Thursday, June 18, 2009

The eBay Effect -- Names that Grow on You

"eBay" is an extraordinarily valuable brand, yet it's not an intrinsically wonderful name. It's not really evocative of the service offered. It isn't that fun to say. It incorporates a cliché-ed use of "e-". (On the plus side, it is short and has unambiguous spelling.)

Names do grow on you. More precisely, with time and investment of marketing resources, a name can acquire meaning and associations, and usually grows in attractiveness.

Acela now seems inspired.
Freakonomics is now a valuable franchise.
Prius is nearly synonomous with hybrid cars.

(Although the hydronic heating company Wirsbo recently changed its name to Uponor...and I'm not sure either name would grow on anyone.)

There are two practical implications for naming and branding a product, service, or organization.

1. If your name exhibits some basic positive attributes (some combination of short, easy to say, evocative of the right brand associations, and unambiguously spellable) it will eventually seem natural and appropriate.

2. An existing name that has been in use by you or a competitor will almost always test more positively in market research than its intrinsic attributes would warrant. Indeed, the status-quo bias is so strong that "working names" for products and companies often stick and are hard to displace.

I serve on the advisory board of an interesting company that scans, stores, and organizes paper documents. The working name of the company was Pixily. We agonized over alternative names. We had concerns about ease of pronunciation, spelling ambiguity, and about associations with "pixels." Yet, we could never displace the working name with anything that seemed better. It's now grown on us, and customers now seem to think it's pretty natural. So, on the one hand, be careful with working names as they are likely to end up your permanent name. On the other hand, most names will eventually seem just right.

Thursday, June 4, 2009

Is the word "Saturn" worth billions?

With the bankruptcy of General Motors, several brands will be sold off, including Hummer, Saab, and Saturn. The sale of Hummer may include hard assets like facilities, tooling, equipment, and inventory, in addition to intellectual property like product designs and patents. However, some brands are likely to fetch the majority of their value solely from the brand name itself. 

On June 5 (2009) General Motors announced it had agreed to sell the Saturn brand and dealer network to Roger Penske. Some have speculated that the brand name Saturn is worth more than a billion dollars (although I'm guessing a sale price of hundreds of millions). That's a billion for the right to use six particular letters in association with the manufacture or sale of automobiles. How can brands be so valuable?

A brand has positive equity if consumers react more favorably to the branded product than they do to the same product when it is attributed to a fictitiously named or unnamed version of the product. Penske's plan is almost certainly to source vehicles from manufacturers who make very good products, but who have not established significant brand equity. (How anxious are you to buy a Samsung car? How about a Magna?)

Are consumers stupid? Don't they know that a Samsung car is still a Samsung car even if it has a Saturn brand on it? In part, yes...really not so much stupid, as overwhelmed with information and not able to keep up with exactly who makes what. (Recall that GM's version of the Toyota Corolla-- made by Toyota in the same plant, with the same design as other Corollas-- sold for $2000 less than the Toyota-branded car.) 

But even savvy consumers may be willing to pay more for a Saturn-branded Samsung than the same car sold directly by Samsung. This is economically rational because the purchase of Saturn by Penske is what we academics call an honest signal, a commitment by Penske to deliver on the brand promise. Penske was quoted in the New York Times as saying: "For nearly 20 years, Saturn has focused on treating the customer right. We share that philosophy, and we want to build on those strengths." Penske is unlikely to have paid a billion or even 100 million for the Saturn brand unless he planned to take actions that are consistent with the associations of that brand in the mind of its customers.

An interesting twist on this particular deal is the value that the brand Penske brings to Saturn, and indeed to the seller GM. Penske's reputation is solid gold, both in the business world and in the minds of consumers. Consumers may have increased confidence in buying a Saturn car, knowing that Penske is behind the company, and selling Saturn to Penske may make other suitors think again about the value that may be latent in some of GM's other brands. Consider how different this reciprocal effect is from that of Fiat's purchase of Chrysler, which if anything, further tarnished perception of value in Chrysler's assets.