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Fathom: Design thinking and the Ratner effect

  • - Written by Gareth Dunlop, CEO and founder of Fathom

    I recently watched a webinar by the quite remarkable Gerald Ratner.  Now in his 70s, he was able to reflect humorously on the turbulent time in the early 1990s when his throwaway remarks at a private Institute of Directors dinner cost him his business.

    During his now infamous speech, he said:

    “We also do cut–glass sherry decanters complete with six glasses on a silver–plated tray that your butler can serve you 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.’

    However, he was finished off by his comment about his earrings being “cheaper than a Marks and Spencer prawn sandwich but probably wouldn’t last as long” as it gave the press the sound bite they needed to run their stories.

    He clearly shouldn’t have made those remarks, which crossed the boundary from self–deprecation to sneering at his customers, something he now readily accepts. The mistake cost him £500m and his business.

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    It is a real shame that he will be remembered for those comments, because he was and is a quite brilliant businessman, with a real nose for the market and an appetite for risk.  His early career boasts the numbers to prove it.

    In 1983 Ratner took over 120 jewellery stores, which cumulatively registered annual losses of hundreds of thousands of pounds.  By 1990 he had 2,500 stores, 50% of the UK market, 12% of the US market and annual profits in the hundreds of millions.

    Through the lens of design thinking what is fascinating about Ratner’s success is that it is founded upon him identifying and acting on an incorrect assumption which everyone else in his industry believed. 

    The jewellery industry in the early 1980s was established in such a way that manufacturers set a minimum price at which their goods could be sold by retailers, and market forces meant that most high–street jewellers eventually ended up selling those products at the minimum permissible price. 

    In a desire to differentiate therefore, the industry’s attentions focused on shop layout, décor and display alongside the in–store customer experience.  In the absence of being able to compete on price, the market focused on giving the customer a perception of quality, luxury and opulence.

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    In 1983 Ratner travelled north to check in on how his Sunderland store was performing, arriving early in the morning before opening time. 

    Walking from the train station to the store, he noticed a queue forming outside another jeweller whose message wasn’t around opulence – but rather the opposite. 

    The window was full of price promotions, with signs using words like bargain and with promises of wholesale prices. He decided to wait and observe for a while, and by the time the shop opened, the customers were queued around the block waiting to get in.

    Could the assumed wisdom that quality, luxury and opulence was the only way to sell jewellery be incorrect?

    Ratner decided to find out.

    He immediately went about reorienting his business around the promises of a low–cost, bargain–based, value–focused proposition.

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    His customers responded enthusiastically almost immediately.  He started selling products like watches, rings and necklaces below the minimum price set by manufacturers.  He was selling so much that his suppliers just turned a blind eye to it.

    He disrupted an industry decades before the term was popular.

    He stumbled across and executed on a piece of incorrect perceived wisdom and the rest is history.

    Design–thinking invests time exploring assumptions and biases. UX is focused around identifying and testing opinions and notions which may or may not be true. Innovation design explores theories and hypotheses which can be tested as a means of identifying opportunity.

    Ratner’s story reminds us why we do this.

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    Each of these techniques is founded on the rationale that the absorption of accepted wisdom hampers and limits opportunity, whereas the identification of previously undiscovered truth offers openings for competitive advantage.

    Stelios Haji–Ioannou and Michael O’Leary challenged the assumption that airline travel needed to be focused on luxury and so launched easyJet and revolutionised Ryanair. 

    Marc Benioff and Parker Harris challenged the assumption that software needed to be bought and so allowed their customers to rent Salesforce. 

    And the Casella family in Australia got tired of the pretentiousness surrounding wine sales and marketing and launched the wildly successful and unpretentiousness [ yellow tail ] brand.

    In the words of Mark Twain, “It ain’t what you don’t know that gets you into trouble, it’s what you know for sure that just ain’t so.”

    Gareth formed Fathom in 2011 and has been in the business of design performance for over two decades.

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