Do Business Well

For years, E*Trade was content with the small piece of the stock brokerage business it had carved out by being the lowest-cost trader on Wall Street, an achievement made possible by automation and the no-frills service it offered. For the most part, its sixty-five thousand customers were independent, cost-conscious people who were comfortable making their own investment decisions and pleased to be paying about $15 to $20 per trade, compared to the $65 or so charged by most brokerage houses.

But E*Trade’s complacency was shaken in the mid-nineties, when Charles Schwab launched a new division that offered trades at $29.95, encroaching dangerously on E*Trade’s bargain-basement strategy. The company responded by hiring a young, ambitious chief executive officer, Christos Cotsakos, who quickly took the company public and released a flood of advertisements designed to raise its profile. At the same time, E*Trade focused on making its Web site easy to access and, even more important, fun to navigate.

Riding a bull stock market and the expansion of cable television networks devoted solely to investors—CNBC and CNNfn, in particular—E*Trade saw its accounts soar to nearly 2.5 million by May 2000. At the same time, a flood of imitators, some offering even lower costs to trade, entered the fray.

E*Trade credits its success to its focus on what it calls self- directed investors—search-and-browsers. These are the engaged clients, as Pam Kramer, E*Trade’s chief content development officer, puts it, “who feel confident and want to make their own financial decisions.” Kramer notes that E*Trade, like most market leaders, places enormous emphasis on its market presence, which is particularly relevant to searchers, who tend to have fleeting attention spans.

Perhaps the most important change in E*Trade’s way of doing business is related to the company’s vision of itself as, in Kramer’s words, “not just an on-line investing company, [but] an all- electronic financial services company.” Innovating new services is one of the highest priorities, if not the highest. “Most other online trading companies,” Kramer continues, “are waiting to see what everybody else is doing, and behave accordingly. We continue to . . . [kind of] push ahead even in the face of other people . . . [on occasion] saying, ‘Gee, I don’t know if that makes sense. ” In January of 2000, for example, E*Trade bought Telebanc, the parent of an Internet-based savings bank. “We pushed ahead because we knew that’s what we had to do to transform into a broader financial service company”

At the same time, raising customer expectations puts pressure on the entire company, as E*Trade learned the hard way when system blackouts incensed customers and triggered a rash of critical news stories. Kramer acknowledges that “the stakes are higher now We’ve got more customers. . . . [We've got] more people running the company, certainly higher visibility. The pitfalls are, we have to continue to deliver on the brand.”

Kramer credits chief executive Cotsakos with putting Internet trading in the public eye and with attracting Wall Street’s attention through a very clever advertising campaign. The son of a Greek short-order cook from Paterson, New Jersey, Cotsakos, a decorated Vietnam War veteran, worked his way up the ladder at Federal Express before joining the research firm A. C. Nielsen, where he eventually became president and co-CEO.

Like most CEOs of market-leading companies, Cotsakos looks at his task with a fresh perspective. “I never viewed [E*Trade] as a brokerage company,” he said. “I’ve always viewed this as a technology company that leverages information through an all-electronic business model.” On top of that basic model, he explained, “you could add banking, brokerage, stocks, bonds, investment banking, insurance, and you could also build out a mall, if you will, a mini shopping mall.”

Cotsakos personifies another market-leader characteristic: a belief in his organization’s ability to influence other, much larger competitors. He believes that even if his company does not “unseat the Merrill Lynches and the PaineWebbers of the world…we are going to force them to fundamentally change the economics of their business model.”

Whether Cotsakos and other market leaders succeed in changing their industries depends on more than their collective ability to attract and retain searchers, despite their well-conceived strategies, including an enriched shopping experience. After all, genuine and dedicated search-and-browsers are a restless, critical minority, while most other customers are searchers just for a short phase before they settle into what are for them more comfortable routines.

The real challenge is whether there is a way to turn the searchers‘ break from the mundane into a mainstream trend that creates and sustains demand. They are trailblazers with the potential to generate such a shift. Scouting out new terrain, searchers will find the areas that streamline customers and delegators may eventually move into. Closely monitoring the searchers—and the market leaders catering to them—is crucial to any organization’s success.

Undoubtedly, remaining attentive to customers in search mode is a more tumultuous process than tending to customers with any of the other three buying patterns. Pursuing searchers is not for the fainthearted, but you ignore them at your peril.

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