Marketing under Fire The World Health Organisation (WHO) adopted a resolution in May this year that it would agree a strategy for the reduction in the harmful effects of alcohol by it 63rd Assembly in May 2010. This is fine and laudable but there is a particular danger that the beaurocrats will go too far. Implicit in the agenda for this strategy is that marketers are in great measure to blamce for the harm that their brands do. The ideal would be to ban all marketing activities and thereby reduce the consumption of alcoholic beverages. This is barking up a totaly incorrect tree and through its Washington based sponsored think tank, The Idependent Council for Alcohol Policies (ICAP) the induety is hitting back. Read our latest newsletter under articles to find outhow. BrandMetrics releases Database information Every valuation conducted by BrandMetrics is conducted on the company's web site www.brandmetrics.net. This has been the case for the past eight years. During this time the firm has completed 360 valuations. The database stores the inputs to each valuation and is theefore able to generate a fund of normative data. In this month's newsletter, some of the accumulated data is released. Read it in the articles section of this site. Sinclair Teams up with Kevin Lane Keller During the course of 2007, an organsiation called the International Valuation Standards Committee (IVSC) made a major decision regarding its future. Having historically been the body that represents property valuators, it noted that the valuation industry now extended beyond property. In particular new accounting standards had brought the valuation of intangible assets to the fore. Its decision was to restructure to prmit the IVSC to offer a home for the valuators of this class of asset as well as its traditional members. It would as well develop and make available a set of guidelines designed to assist valuators of inangibles. Its Disucssion Paper(DP)was made available to the general public on its website (www.ivsc.org)and 21 bodies and individuals responded by due date. Among the responses was one by Professors Kevin Lane Keller and Roger Sinclair of BrandMetrics. Both the response and the BrandMetrics newsupdate that comments on the backgound and possible intentions of the IVSC are posted in our articles section. Accountants Resist Change Research carried out by BrandMetrics indicates that accountants are failing to comply with the provisions of the newly adopted International Financial Reporting Standard concerned with mergers and acquisitions. IFRS 3 Business Combinations is supposed to ensure that investors and analysts are given more information about deals. In particular the standard requires accountants to split out the intangibles that were bought and which previously would have been considered to be goodwill. The results of the survey show that the premium over net assets paid for the business is still being shown as goodwill and the warmly anticipated breakdown is absent. It will be interesting to see if the bodies that control accounting standards will intervene, or whether it will be up to users of financial statements to make a fuss to bring compliance about (for more see the most recent articles about this on this web site). Sinclair Speaks at Hong Kong Chamber of Commerce Following the joint venture deal signed with TBWA in November 2006, BrandMetrics founder and MD, Professor Roger Sinclair, will address a lunchtime meeting of the Hong Kong Chamber of Commerce on 9th January 2007. This event has been arranged by the Hong Kong office of The Disruption Consultancy (TDC) which will be central to the promotion of BrandMetrics as one of the tools offered by the TBWA division. The theme of Sinclair's talk will be the gulf of understanding between the marketing and finance functions in most firms. The recent advent of accounting standards that recognise brands as assets under conditions of merger and acquisition, is an opporunity to bridge this gap. Marketers must grasp this moment. Michael McComb, TDC's Hong Kong based global CEO, believes that the BrandMetrics tool fits perfectly with the division's Disruption method and with its resource allocation system Connections Audit. During Sinclair's time in Hong Kong this integrated system will be shown to clients and associates alike. BrandMetrics Joins TBWA BrandMetrics' MD and founder, Professor Roger Sinclair, signed an exclusive deal with TBWA last week (4th November, 2006) in which the global group will add the BrandMetrics tool to its client offering. The deal is with TBWA's consulting off shoot, The Disruption Consultancy. Based in Hong Kong the division(which has offices around the world)will now offer BrandMetrics alongside its other proprietory tools, Disruption and Connections Audit. Clients wil now be able to value their brands for accounting, trademark, merger and acquisition purposes in addtion to the reason