 1994-1999 (in millions). Exhibit 17 showed DLJdirect key financial and operating performance. The revenue increased steadily from 1994 to 1997. The revenue increase $50 million in 1998 which is equivalent to 43% increase. In 1999 the revenue increased about $44 million. The income was stable prior to 1997 when the company experienced a loss and able to recovered the next year in 1998. In 1999, the company reached the highest income because of the huge commission increase in that year. Overall, the company is making good progress over the years with steady increment of commissions, total trades, average daily trades, total accounts and total customer assets.
Does DLJdirect have the financial capability to address new segments, e.g. to do more advertising to attract new kinds of customers? DLJdirect does have the financial capability to address new segments in the market and increase advertising to attract new customers. However when compared to its competitors, they are spending more money on customer acquisition. For example, E*Trade customer acquisition budget was projected to be $300 million in 1999. That’s 50% less than DLJdirect’s total cost and expenses in 1999. For now, the company should build a steady and reliable reputation in the market before spending more money on advertising alone. Identify the ways DLJdirect’s trading service is differentiated from competitors
Tiered services for accounts with high asset balances and speed of execution are the two ways DLJdirect differentiates itself from competitors. Customers with asset balance in excess of $100,000 are provided with access to DLJ research and greater access to DLK-manages IPOs. For customers who have more in $1 million or more assets, DLJdirect reduced certain fees, provided a personal service team, and offered more trading time. Exhibit 14 below shows the DLJdirect advantage in speed of execution. According to the stats, DLJdirect provide the fastest transaction speed and availability of each brokerage’s home page during business hours. The speed of transaction is at least 0.3 seconds ahead of it competitors. The company also leads the availability with 99.4%.
What are the needs of each of the four customer segments? Which needs are well-matched to DLJdirect’s capabilities? Retirement by the Book (RBB), Portfolio Cruise Control (PCC), Aggressively Affluent (AA) and Get Rich Fast (GRF) are the four customer segments of DLJdirect’s market. RBBs are mass-market investors who tolerate moderate levels of risk and they require reliable trade execution, user-friendly interfaces, and a variety of financial offerings. This segment has a high assets and stability. PCCs averaged total assets in excess of $350,000 but they did not trade very frequently. AAs are the largest internet investor segment with high net worth individuals who averaged over $300,000 in asset and traded more than ten times a year. GRFs are young individuals who made frequent minute to minute basis small trades. They value speed of transaction which is suitable for online traders. AA and GRF segments probably are well-matched to DLJdirect’s capabilities. DLJdirect targeted self-directed online investors who on average have a higher account balances than other investors.
AAs customers are aggressive more likely to buy large blocks of stock, trade on margin and own a diverse range of financial investments. Many of them were customers of DLJdirect competitors who seek a move to a higher end online broker. Meanwhile, GRF preferred to not pay for services but they traded more frequently than any other segments. Rank the customer segments according to the profit potential in serving them GRF segment is the most valuable segment as they traded frequently on a daily basis. This enables the company to gain profit quickly in short space of time.
AA segment is the second highest because they traded quite frequently and paid food amount for services and information. RBB is the next segment because of its good standing in asset balance and brought interest in. PCC would be the last segment. Although they have an excess amount of average balances, they do not prefer to trade online which makes them has the least profit potential. Should DLJdirect target the Get Rich Fast (day trader) segment? Why? Since this segment traded more frequently than others, they value DLJdirect fast and reliable service that the company could offer.
DLJdirect could provide the services that GRF segment sought which are low fees, transaction confidence and site performance. The company could attempt to target this segment but they should not spend a huge amount of money for this customer acquisition. Based on exhibit 10 in the document, it showed that the size of this market segment is reducing as the years go by. When compared to high-end customers, the company needs to assign a higher discount rate to this segment because they swing the health of the stock market. Another problem is that this segment consists of less affluent traders. Therefore, it is advisable for them not to go into this market because the company could not build a long-term profitability in this segment.
In your opinion, are there other customer segments that DLJdirect should target? Why? In my opinion, DLJdirect should not target other customer segments besides AA and GRF. The reason is because the company has been doing well in AA segment which is proven by the company good financial standing. With AA segment is projected to dominate the market in the future, the company should continue focusing their customer acquisition in this market. By doing this, the company could steadily build a reputation and acquire a long-term profitability in this segment.
Subject: Balance sheet,
University/College: University of Arkansas System
Type of paper: Thesis/Dissertation Chapter
Date: 12 February 2017
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