Raynor: What Makes Merck an Exceptional Company

A director at Deloitte Services LP and co-author of The Three Rules: How Exceptional Companies Think, Michael Raynor joins The Fool to share his findings about what makes a company successful for the long haul.

In this video segment we take a look at pharmaceutical giant Merck  (NYSE: MRK  ) , and how "better before cheaper" and "revenue before cost" have placed them at the forefront of a competitive industry. The full version of the interview can be seen here.

A full transcript follows the video.

While looking at past performance is useful, the best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

Brendan Byrnes: Let's talk about the pharmaceutical industry. You mentioned Merck as one of the top companies there. What is Merck doing better than a Pfizer or a Johnson & Johnson, one of those companies?

Michael Raynor: Well, again, we're looking at 45 years of data with a company like Merck. The company that we compared it to directly was Eli Lilly, another company for which we have a full 45 years of data.

Curiously, there, what we found is that they both have very strong non-price positions. They both are rooted in great science. They make highly effective, highly differentiated therapies for diseases that afflict a lot of people, and they create a lot of value as a consequence.

That's not what differentiated them. What differentiated them was Rule 2, which was Revenue Before Cost; the way in which they were able to drive superior profitability.

Merck was able to both globalize its customer base, and also introduce a much broader array of products more rapidly than Eli Lilly was, and as a consequence drove much of its superior profitability as a result of asset turns born of superior volume, but -- and this is the kicker -- superior volume born of its differentiation.

Econ 101 will tell you, if you want to increase volume you've got to cut price. That's not what they did. They're "better before cheaper." They drove their volume through differentiation, and that's what led to their superior profitability.

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2508863, ~/Articles/ArticleHandler.aspx, 9/30/2016 6:30:12 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,308.15 164.70 0.91%
S&P 500 2,168.27 17.14 0.80%
NASD 5,312.00 42.85 0.81%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/30/2016 4:01 PM
MRK $62.41 Up +0.50 +0.81%
Merck and Co. CAPS Rating: ****
JNJ $118.13 Up +0.86 +0.73%
Johnson and Johnso… CAPS Rating: *****
LLY $80.26 Up +0.52 +0.65%
Eli Lilly and Co. CAPS Rating: ***
PFE $33.87 Up +0.55 +1.65%
Pfizer CAPS Rating: ****