Merrill Lynch, the financial powerhouse that had risen to the top of the brokerage industry by "bringing Wall Street to Main Street," was under relentless attack. It was early 1999, and the advent of electronic trading coupled with a wave of new, discount competitors threatened the core of Merrill Lynch's business — providing investment guidance through a financial advisor on a commission basis.

Merrill Lynch fought back with a revolutionary pricing strategy of its own called Integrated Choice. The proposed product and service offering, if green-lighted, would allow Merrill Lynch clients to choose the level of advice they wanted as well as the manner in which they transacted their business, from no-frills online accounts to full-service, commission-based accounts .

From a management standpoint, Integrated Choice was fraught with risks as well as rewards. Merrill Lynch had built its reputation on the quality of its financial advisors, and its financial strength was a testament to the commissions those advisors generated. How would the company's financial advisors react to the change in strategy? More importantly, how would the firm's clients respond?

Many more questions needed to be answered before the new program could go online: How much revenue was at stake? How much would the new services cannibalize the existing services? Which clients were likely to opt for what services? How should the services be structured and priced in order to maximize revenue?

For answers, Merrill Lynch turned to its Management Science Group, a small team within the firm's U.S. Private Client organization. Under the direction of Raj Nigam, the Management Science Group developed models to evaluate different combinations of product structures and prices, and to assess and mitigate the financial risk. Reassured by the quantitative analysis, Merrill Lynch management rolled out the Integrated Choice strategy on June 1, 1999

The result? The strategy not only cemented Merrill Lynch's position as an industry leader; it changed the financial services landscape. As of year-end 2000, Merrill Lynch's U.S. Private Client assets reached $83 billion in the new offer, net new assets totaled $22 billion and incremental revenue from fees and margin interest reached $80 million.

The successful strategy produced one other result that had particular meaning for the Management Science Group. In May, at the INFORMS practice conference in LaJolla Beach, Calif., Merrill Lynch won the coveted Franz Edelman Award for Achievement in Operations Research and the Management Sciences. Co-sponsored by INFORMS and CPMS, the Practice Section of INFORMS, the Edelman recognizes outstanding implemented work that has had a significant, positive impact on the performance of the client organization.

In accepting the award on behalf of his firm, Allen T. Jones, senior vice president of Marketing with the Merrill Lynch U.S. Private Group, recalled how some company executives were skeptical when the plan to combine traditional and online investing first surfaced. "They said it looks great, but if you can't measure it, you can't manage it," Jones said.

The Edelman-winning team, composed of Nigam, Russ Labe, Stuart Altschuler, Donna Batavia, Jeff Bennett, Bonnie Liao, and Je Oh., drew the assignment of measuring and modeling the radical pricing proposal. "The Management Science team bridged the gap between a great dream and a practical reality," said Jones, adding that implementation will continue for another 12 months.

Jones also noted that the analysis enabled Merrill Lynch to go to its financial advisors, who might have left the firm if their clients switched to online accounts, and offer them incentive packages to stay on while realigning their client list to reflect the changed plan.

"Thanks to excellent analysis by a team of operations researchers, Merrill Lynch confidently introduced its Integrated Choice pricing option," summed up Donald R. Smith of Lucent Technologies, chair of the award committee. Smith was joined on the panel of Edelman competition judges by Peter C. Bell of the University of Western Ontario, Joseph Discenza of SmartCrane, Howard Finkelberg of BBDO, H. Newton Garber of Garber Associates, Stephen C. Graves of MIT, Terry P. Harrison of Penn State University and Grace Lin of IBM.

The year-long competition began with nominations, continued with a thorough examination of the nominees including site visits, and culminated with formal presentations by six finalists at the LaJolla conference. The award-winning presentation, entitled "Pricing Analysis for Merrill Lynch Integrated Choice," earned a $10,000 prize for the team members along with the prestige of winning the "World Series of Operations Research and the Management Sciences."

The five other finalists, all of whom were recognized by the prize committee, included U.S. Army Recruiting, NBC, The Jan de Wit Lírios Company of Brazil, OnStar and Samsung. More information about the contestants is available online at http://www.informs.org/Press/SanDiego02.htm