why BrandMetrics was originally created: to place a value on consumer based brand equity. Once clients have had their brands valued, the other tools in the Disruption Consultancy armoury can be employed to devloped strategies for maximising the value. Sinclair claims that this is a massive endorsement of the model which has been used to value over 350 brands to date. He is also thrilled that the world's biggest communication group has recognised the soundness of the BrandMetrics methodology and its South African roots. There's value and there's fair value In an article that appeared in the Johannesburg business daily newspaper, Business Day, on Wednesday, 26th April, we pointed out two anomolies associated with the introduction of fair value reporting. The first is the value that Barclays plc has ascribed to the Absa brand, the South African bank of which they acquired 57% ownership during the course of 2005. In terms of the new accounting standard, IFRS 3, they had to value the brand and state its value as an acquired asset. The value they estimated was 172 pounds (R1 8 billion). We point out in our article (see articles on this web site) that this seems understated if you consider that the current market capitalisation of Absa bank on the local stock market is R80 billion and the firm made an after tax profit of about R4 5 billion. The fact that the bank used the Relief from Royalty method to do the calculation and used a royalty rate of 1,5% explains the apparent undervalue (at least as far as we are concerned - we are not supporters of this approach to valuation!). The second point is the approach that underpins this valuation. The standard settere are only now (having introduced many new and revised standards that call for fair value estimates)finalsing their approach to how it should be measured. This truly is shuttung the stable door ...! The draft guidelines announce a hierarchy of ways in which the assumptions on which valations are based can be judged (three levels). Our article sets these out. What is clear is that while brands are listed in the standard as assets that should be measured, the standard setters have not taken into account that these assets are very different, for example, to financial instruments. Watch this space. We will tell you when sense prevails and ways of valuing brands are properly considered in the guidelines. Coke gives way to Pepsi? Marketers are used to parroting the common wisdom that Coca Cola is the world’s most valuable brand. Just before year-end this cliché was rudely questioned. Pepsi has now claimed pole position. PepsiCo is the company that owns Pepsi Cola. Coca Cola is owned by, well, Coca Cola. When in August BusinessWeek publishes the annual league table of top global brands by value, the biggest brand, inevitably, will be Coca Cola along with Microsoft, IBM and the other traditional names. Now the veracity of that list has been shaken because PepsiCo (which has climbed from 44 to 23 in the list since 2001) has become larger than Coca Cola. Of course the metrics are different. This is a measure of market capitalisation – not the brand. The value of all the shares issued by PepsiCo multiplied by its latest share price has boosted the mixed food and beverage group to a market value of $98,4 billion – just shading for the first time ever its traditional rival by $0.5 billion. According to The Economist, which reported this “humiliating reversal of fortunes” in its December 17 issue, only 20% of PepsiCo’s sales come from soft drinks while Coca Cola relies almost entirely (80%) on this category. So, now what are we to believe? The Pepsi corporate brand – that is the brand that is quoted on the stock exchange - is bigger than Coca Cola. But that brand is not the Pepsi soft drink. Coca Cola as a soft drink brand is presumably bigger than Pepsi because most of Pepsi’s business is outside the beverage sector. What we do not know is what proportion of the Coca Cola soft drink business is actually the famous Cola itself? To get there you would have to remove from the 80% of beverages all the Tabs, Fabs, Powerades and bottled water which between them contribute to the Coca Cola corporate value. Then what would you get? If Coca Cola (the drink iteself) is less than 20% of the total business it might well be that Pepsi is the more valuable brand. Unlikely, but it does make you think doesn’t it? All of which makes me tremble at the thought of the corporate brand. I suppose there is such a thing. SABMiller is a good case. Its value is increasing rapidly as it continues to acquire brewing companies around the world and continues to build its large and varied brand portfolio into dominant positions in global markets. But SABMiller does not produce the cash flows that are at the heart of its corporate value. The brands it owns do that. So what is its corporate brand value? Is it the sum of all the product