Doing the Math

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by: Jonathan Salem Baskin

Anheuser-Busch last week rejected InBev’s acquisition offer, and ran a full-page newspaper ad to explain why.

It seems that its brand is just too valuable.

I counted 11 mentions of brand (or iconic brand, more often) in August A. Busch IV’s letter, and found this paragraph particularly illuminating:

Anheuser-Busch’s beer brand building expertise is an asset without comparison. Our brands sell in countries around the world and are sought by consumers everywhere. Our award winning advertising, U.S. and global sponsorships and superior-quality image are second to none.

This got me wondering how exactly how all that brand value had been measured.

The company referenced that Goldman, Sachs & Co., Citigroup Global Capital Markets Inc. and Moelis & Company had acted as financial advisors, joining with the board to unanimously reject InBev’s offer. That’s some serious intelligence working on its behalf, so my assumption was that there’s a serious methodology — if not a buttoned-up equation — that assigns dollars and cents to Anheuser-Busch’s iconic brands.

Only I can’t find one.

Sure, there are a lot of ways to assign value to image. Most equations, if they’re equations at all, are glorified and/or overly-complex representations of awareness, suggesting that there’s at least an indirect correlation between known-ness and selling. Sort of. It’s certainly better than being invisible, but after that, it’s mostly a qualified judgment with a lot of variables defined by gut call, presumption and, not so uncommonly, hope.

When I wrote about the offer last week, some of my friends in the branding racket suggested that Bud’s "Americanness" was a brand attribute that drove consumption and, as such, had value that InBev would destroy. 

Assuming that this even constitutes a motivator for consumption — people look at bottles of Bud and Miller side-by-side, and determine which company has fewer foreign-based shareholders — I’m not sure how it has any intrinsic or absolute value. It’s a marketing tool, I guess. But making gigantic business decisions based on its latent residence in consumers’ consciousness doesn’t qualify as a scientific fact, let alone a fiscally responsible criteria.

Having trolled some of my investment firm associates over the years, I know that there’s no standardized rule for assigning value to brands. This is surprising, since there’s a steadfast and/or regulatory-involved rule for pretty much everything else that might appear on a company’s balance sheet. But brands? It’s an intangible, which means it can be valued by anything from a wet finger in the wind, to a number assigned to some component of stock price that can’t be explained fully by anything more rigorous.

Yet here is a multi-billion dollar business making a multi-billion dollar decision based on this sort of valuation of brands, and not one analyst or financial reporter has bothered to question the politically-correct blather.

Which is why I’m a dim bulb. I think it deserves some consideration.

Specifically, I recently published my own methodology for measuring the value of brands. Calling it the Dim Bulb equation, it appeared on Brand Strategy magazine’s blog a few weeks ago; in it, I argued for developing a series of numeric variables based on the tangible places, activities, and benefits that brands should provide to businesses.

If brands are truly worth something, it has to be something far more substantive than "a superior-quality image" as Anheuser-Busch claims. Brands should help companies make more money, and do so faster and better than lesser-branded competitors. And evidence of this performance should be discernible in the business, not in the minds or unrealized intentions of its customers.

Here’s the Dim Bulb equation: 

B = t*  x  c* x  ∫ m  x  ∫ e  x  p*  x  l*  ∫ r  x  ∫ j x  v  x  1/a

I know, it looks complicated, but you should see the nutty match people use to discover the value of brands in peoples’ subconscious. I’ll crib it out and apply it to Anheuser-Busch, and let’s see if we can fill in the blanks:

The value, or "B," of Anheuser-Busch’s ("AB") brands is equal to…

t, for the time AB saves over its competition when it develops a new product (concept to first sale). Iconic brands brands should have an easier time identifying the products its customers want. 

c for the average cost-savings of AB’s development process vs. its 2 main competitors. Better brands should be able to create things not just faster, but more economically, than lesser-known names.

m is the ratio of AB’s total marketing expenditure over that of its 2 main competitors ("for every x we spend, they have to spend y"). Awareness of AB’s iconic brands should make it cheaper for it to tell people things.

e is the ratio of the efficacy of AB’s last 3 ad/marketing campaigns over those of its 2 main rivals, expressed as an aggregated return for every dollar spent ("for every x of money spent on a campaign, we collected x percent more than they did"). Branding should provide an umbrella that makes AB’s tactical marketing work better.

p is for the average price surcharge AB’s iconic brands are able to collect for its top-selling products over those of its main 2 competitors’ top products (since consumers should be willing to pay more for all of Bud’s brand benefits beyond functional attributes, right?).

l is the average percentage of AB’s customers who’ve endured a product failure, corporate crime, or other negative impact to the brand vs. those of one lesser-known brand name in the beer business. If people have relationships with brands, they’ll act on them in spite of clear evidence to do the contrary.

r is the average duration of AB’s customers sticking with its business that is greater than the average duration of those patronizing your two two competitors (Bud drinkers should stay Bud drinkers longer than, say, Miller or another brand).

j is for the average discount AB’s employees are willing to take in order to work for oen of its iconic brands over the average pay scales in the category.

v is the actual dollar amount that a reputable investment firm will go on the record (in print, publicly) stating that AB’s business will achieve through nothing more than its brand awareness, and

a is for addiction, and the number of times AB has has ‘rebranded’ one or more of its businesses over the past 20 years, expressed as a fraction. Successful brands build equity consistently over time, don’t they?

Got the number yet? "V" is always the killer for me; valuations are bandied about like glib claims on a schoolyard, but nobody (except the shareholders) is left accountable for the accounting of brand value when it comes to real dollars and cents. 

When the InBev takeover finally happens (or any merger occurs, really), the real valuation of the brands will be reached by adding and subtracting distribution, production, employment, and other very excruciatingly tangible variables. 

My equation? I think the value for "B" is somewhere near zero, which can’t be good.

I don’t understand why there’s no movement among financial firms toward establishing some standard to apply to declarations of brand value. Perhaps because said declarations are so readily accepted, even as they’re impossible to comprehend? The branding business has done a good job of branding itself?

Now there’s an accomplishment that I’d drink to!

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