To see the impact that the Web has had, one need look no further than the recent record-breaking high volume days on Wall Street. While many people tried for hours to telephone their brokers, Web investors stood a good chance of accessing their online broker at will.
Before a brokerage service can claim its share of the online market, however, it must sell its services to a very demanding customer base. The typical online investor wants a service that is easy to use, offers a variety of information and helpful tools and, above all, charges low commissions. As our latest Marketing Shoot-out shows, not all Web brokers are equal in convincing the public that they can deliver all these things.
Online broker investigations
For this month's Shoot-out, we asked 82 WebScore panelists to imagine they had just received a $25,000 bonus for their hard work. We told them they had decided to invest the entire amount using an online broker. We then sent them to investigate the sites operated by E*Trade Securities and Charles Schwab & Co..
By a 52-30 margin, panelists decided they would prefer to invest online with E*Trade.
Although people cited many reasons for preferring E*Trade, the greatest factor was commission charges. Seventy-one of our 82 respondents told us that E*Trade charges lower commissions and other fees than Schwab. (Nine people thought Schwab's fees were lower and two people felt the Web sites did not offer enough information to let them know for sure.)
Low commission key
Just as telling, out of the 52 people who would rather invest with E*Trade, 16 said low commissions were the main reason.
On the face of it, the majority appear to be correct. E*Trade charges $14.95 to trade up to 1,000 shares of stock, while Schwab's fee is $29.95. On the other hand, the minority who believed Schwab to be more economical disliked the extra charges listed below E*Trade's comparative commission chart. No one who preferred E*Trade discussed these extra charges so it's not possible to know whether they did not notice them, or felt that E*Trade is still cheaper overall.
Another area where panelists strongly preferred E*Trade was in the amount of information it offered. Fifty-six panelists said E*Trade offers a larger quantity of information and tools to help investors. Respondents felt that E*Trade gives more information about the shares and prices, makes it easier for a beginner to understand and invest and offers more data in graphical form.
Respondents were under strict instructions not to sign up as customers at either site, so their personal experience of the resources offered was limited. Schwab and E*Trade were selected, however, because these sites offer extensive demos of their services. It was on these demos that panelists based most of their opinions.
In terms of the quality of the demo, E*Trade won again. Sixty-four of the 82 panelists felt that E*Trade's demo is more informative than Schwab's, 57 said it is better designed and 60 said it is more interactive. In particular, five of those who would rather invest with E*Trade felt that its demo provided much more detail about how the site works.
Confusing Schwab demo
Some voted for the E*Trade demo due to an inability to make the Schwab demo work. Schwab's demo places the user in the middle of a simulated trading environment and does not offer any instructions until the user clicks somewhere. Two panelists, having failed to realize this, expressed frustration that the Schwab demo appeared to be no more than a single, uninformative page.
Hypothetically, it is possible that others were also stymied by Schwab's demo. Since panelists would know little about Schwab's services without using its demo, such difficulty could account for a large part of the panel's preference for E*Trade. (Of course, even if this were true, the Schwab site would still have a major flaw, since a Web site with serious usability issues is not realizing its full potential as a marketing tool.)
Name recognition helps
Schwab's only area of strength, relative to E*Trade, is its name. Ten of the 30 people who would rather invest with Schwab said they would trust Schwab because, in the words of one, "I know who Schwab is and I am more comfortable with that."
Aside from this branding advantage, however, Schwab's Web site is clearly less attractive to new investors than E*Trade. What is interesting is that the perceptions of a few, isolated respondents raise questions about whether E*Trade is actually better, or whether it only appears to be -- based on its marketing material and the difficulty of using Schwab's demo. Whatever the truth, the result is the same.
Matthew Weinshenker is an online services analyst for New York-based CLT Research Associates, which offers WebScore. He can be reached at [email protected].