Edward Jones Case
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Executive Summary
Due to the changing environment in the financial services industry many companies, like Edward Jones, have to pursue different strategies to achieve a better competitive advantage and to overcome weaknesses within their company. The recommended strategy for Edward Jones to pursue, is to increase the number of financial products and services that they are able to offer to customers. This strategy is aimed at addressing weaknesses in the company; such as having a lack of financial products to offer, and a lack of total market share, building on strengths of the company; such as taking their relationships with preferred partners to new levels, and addressing threats in the external environment, such as providing more products that can help minimize the impact of the volatile market. The financing aspects of this strategy are required to acquire different classes of financial assets as well as the investment needed to execute any mergers or buyouts. The additional finances can be achieved by taking on more debt, allowing more employees to become partners, thus increasing invested capital, or by going public and raising capital by issuing stocks. The projected increase in revenues from this strategy will easily overcome the costs of financing. The following document provides more insight to Edward Jones as well as its different courses of action
External Assessment
The growth of the retail brokerage industry has grown in great extents over the past few decades. Being a subsector of the financial services industry, it provides financial products and services to investors, but is more concerned with those individuals who purchase small amounts of securities. Various opportunities and threats in the industry are discussed below as well as in Exhibit A
The biggest opportunity for companies in this industry is being able to identify changing values and trends throughout society. If companies are able to do so they are better able to tailor their products and services to the different financial needs of different market segments. This might require a company to have a market analysis team that can identify what the financial needs among different groups are as well as the best ways to attract those segments to invest.
The biggest threat to the financial services industry is the volatility of the economy. When the economy and stock market are strong, there are more participants in the industry fighting for market share. When the economy is bad, people lose confidence in the market and chose to not invest. In order to combat this threat companies need to create investor loyalty, thus increasing barriers to entry, and to have a diversified portfolio of financial assets to eliminate the risk of investments.
A second threat in the industry is the existence of multiple regulatory agencies. Each of these agencies look to protect the interests of investors by imposing restrictions on the type of activities a company can partake in and what type or assets they can hold in their portfolios. Since these regulations can differ among jurisdictions, they can create the extra challenge of companies having to develop different standards or procedures depending on the local regulations.
Internal Assessment
Edward Jones is a company that operates in the retail brokerage industry, providing financial products and services primarily to retirees, pre-retirees, and small business owners. Several strengths and weakness of the company are illustrated below as well as in Exhibit B
One of the greatest strengths of Edward Jones is its brand awareness. Despite its lack of marketing compared to companies such as Merrill Lynch, there are a greater proportion of people that consider investing in Edward Jones over Merrill Lynch. It is very difficult to create such brand awareness with less advertising than competitors; thus making it rare, costly to imitate and valuable to the company, thus providing it with a sustainable distinctive competence
A big weakness of Edward Jones is their lack of presence in certain domestic and international markets. Not having a strong enough presence in certain markets easily leads competitors to possessing a significant market share, and building a better rapport with the community, thus posing as a barrier to entry. This weakness of Edward Jones can be transformed into a strength if they are able to establish themselves before barriers to entry can become to great.
Another weakness of Edward Jones is that they refuse to hold certain financial products. This provides itself as a weakness because such products can be highly valuable to some investors, and by not having them, Edward Jones is passing on a huge potential market share, and the subsequent revenues.
Financial Assessment (refer to Exhibit C)
Despite drops of profitability between 2000, and 2001, the company has been able to increase pre-tax ROE by 12%, and pre-tax ROS by nearly 4% in the past couple years. This has come as a result of the company decreasing its average pre-tax operating costs per client by 10.6% over the years, thus achieving some economies of scale. What drives the performance of the company is its total asset under management, which have increased by 50% from 2000-2006. With these trends continuing on, it would help ensure the long term financial strength and capacity of Edward Jones
Current Strategies
The main strategy of Edward Jones has essentially been the same for several decades. The strategy revolves around the idea that he end customer is the only clients of the firm. All aspects of the firm are used to better understand the needs of their clients and to deliver the desired value to those individuals. In this process, all clients deserve high ethical treatment, to be treated equally, and to have access to the same resources and services
The company deploys this strategy by utilizing a focused differentiation strategy. Their policy of treating all clients the same, and providing them with the same services, no matter their level of net worth, and by involving much more face-to-face communication between clients and brokers allows them to differentiate themselves from competitors. They have a focused strategy in the sense that they have three market segments that they focus