Thursday, 11 October 2012

Ratner Effect - How to Destroy a Multimillion Dollar Company in 10 Seconds

Ever heard of Ratner Effect?

Gerald Ratner inherited his father’s jewellery business in 1984. Within six years he had turned a small retailer into a multimillion-dollar empire.
He made it so successful that it seemed every British high street had a Ratner’s store or one of the associated companies he had brought up.
People loved his store because it offered affordable products to the working class. In fact it was generally known and the place where working-class boys bought rings for working-class girls.
Life was going well for Ratner, expensive cars, houses, boats, women and he frequented many high society events and was rubbing shoulders with Margaret at Number 10.
Yes life was good until the fateful day when he was guest speaker at the Institute of Directors on April 23, 1991 attended by over 6000 business people and journalists.
Asked how was it possible for his company to be selling a sherry decanter for the extraordinary price of £4.95 he answered, to the amazement of his audience and his shareholders, the following:
“How can you sell this for such a low price?”, I say, “because it’s total crap.”
To make sure that he really made a good job of it he also stated that his company:
sold a pair of earrings for under a pound, which is cheaper than a shrimp sandwich from Marks and Spencer, but propbably wouldn’t last as long.
Additionally the company’s shares dropped £500 million in a matter of days. Gerald lost his playboy lifestyle as well as his job and the company had to do a Phoenix and rename themselves ‘Signet Group’.
So the Ratner Effect is not related to 'generations' or 'platforms' - it is simply that if the CEO of a company calls his own products crap, he will be believed. That will instantly devalue all their products and cause collapse of prices, sales, profits.

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