When Donato A. Montanaro Jr. launched TradeKing in December 2005, he was hoping to attract customers from other discount brokerage companies by offering lower prices.
The Boca Raton, Fla., company's chairman and chief executive officer said it "got on the map" by offering trades for $4.95, less than larger competitors, including E-Trade Financial Corp. and Scottrade Inc.
"We definitely got people's attention with our price," Mr. Montanaro said. "We wanted to be the low-cost provider."
In less than three years, TradeKing has attracted 100,000 customers and $2 billion of assets under management. But Mr. Montanaro said low prices will not be enough to achieve his goals of doubling its business in the next three years and quadrupling it within five years.
He said TradeKing will need to offer strong customer service and increase loyalty through its social networking platform.
"Offering inexpensive trades may get customers in the door, but we have to do more than just that," he said. "One of our rallying cries is 'We get people's attention with our price and then shock them with great customer service.' "
TradeKing was the only discount brokerage to receive five stars for its customer service in an article SmartMoney published in July.
From the start, TradeKing's plans included a social networking platform, an online community for customers to discuss their investment strategies with other customers. TradeKing introduced its platform when the brokerage launched. The platform was revamped in December to bring the technology in-house.
"We wanted to build a social networking platform with applications for self-directed investors," Mr. Montanaro said.
"We wanted to integrate that into our brokerage platform from the beginning. We see social networking as an empowering technology. We saw it as a natural fit with our online brokerage platform because people have a natural tendency to discuss their money. We wanted to create a wonderfully safe online neighborhood for people to interact about their money."
Mr. Montanaro said the platform really started to take off in January or February. Now 90% of customers read the posts on the social network, 50% participate occasionally in discussions, 10% are "mavens" who actively participate regularly, including 1.5% who are "super users" who share information with other users about how they trade and how their trades are performing.
The "mavens" make 20% of TradeKing's trades, he said.
E-Trade, Scottrade, and Zecco Holdings Inc. have each established similar networks. E-Trade launched Clearstation, its online "investment community" in 1999 to let consumers rate portfolios and make stock recommendations. Clearstation's users include about 200,000 of E-Trade's 3.5 million customers.
Tina Martineau, a spokeswoman for E-Trade, said Clearstation users are quite loyal — referring to one another as "Clearheads" — but E-Trade prefers to keep community "at arm's length" from the brokerage, because it wants to "provide services overall to larger investment community, rather than just focusing on a small group of customers."
Gabe Dalporto, Zecco's chief strategy officer, said the Pasadena, Calif., company launched its online community in July 2006 — six months before it began offering discount brokerage services. "From the beginning, the online community was part of Zecco's DNA," he said. "The online community was a huge value add and an opportunity for customers to validate their investment ideas."
In 12 months Zecco's accounts increased 93.9%, to 95,000 as of Sept. 1. Its online community had 160,000 members as of Aug. 31.
Customers "who participate in the online community make more trades, have lower attrition rates, and have a real affinity with Zecco," Mr. Dalporto said. "We find that they are just happier, more valuable customers."
Kristin McDougall, the customer education manager for Scottrade, said its online investment community had a soft launch in April, when it began inviting a select group of customers to the site. In August it began opening it up to a broader group of customers and now has 5,000 users in the community.
"The growth has been rapid," she said. "We are still in the process of growing and making it available to all of our customers."
The main goal of Scottrade's online community is to educate customers about being a self-directed investor, Ms. McDougall said. "Increasing trading volume isn't necessarily a goal, but if we help customers and help educate them, then trading will take care of itself."
Scottrade launched its online community because "we saw Web 2.0 growing, and we heard and listened to customers that said that they wanted to be educated, but they also wanted to meet and speak with other customers that had similar interests in investing," she said.
Mr. Montanaro said TradeKing's social network has grown slowly over the past three years into a platform to which people direct their friends. "Our customers are really spreading the word, and it is creating some real brand loyalty."
TradeKing is getting 20% to 25% of new accounts from referrals, he said. "This is really a type of public mentoring and our customers really seem to like that."
Customers also appreciate TradeKing's service, he said. The company maintains a simple automated call tree with fewer than the usual number of automated options, and it tries not to leave customers on hold for more than 30 seconds, he said.
"We are a big believer in keeping things simple in every way we can," he said. "We are talking about a relationship that is mainly online and electronic, but we want to make sure it is also a very personal one. We want to be accessible, whether customers want to contact us through e-mail or through our social networking community, live chat or on the phone."
Mr. Montanaro said he wanted TradeKing's social networking platform to play a role in customer service.
"I really wanted to take a cue from what worked at eBay," he said. "We saw the phenomenon of customers helping customers that really worked there. Customers contribute great answers to other customers, and we monitor those discussions closely, and I think it really is a part of our customer service model."
Analysts said discount brokerages like TradeKing and Zecco are working intelligently to differentiate themselves but could still be consolidated by large firms, like E-Trade, Scottrade, Fidelity Invesstments, and Charles Schwab Corp., which collectively control 96% of the discount brokerage business.
Mr. Montanaro said he is aware of the ongoing consolidation but remains confident TradeKing can offer an alternative to what the large players offer.
"If clients feels like they are one of 10 million customers, they are going to be open to looking for alternatives," he said. "With better customer service and support, we can stand out and remain standing."