brands? But what then of the added goodwill that SABMiller has created with the trade, its suppliers, governments and investors? I think that the PepsiCo achievement is sending us a signal. By extrapolating a brand value from what is a non-income generating corporate entity, we kid ourselves if we think this is anything worthwhile knowing. Indeed, is it possible for a corporate entity to have brand value? If it is, Coca Cola might have been pushed from its throne because the BusinessWeek values appear to be based on the Coca Cola business, not the great brand itself. If not, what is the league table all about? Sinclair writes for leading brand equity book Professor Kevin Lane Keller, the world's leading branding academic and auther of Strategic Brand Management, the top selling brand equity text book in the world, has invited BrandMetrics MD, Professor Roger Sinclair to submit material for the 3rd edition. Sinclair will write a section on financial accounting that will appear in one of the book's Science of Branding inserts. This will describe the changes that have taken place in recent years in global accounting standrds, and which are highly significant for brands. (See article 33 on this site) Keller will also include a desciption of the BrandMetrics methodology in the 2006 edition. BrandMetrics challenges Interbrand When Interbrand in South Africa announced the list of the country's top brands by value in May, they caused quite a furore. There are two rival cellphone giants in SA: Vodacom and MTN. The list placed MTN in second place to the country's leading bank and Vodacom third. Further, they attribute a value to Vodacom of R6, 5 billion ($1 billion). In 1999 Interbrand valued Vodacom and placed a value on it then of R6 billion ($0,9 billion). Between 1999 and 2004 (the year on which the latest valuation was based) Vodacom has grown by 330% if measured by EBITDA. Its value should then have been around R19,8 billion ($3 billion). BrandMetrics was commissioned by Vodacom to produce an alternative valuation. This was announced in August and is R21 billion ($3,2 billion). Naturally sceptics condemn the BrandMetrics value because Interbrand is the world leader. But all reality checks confirm a value of about R20 billion. The approach Interbrand uses to value brands is well publicised, The financial part is a three to five year projection of earnings, discounted to present value plus a growing perpetuity calulated on the nth year. Putting the Vodacom results from the 2004 annual financial statements through this system produces a value of about R22 billion. The question is: Where did the R6,5 billion come from? Interbrand is not saying. Brands are Assets - at last The advent this year of new accounting standards issued by London based International Accounting Standards Board (IASB) ushers in a vital new era for brands. In the News Update issued in June 2005, BrandMetrics MD, Professor Roger Sinclair, outlines these events and speculates on their significance. Within a few years he predicts changes to the worldwide standards that deal with internally generated intangible assets which will focus attention on the need for fair value measurement methods. Needless to say, BrandMetrics is one which will almost certainly fulfill the criteria for reliable measurement. Read the article headed News Update BrandMetrics in Atlanta In January 2005 BrandMetrics MD, Professor Roger Sinclair, spent a week in the United States visiting Dartmouth, Harvard and Emory Universities. He was at Emory in Atlanta when the school launched its new branding initiative: the Zyman Institute for Brand Science (ZIBS). Sinclair presented the new institution's first subject in its forum series with a talk on branding and the acountants. The talk was well attended by a mixed gathering of Emory academics and local business leaders and featured on the ZIBS web site for most of March. (www.zibs.com). New Accounting Standards set to Boost Brand Valuation Business In January 2005, world accounting regulators will adopt a new series of accounting standards to be known as International Financial Reporting Standards (IFRS). IFRS 3 Business Combinations is among the first to be released. It has substantial ramifications for brands. Read the new article that appeared in the South Africa accounting journal. It applies globally and is good news for marketers. Brand South Africa valued - World first! It was recently announced that BrandMetrics has become the first valuation company in the world to value a nation brand. The value of Brand South Africa is R379,1 billion. The standard BrandMetrics methodology was substantially modified to conduct this valuaton. The valuation will be used by those marketing the country's brand as a benchmark against which to measure progress. It also includes many sociological, economic and world competitive metrics which must be improved if the value is to be increased.