Let's turn to the financial community ladies and gentlemen and how that market works. You get two kinds risk you get financial risk and business risk now clearly nobody would combine high financial risk and high business risk that’s why there’s a cross there. I mean one example is the late Sir Freddie Laker, a wonderful man everybody loved him. He has a bit of disaster with his airline if you recall, he borrowed lots of money, his financial getting was very high, he went on the busiest route in the world which was London-New York that long. And of course he needed 80% plus of capacity to break even and he’s financial gearing was very high and his basic strategy was low price.
Now if you bridge your ways on American Airlines you wanted to get rid of Freddie Laker what would you do, you’d drop your prices for a while to get rid of him. What did Richard Branson do? Well he started with one plane which he leased so his financial gearing zero, he can take his plane back the next day if he doesn’t like it he goes with the financial gearing zero, he goes on the busiest route in the whole London, North Atlantic. And what's his strategy differentiation? Who’s still there Richard Branson.
Now, I’d only go into the rest of it other than two say that there is clearly a correlation isn't there ladies and gentlemen between risk and return. Now if you’ve got a high risk up here, you demand a high return, of course you do. If on the other hand you said “I'm going to be very cautious and put all my money into a proper bank account” where the interest rates let say varying between 1.8 and two with no real difference, you don’t mind accepting a low return because you know there is no risk. So these are stock exchange as you get all this shares in a market scatter them around you find a line of best fit which is called the beater and on that line is what you would normally expect by way of returning in a particular sector.
So if would say the pharmaceutical sector, I know it's more than this but let's say the waited average return on investing in the pharmaceutical sector. Let's say it was 10% that’s what you called the cost of capital it's quite straight forward and really is very, very simple cost with capital. So I'm saying “Okay, I'm going to invest in this sector” the least I’ll expect is 10%, if you are to make 9% for me or destroy your share hold of value if you make 11 your creating general of the value. Blinding them to the obvious isn't, now everybody knows that, I mean that’s not difficult.
And historically if I look back that way historically and I've got to a company let's keep the math simple where I say I've got say €15,000.00 invested in it the cost capital is 10% and I make $2,000.00 worth of net profit after tax quite clearly I have created €500.00 of share holder value. Now any fall can do the math after the event. But the stock exchanged couldn’t care less about what you did last year. All their interested in is what you're going to do over the next few years. Not next year but the next few years, they're interested in sustainability, hence sustainable competitor advantage and how you measure it super profits economic value added stern to it. Show the value added positive net present value. They all mean the same thing they're interested in continues super profits over at least three years.
And sometimes when you’ve created share of the value in one year the capital value of the shares go down because the stock exchange knows how you’ve done it, they know that you’ve cut your cost they know you’ve done size and they know it's not sustainable. An after all ladies and gentleman if you think about it how many pens are there in the pan and how many cents are there in the euro, how many cents are there in the dollar that’s fine art isn't. Is there any ceremony you can get out where as value creation which is what marketers are there for is in find the light and it's only limited by our creativity and imagination. And that of course is whey CRM system in the main done work the best company in the world make them work because they manage them, they use it go get transaction cost down but they also use it got get costumer value up and that’s a trick that not many companies know.
So if in any one year let's say 10%, you are making 10% you are what you could call mediocre average, were not creating or destroying channel devalue. Who would want to work for a company like that? You can have your marketing opponent and make some t-shirts for you with a slogan on it saying the good thing about being mediocre is your always at your best how about that. how about getting your sales force up at 5:00 in the morning and you're going to say “Going really mediocre come on let’s go for it” you wouldn’t would you.
You would want to work for a company that’s actually creating the channel devalues. So this particular module is about what you’ve got to do to create channel devalue. Now there is a module which some of you might or might not have seen on strategic marketing planning and putting a strategic marketing plan together which is world class is actually about creating share holder value continuously. And this particular module is about how you go about actually measuring whether you are—
Transcription by:
Scribe4you Transcription Services