What explains the success of Edward Jones over so many years? From the time of its inception, Edward Jones has been focused about the customer segments, the markets and the products segments it wants to operate in. This focus has allowed Edward Jones to concentrate efforts and resources towards these segments and maximize the penetration within and profitability from this segment. The key factors that have helped build this strategy and the resulting success of Edward Jones.
Geographic Focus with operating in markets with no competition: Edward Jones started its operations by opening up branches in rural areas. In its expansion stage too, it continued to open branches in non-urban locations. In most of these locations, Edward Jones was competing only with the local bank branch, which at the time was not offering brokerage services or was offering only limited options in this segment.
This resulted in Edward Jones being able to thrive with almost no competition which added to its success. Also, by opening offices in areas such as shopping malls, Edward Jones was operating in high-traffic centrally located parts of the town and hence getting incremental walk-ins resulting in more business. 2. Catering to all Customer Segments, esp. the smaller customers: Edward Jones never wavered from its product strategy or tried to differentiate its service based on the amount of investment made by a client.
It was also very clear about the end-customer being its client and, unlike Raymond James which considered the FA to be the client; Edward Jones was focused on delivering value to the customer. As a majority of brokerage houses targeted High Net-worth clients, Edward Jones faced limited competition in the smaller client customer segment. It still had over 52000 customers with over $1 Million in investments but getting the smaller accounts and having them grow with Edward Jones helped the firm take advantage of the limited competition and establish dominance in the customer segment. . Product Focus: a. Higher Bargaining Power with Financial Product Supplier: Edward Jones had no proprietary products which allowed it to be the primary distributor for large mutual fund houses allowing it to have a higher bargaining power with these mutual funds. This resulted in very lucrative revenue sharing agreements on the supplier end and also allowed Edward Jones to offer a bouquet of products to the customer and not just have to push its proprietary offerings. b.
Staying focused on being a brokerage house: Although Edward Jones had operations in other verticals within the financial services industry; it was primarily a brokerage house and continued to be one. This helped it focus its resources and channel its strategy more effectively by deepening exiting customer relationships and focusing on cross-sell. 4. Employee Productivity & Development: Over 40% (12000 out of 30000) of Edward Jones’ FAs were partners at the firm which meant that they had a direct interest in the firm’s success.
By allowing FAs to become partners, Edward Jones reduced attrition and improved productivity. Also, Edward Jones spent over $100,000 on training every new FA and programs such as Goofknight helped the new FAs start strong. The Goodknight program was also evidence of Edward Jones commitment to its product and customer base. b. What changes, if any, would you recommend to Edward Jones’ strategy? Be sure to explicate the tradeoffs in the changes you suggest. Edward Jones does need to realign its strategy given the current market conditions and increasing competition.
Listed below are the steps that they need to actively consider to do so: 1. Tiered Services: While Edward Jones should definitely continue focusing on catering to all customer segments, it runs the risk of losing its High-Net-worth clients to competitors if it doesn’t start offering them value-adds that are more in line with the value they bring to Edward Jones. This may result in the smaller customers feeling alienated if the strategy is not implemented properly. 2. Internet Trading: Edward Jones has the lowest revenue per employee when compared to other leading firms (Exhibit 5.
Revenues/Employees). By allowing online trade, Edward Jones will be able to free up part of its resources which presently execute trades for clients and re-deploy them more effectively. Exhibit 3 shows that 69% of the people between the age group of 50 to 64 use the Internet for Financial Transactions. The Small-Business Owner Segment, which has the highest net worth amongst Edward Jones clients largely belong to this age group. Edward Jones share of this net worth is just 12% and the inability to trade online through Edward Jones may be one of the factors contributing to this low share.
Also, 14% of the financial transactions online are equity trades and Edward Jones is missing out on all the volumes through this channels. The case talks about the “self-directed” investors and the “validators” and Edward Jones is losing out on the business from this class of customers by not allowing on line trading. Hence, Internet makes sense both from an increased revenue and lowered cost stand-point, making it critical for Edward Jones to start providing e-Trading as a service to clients.