Name it right

It must be pretty important to pick a good name for your business, judging by the mushrooming of brand consultants, no doubt to feed the eager demand of companies who have worked out that sometimes it’s more profitable to spend money on marketing rather than improving products.

I’m not sure how good brand consultants are at actually increasing profits. Is it a science, or is it pure luck? Take, for example, the Gap re-branding fiasco, when Gap tried to drop their iconic logo for something that made them look like an accountancy software company circa 1989. Popular revolt forced them to change back. The resulting publicity from the outcry may, of course, have been part of the cunning consultants’ plan all along. That’s the problem with hiring consultants. You never really know if they know what they’re doing or not.

But at last, here is at least one clear piece of guidance, courtesy of finance academics T. Clifton Green and Russell Jame. They find that firms with more “fluent” names (i.e. short and easier to pronounce) have a larger investor base, improved liquidity and greater turnover. Companies with fluent names also trade at significant premiums relative to companies with less fluent names. The authors suggest that this effect is linked to the fact that when people make decisions, they take simple short-cuts and go with choices that seem more familiar. So having a better name could increase consumer sales, and perhaps swing investment decisions. As you might expect, the effect is smaller for companies that have been around a long time, and which the public is already familiar with, for example, Xerox.

This perhaps explains why it was folly for Royal Mail, the UK’s national postal service to try to re-brand itself as Consignia in 2001 – only to re-brand as Royal Mail again a year later. In the British press, “Consignia” was said to remind people of tummy bugs and deodorant. It can’t have helped that the new logo looked like a Technicolor storm, which isn’t the sort of thing you associate with letters being delivered safely.

Yes, 10 years on, and the story has not been forgotten. Let that be a lesson to other British institutions.

The full paper is here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1777256

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