Last week we talked a lot about how the value of a company is measured, and ended up with an incredibly incisive discussion about how marketers contribute to that value. This week, we’re going to look at Southwest Airlines, and some new ways to understand how marketing has helped them consistently beat the competition. If you’re just joining the discussion, you can get up to speed by visiting the index to this Book Discussion on Victor Cook’s Competing for Customers and Capital. If you missed the last thread, I highly recommend reading Vic’s comments on how marketers can demonstrate the contribution of value to the bottom line in a way that’s relevant in the boardroom.
Once again, Vic has put together a narrated PowerPoint to discuss the important concepts in his analysis of Southwest Airlines. This section looks at Southwest the same way a savvy investor would. But instead of looking at typical ways to measure stock performance like, say, a price/earnings ratio, Vic introduces a number of measures that look at a company’s performance within a competitive group, and at how marketing impacts performance.
One example is the Value/Sales differential, which clearly differentiates the winners and losers of a competitive group according to their ability to generate shareholder value, relative to their share of revenue. Southwest consistently soars above the competition in its ability to generate a higher premium for its stock among investors, compared to its share of revenue among competitors. There are a number of marketing factors to consider in explaining the relative market value of a company among its competitors, which Victor will help elucidate this week.
As a lead in to this week’s discussion, I’d like to ask Victor to discuss what has been missing from the investor’s tool kit in measuring the value of a company on the stock market, and how that relates to marketing.