ECCI University

Name: Jorge Montenegro

Code: 71720

Operations Research 9AN

Quantitative Approach to L.P.

Exercises:

2.1- 1. The example above summarizes an award winning IO study awarded to

Merrill Lynch. Read the selected reference that describes this study in detail.
a) Summarize the background that led to undertake this study.
b) Cite the one-sentence statement with the overall mission of the IO group
(called the management science group) that conducted this study.
c) Explain the type of data the management science group obtained from
each client.
d) Identify the new pricing options that were provided to the company's
customers as a result of this study.
e) What is the resulting effect on Merrill Lynch's competitive position?

Solution:

a. Summarize the background that led to undertake this study.

R/
Operations research arose from the need to reevaluate the complexity of the
organizations and the different areas that are part of them, since as the size of
the organization and its processes increased, each one of them took a different
vision and there was a risk of losing the original philosophy or vision of the
organizations.
Some of the background information that preceded the study was:
• The birth of the USPC business model (sophisticated financial
solutions)
• Competitive trends and the environment
• The price reduction in brokerage commissions, in 1975.
• Consolidation of banks with their services: For example, the merger
between Dean Witter and Morgan Stanley in 1997, the merger of Citicorp
and Travelers, which caused greater supply and merger of services
between these entities, thus increasing competition over Merrill Lynch.

b. Cite the one-sentence statement with the overall mission of the IO group
(called the management science group) that conducted this study.
A/ "The group's mission is to assist strategic decision making in complex
business situations through quantitative models and analysis".

c. Explain the type of data the management science group obtained from each
client.
R/
Private Clients
• Its main section is to handle brokerage and lending services.
• Implementation of collection, as it is one of its strategies.
• Planning-based approach.
USPC
• Provides cash such as checks, cards, and visas through the CMA.
• Serves large, medium and small companies
• Provides financial solutions.
• The following are performed strategies from decisions through
modeling and analysis
quantitative.
• Using high range of operations including the simulation,
statistics and optimization.
Client Choice Data Simulation Model
• Simulation of behaviors to be able to choose customers.
Rational Model - Economic Behavior (REB)
• Maximum income in case of risk to customers.
Model based on DA Affinity
• It is implemented to take into account economic considerations and
qualitative factors.

d. Identify the new pricing options that were provided to the company's
customers as a result of this study.

R/

• Discounting trends to be more competitive

• Competitive services implementation of new services
• High retail volume and lower prices.
• Asset-based pricing option
• Establish actual prices deferred for fees generated to customers
• Offer various prices for schedules, tariffs, and products.
• 1 percent rate on shares
• Calculating Revenue to be based on prices
•
e) What is the resulting effect on Merrill's competitive position?
Lynch?
R/
The position was successful in the IO study, it is competitive for this they divide
it into four stages.
• Taking initiative in the market
• Finding a reference point
• Improve financial performance
• Strategic Initiatives
As a result, Merrill Lynch implemented changes in its IT infrastructure in order
to keep pace with the competition, taking into account the constant innovation
in the market. This approach was successful when implemented, as it generated
satisfaction of needs under web services development as well as cost reduction.
Sources:

Altschuler, S., D. Batavia, J. Bennett, R. Labe, B. Liao, R. Nigam and J.

Oh, "Pricing Analysis for Merrill Lynch Integrated Choice," in Interfaces,
32(1): 5-19, January-February 2002.