The Choice Factory by Richard Shotton

Author:Richard Shotton
Language: eng
Format: epub
Published: 2018-01-26T17:23:38+00:00

Let’s look at those tests in some more detail.

1) Is the data accurate?

A basic requirement is that the data being analysed is accurate. Stengel’s central piece of data is that his 50 stocks rose by 393%. But that’s not quite the case. Some of the companies in question, such as Emirates and Wegmans, are privately held, which means they don’t have a share price.

Nor do other brands in the Stengel 50, like Stonyfield Farm, Innocent or Pampers, have a share price. They are parts of much larger publicly-traded companies, respectively Danone, Coca-Cola and P&G. In Stonyfield Farm’s case its 2014 revenues were less than 2% of Danone’s. Can you claim that Danone’s share price rose because 2% of its holdings have a brand ideal?

The gravest flaw though is how Stengel selected the 50 brands. He picked the best performers in Millward Brown’s 50,000-strong database. That’s the top 0.1% of brands. It’s not surprising that those brands performed well in terms of share price. If they hadn’t performed well in the past they wouldn’t be in Millward Brown’s top 0.1% of brands.

Stengel’s finding, if you re-state it at its most basic, is that brands that feature in the top 0.1% of companies have performed well in the stock market. That’s circular logic.

2) Does the theory predict the future as well as the past?

The true test of a theory is if it accurately predicts the future. With that in mind I examined the share price performance of 26 of Stengel’s companies over the five years up to March 2017. Since this is after the publication of his book, it tests the predictive ability of the theory. Remember I’m analysing 26 companies, as it’s misleading to include brands who account for a small proportion of a larger company’s incomes.

The results?

A mere 9 of the 26 companies studied outperformed the S&P 500 benchmark. By chance alone you’d expect half, or 13, of the stocks to exceed that benchmark. This suggests that ideals weren’t the panacea Stengel suggested.

3) Are the brands linked by an ideal?

For the theory to be valid the brands in question must be linked by an ideal. Unfortunately, even this doesn’t seem to be true.

The claim that all 50 of the brands exhibit an ideal is suspicious. Theories rarely predict events so conveniently; reality is messier. The reason Stengel claims such widespread uptake of ideals becomes apparent when you examine his definitions. He stretches the term ideal to such an extent that it’s meaningless.

Have a look at his definition for three of the brands:

Moët & Chandon – “exists to transform occasions into celebrations”.

Mercedes-Benz – “exists to epitomise a life of achievement”.

BlackBerry – “exists to connect people with one another and the content that is most important in their lives, anytime, anywhere”.

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