Despite all the best efforts of the marketing and sales divisions of a firm to promote demand, a…

Despite all the best efforts of the marketing and sales divisions of a firm to promote demand, a company’s best efforts can often be undone by the careless talk of chief executives. Perhaps the most famous gaffe in British corporate history took place in the early 1990s when Gerald Ratner, Head of Ratners, at the time Britain’s leading high street jeweller, was reported as saying at a meeting of the Institute of Directors: ‘We also do cut-glass sherry decanters complete with six glasses on a silver tray that your butler can serve drinks on, all for £4.95. People say, “How can you sell this for such a low price?” I say, because it’s total crap.’ Although Ratners was generally seen to be competing at the ‘less exclusive’ end of the market, describing your merchandise in such derogatory terms – admittedly to an

audience which you might have expected to be discrete – was clearly a major error. Indeed, Ratner paid a high price for his comments: investors forced him to leave the board, company profits turned into a £112 million loss and the Ratner brand name was eventually dropped in favour of Signet. Other executives have also been accused of ‘doing a Ratner’. For example, in October 2003, Matt Barrett, Chief Executive of Barclays, was widely quoted as stating that credit card borrowing was generally ‘too expensive’. Not the best publicity for Barclays’ own credit card! Although Barclays claimed its Chief Executive had been ‘misunderstood’ and that he was trying to ‘make a joke about the fact that he would not recommend his children to get themselves into debt’, this was clearly an unfortunate comment given the competitive nature of the market and accusations that interest rates on credit cards were generally too high. Such unguarded comments by company executives, often to the despair of the company and its shareholders, can have a real impact upon consumer demand. In terms of our analysis, this shifts consumer tastes away from the good, moving the demand curve in Figure 3.5 to the left. (See Section 3.5.3.)

 

 

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