A Beta Idea BD 2001

“Multi-tasked” and “multi-disciplinary” have become business jargon. They refer to people and organisations that combine multiple skills and can do more than one thing at once. Since women have always claimed this as a natural facility, the concepts must have been male generated.

Academics cannot necessarily do more than one thing at once, but they do learn to look in other fields of study for ways to approach whatever problem it is they are trying to solve. Often a formula, research approach, or framework devised and tested in an unrelated discipline can be adapted and modified to produce a result that was never originally intended. The benefit of finding such an approach is that the foundations (internal and external validity) are not questioned because they have been soundly tested and published by the originator.

At the start of this year Wits B.Com honours student, Gabi Kuhn, was confronted with the problem of finding a way of reconciling the allocation of marketing promotional expenditure between classical media and promotional spending. This is an intractable problem that has caused the destruction of much brand value as brand management have shifted their emphasis from brand building advertising to short term sales gaining, in-store, price related promotions.

Her first area of study was to examine the literature on two schools of marketing thought: salience and image. Salience refers to the idea that brands succeed not due to consumer demand but because the brand has a dominant presence in the retail store. All the marketer needs to do is ensure that consumers remain aware of the brand and that it is never out of stock.

The alternative view is that brands are bought because people hold an image of them in their minds. They associate the brand with qualities and associations, which fit their own needs and self-perception.

The first part of Kuhn’s study concluded that reality is a function of each. There are brands that sell due to sheer presence and there are brands that are demanded because they are trusted and liked.

The real novelty of her work though was the idea, inspired by the use of the Capital Asset Pricing Model (CAPM) in a leading brand valuation methodology, that the beta coefficient, long used by capital market analysts, has a place in marketing too.

Beta is a measure of market risk. It is derived from regression analysis which, simply stated, correlates historical market returns with the returns generated by individual shares. If a share matches the historical trend exactly, it has a beta of 1. If the share has lagged the market in the returns it produces for its shareholders, its beta will be less than 1. A beta greater than 1 indicates a share that performs in an exaggerated manner compared with the market.

A number of industry sources were persuaded to make data available for the study to see if a similar indicator could be produced for brands. A C Nielsen and the Audit Bureau of Circulation (ABC) provided sets of data which permitted extensive analysis. By estimating changes in market share for each of at least thirty periods and correlating these changes with overall changes in the market, Kuhn was able to produce a series of Betas that indicated whether the brand had performed below, the same or in excess of the market.

Since the use of beta in CAPM is established and well documented in the corporate finance literature, it can be transported into marketing with ample support. But whereas a share with a high or low beta tells the investor if the investment is high or low risk, the conclusions from using the device in marketing are less obvious. Just what it means for a brand to have a high, moderate or low beta is not yet clear.

Just looking at the brands that have varying betas seems to indicate a relationship between volatility and image; stability and salience, but this is not proven. Many brands that have been supported by imaginative advertising campaigns had high betas. Low beta brands tended to be those that are leaders and which sell huge volumes and which instinctively one views as being undifferentiated.

In February 2002 a new group of students will join the Wits Commerce honours programme. One will be presented with the task of establishing a cause for the fascinating results of Gabi Kuhn’s 2001 study. Such is the pace of scholarship.