Price wars abound in online brokering as E*Trade Financial Corporation jumped into a broker commission price war last Monday. 

Eliminating account activity fees and the $12.99 commission tier, E*Trade chose to help current and potential customers view E*Trade services as a more simple, valuable and transparent business through which to perform stock trading actions.

No longer is the focus on which stock to buy and when; the real question is how much will it cost to trade?  Brokers have entered a full-on price war in hopes to not only retain current customers but in hopes to gain new ones as well.

Taking a competitive position against Ameritrade, whose trading prices were set at a flat $9.99, E*Trade Financial joined in and set prices for $9.99 and under per trade prices, and high volume traders will stay in their tier of a rate of $7.99 per trade.

 In addition to lowering prices, E*Trade eliminated their annual fees related to IRA accounts.  These per-share fees had also been applicable to any market trade accounts in excess of 2,000 shares.

Michael Curcio, President of E*Trade Securities, stated “Our simplified pricing provides a cost-effective, transparent solution for investors. The new pricing structure complements our innovative product offering and high quality service, and reinforces our commitment to offering a compelling value proposition to our customers.”

However, the rapid move to lower prices is in reaction to Ameritrade price rates as well as price cuts occurring within Fidelity Investments as well as Charles Schwab.  E*Trade took a hard hit from decreased interest rates, and brokers aren’t confident these new adjustments will provide an increase in market share or make any significant or long-term improvement in financial performance for the company or its brokers.

In response to E*Trade’s price cuts, just a day later Fidelity Investments announced a plan to reduct and simplify trading commissions to a flat $7.95 per trade fee.

Ameritrade, on the other hand, announced no plans for lowering their flat $9.99  fee per trade for customers across the board, and Fred Tomczyk, Ameritrade CEO responded to the price cuts by saying it’s a “zero sum game” to engage in a price war.

With every new ploy from eliminating account and IRA fees to providing free ETFs, the trading industry across the board will be participating in a lose-lose activity, chasing one another straight down to  zero.  Engaging in a price war is what happens when a business, organization or industry fails to connect with the emotional aspect that drives customers and clients to choose and remain loyal to their particular brand.

These companies each could have avoided price wars by focusing on the discovery and development of their unique competitive advantage that stands them apart from their competitors.  Rather than choosing to maintain competitive advantage, these companies are sinking below their value and will have a difficult time convincing customers in the future they are worth any more than the lowest cost the price war reduced them to.

Tags: avoided price wars, Competitive Advantage, competitive position, engage in a price war, engaging in a price war, maintain competitive advantage, price war, price wars

This entry was posted on Tuesday, February 16th, 2010 at 5:19 pm and is filed under Avoiding Price Wars, Competitive Advantage. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.