Porters Five force analysis of Industry

Rivalry among competitors - Attractiveness: High

High rivalry among competitors No. of competitors Industry growth Fixed Cost Differentiations Switching cost Openness of terms of sells Excess Capacity Strategic stakes

Attractiveness Low 1 less High High High Low Secret No information High 2 3 4 High 5

Fixed cost is high due to initial investment required to get licenses from BSE, NSE Reliability is a key differentiating factor Customers can choose among many incumbent players paying a nominal registration fees High Initial capital investment in business makes it strategically risky Market is yet to realize full potential due to low internet penetration

Barriers to Entry Attractiveness: Moderate

Attractiveness Barriers to entry Economies of scale Product differentiation Brand equity Switching cost Access to channels of distribution Capital requirement Access to technology Government protection High medium High Low Difficult High Difficult High Low 1 2 3 4 High 5

 Large number of transaction makes the process cost effective hence economies of scale is required Brand equity based on trust on services, building a brand is a difficult task in trading industry Technology is complex considering computational speed and expertise required Initial investment required is high to acquire the license SEBI impose strict rules and regulation in trading business

Bargaining power of Buyers: Attractiveness: Moderate

Attractiveness Bargaining power of buyers Number of buyers Availability of substitute Switching Cost Buyer's threat of backward integration Industries threat of forward integration Contribution to quality Contribution to cost Buyer's profitability Large less Low low low High High High Low 1 2 3 4 High 5

Bargaining power of Suppliers: Attractiveness: Moderate

Attractiveness Bargaining power of suppliers No of suppliers Availability of substitute Switching cost Supplier's threat of forward integration Industries threat of forward integration Contribution to quality Contribution to cost Industries importance to supplier Less Less High Low Low medium low High Low 1 2 3 4 High 5

Threat from substitutes Attractiveness: Moderate

Attractiveness Threat of substitute Availability of close substitute Switching cost Less Less Low 1 2 3 4 High 5

VERDICT: Industry attractiveness is moderate considering all the forces

SWOT Analysis
Strength
First mover advantage No other player tried this business model ever before so Zerodha had the first mover advantage. Although this was famous in developed market but in Indian traders never tried this model. Low cost structure Business model is focused on saving brokerage charge. Typically Zerodha saves 90% of brokerage charge in most of the transactions. Reliable and simple Economic times articles about their business model brought reliability and trust. People have started believing on their low cost business model. Reliability is a key factor in this business. Electronically fast real time transaction Zerodhas Servers are located in close proximity of Mumbai stock exchange hence transactions are fast and real-time. Industry standard software platform BSE, NSE has standardized the platform in which transactions will be carried out hence reliability. Personal network of traders To run a trading business founder must have contacts in trading community. Nitin has a huge network in the trading community. During initial years this network helped Zerodha to acquire initial 100-200 customers. Industry understanding Founder Nitin was in trading business for last 15 years. He is having a good understanding about the business. The way things are get done in trading industry is known in Zerodha.

Presence in all forums Zerodhas presence in all kind of trading forum is a key strength. When traders discuss about Zeordhas positive factors in those forums it gives word of mouth publicity. No marketing expenses No marketing expense because Zerodha dont advertise in any media. Word of mouth publicity is the key marketing strategy for them. It has reduced their operating expenses. Taxes charged is Low As transaction charge is low customers usually pay lesser service charges compared to traditional brokerage firms.

Weakness
Bad debts issue Being in trading business organization runs on high risk of bad debt. People trade in credits and when they dont pay it become a bad debt for Zerodha. Highly risky business Environment Zerodha business model is based on higher number of transaction. When business cycle goes through recession volumes come down and it leads to lesser profit. Trading being risky business it makes zerodha susceptible to different types of economic shock. No personal interaction with customers No personal interaction with customers leads to low customer loyalty. So if there is a low cost service people may move to new platform. Price elasticity of customers is a key concern for Zerodha.

Opportunity
Increasing customer base Internet penetration in Indian market is increasing. People from semi urban area also trying do trading using internet platform. In next 10 year India going to have second largest internet user base, Zerodha can try to tap this potential. Institutional customers Trading solution is aimed to individual customers. To increase its business Zerodha can start targeting institutional customers. Small institutional customers can be targeted initially.

International expansion To tap international institutional customers they have to open offices in international trading hubs like Singapore, London and New York. Zerodha has opened an office in Singapore but it should to open an office in London

Threats
Few more startup copying exactly same business model Such a huge bottom line has attracted a number of new players in the market. They are just trying to copy the exact business model. But new startups dont have technical capability and brand value. But Zerodha has already developed a customer trust. But companies like compositeedge are trying to play a price game. With zero initial registration charge and lower transaction cost they are trying to gain market share. Bad economic conditions worldwide Zerodha can get hit by Global economic recession. If global economy takes a triple dip then it will create a severe impact in the industry as well in Zerodha. Existing institutions entry into the market If companies like Sharekhan try into enter into this segment, it will disturb the ecology. In near future market will witness entry of many new players into the market.