Branding Is Creation Science

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by: Jonathan Salem Baskin

Branding giant Interbrand announced its "2008 Best Global Brands" last Friday, and reminded us that its methodology, not to mention the relevance and utility of its prognostications, amounts to little more than the Creation Science of the business world.

Scientists and mathematicians generally test their theories to prove them wrong, usually every way possible. So do rivet makers for jet airplanes, thankfully. What is most likely true is what survives challenges of being false. Evidence needs to be uncontrovertible and clear, or the only case it proves is that there needs to be more experimentation.

But that’s exactly what Interbrand does for brands: it starts with a determined belief and client billing structure that declares brands inexorably pervasive, and then goes about proving its faith. Its fundamental approach is to take away any reasonable contributor to a company’s stock valuation until there’s nothing left that’s tangible. If there’s still money reflected in the pricing, then wham! There’s your brand. 

So the absence of proof proves their theory. Even more magically, Interbrand then flips and invents explanations for those make-believe numbers, most lately referencing ‘trust’ and ‘sustainable business practices.’

It’s all a bunch of silly malarkey, only big name companies still insist on spending zillions on such inanity, and it misleads smaller businesses into thinking that marketing means coming up with good-looking brochures and web sites. Last Friday’s announcement makes me wonder aloud why?

I think it’s because of two primary factors: first, marketers desperately want the voodoo of branding to be true. I mean, if we can’t insert directives into consumers’ subconscious, then businesses actually have to rely on their self-movitated choice. Ugh. What a scary proposition on which to base future supplier orders or your child’s college education plans.

The second reason is that Interbrand, and companies less capable than they, are just so damn good at hyping the nonsense.

I look into this second point in some detail in my new book, Branding Only Works on Cattle, and go through what little info Interbrand has publicly shared on its brand valuation methodology. Here are the primary steps it takes to substantiate its creationist claims (method in bold, then my deconstruction):

  1. The projected profits are discounted to a present value, taking into account the likelihood that those earnings will actually materialize. This starting point for their analysis is squishy, as the ability to assess likelihood of any future event is inherently subjective. So the methodology will yield a prediction for the brand’s likelihood of contributing to future earnings potential. The ranking is an estimate based on an estimate. Two steps removed from objective measurement. We’ve already assigned a qualitative starting value estimate for what will include brand. And the calculating hasn’t even started. 
  2. The first step is figuring out what percentage of a company’s revenues can be credited to a brand (The brand may be almost the entire company, as with McDonald’s Corp., or just a portion, as it is for Marlboro). Wait a minute. Isn’t this the entire purpose of the assessment? And consider the examples: wouldn’t you have guessed that McDonald’s makes money from selling Happy Meals, and that, if you could ignore nicotine’s influence as a driver of consumption, Marlboro’s revenues might conceivably come more from brand than the company? What’s the difference between brand and company, anyway? Maybe the details of the methodology will clarify things
  3. Based on reports from analysts at J.P. Morgan Chase, Citigroup, and Morgan Stanley, Interbrand projects five years of earnings and sales for the brand. OK, more confusion. First off, financial houses have no standard analysis tool for assessing the value of brands (and the latest news from Wall Street isn’t encouraging re their capacity for, well, managing their own money). Most of them categorize brand as an intangible, and often don’t dissect corporate marketing budgets with any distinction between brand vs. marketing expense (machinations of above and below the line notwithstanding). When financial people use the word intangible, it’s code for may or may not have any value. Everything they care about is tangible, and all it gets revealed on a spreadsheet. So Interbrand is taking financial firms’ qualitative estimates of future performance, and building on top of it some guesstimate of branding’s role? There’s no real math here whatsoever
  4. It then deducts operating costs, taxes, and a charge for the capital employed to arrive at the intangible earnings. Oops, maybe there is math after all. But what does it mean? The last step yielded earnings, which you only get to after deducting operating expenses, etc., but maybe they were talking about the business instead of the brand in the last step? And what is the expense for intangibles? Are expenditures for brand (exclusively) a cost item, or perhaps somehow considered an investment (brand equity) that’s depreciated over time? The usage of capital is a fuzzy thing to estimate, at best.
  5. The company strips out intangibles such as patents and management strength to assess what portion of those earnings can be attributed to the brand. Stripping out lesser intangibles from the mondo-intangible of brand is a good thing, I guess, but it seems sort of random. How does Interbrand assign a number to management strength so it can then deduct it? Patents actually can be estimated, if only on the basis of the value of the legal rights themselves (let alone any market development), but how is it done here? Lots of qualitative opinion is getting passed off as quantitative measurement.
  6. Finally, the brand’s strength is assessed to determine the risk profile of those earnings forecasts. Considerations include market leadership, stability, and global reach—or the ability to cross both geographic and cultural borders. That generates a discount rate, which is applied to brand earnings to get a net present value. BusinessWeek and Interbrand believe this figure comes closest to representing a brand’s true economic worth. Gesundheit! Just revel in all that broad, ill-defined doublespeak: risk profile, considerations, market leadership, stability, global reach, ability to cross cultural borders. Each of these assessments and rates are qualitative estimates.

This isn’t math, it’s religious scripture, created to reaffirm belief to the flock while ginning up enough obfuscation to dissuade non-believers. It’s useful for nothing; enables no forward-looking business decisions; doesn’t make it any easier, or more reliable, for investors to choose one stock over another. All it does is generate more business for branding consulting firms like Interbrand.

And, in that way, it’s absolutely brilliant branding.

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