Wednesday, July 24th, 2013

Easily Pronounced Company Names Add to Stock Market Performance

Names Have An Overlooked Direct Effect On Company Performance And Perception

Adandon the superfluous.

And become unforgettable.

Though it might seem counterintuitive to judge a company, a product, or person by their name, a recent study confirms our brains work to do so anyway.

The more pronounceable a person's name is, the more likely people are to favor them:

When we can process a piece of information more easily, when it's easier to comprehend, we come to like it more," said psychologist Adam Alter of New York University and co-author of a Journal of Experimental Social Psychology study published in December, as reported in Wired Science

Alter and colleagues Simon Laham of the University of Melbourne, and Peter Koval of Katholieke Universiteit Leuven, carried out the studies.

Fluency, the idea that the brain favors information that's easy to use, dates back to the 1960s, when researchers found that people most liked images of Chinese characters if they'd seen them many times before.

Researchers since have explored other roles that names play, how they affect our judgment and to what degree.

For example, in 2005 Alter and his colleagues explored how pronounceability of company names affects their performance in the stock market.

They found companies with simpler names and ticker symbols traded better than the stocks of more difficult-to-pronounce companies:

The studies demonstrated that the fluency of a share's label, in name and ticker code, influences early performance on the stock exchange.

...[P]eople expected fluently named stocks to outperform stocks with more complex names

...[S]hares with fluent names actually experienced an early boost in performance across two large U.S. stock markets, using the pronounceability of company name and stock ticker codes as predictors of success.

This simple demonstration is particularly powerful in light of analyst attempts to predict short-term share movement using often complex and unwieldy mathematical models:

[O]ur findings suggest that attempts to understand complex real-world phenomena with equally complex models may not always be the best approach.Keeping in mind that humans are forced to seek a simple thread of understanding when bombarded with excessive information, a...simple theory is a successful predictor of human behavior.

The result:

"[C]ompanies with names like Barnings Incorporated will initially outperform companies with names like Aegeadux Incorporated."

While advertising and PR professionals often believe the answers of how best to frame the story of a company or product are found within the complex, what is true instead is how people react to the beauty and intelligence of marketing reducing complexity to simply communicated.

Simple is better.

Simple enables you to own the conversation, so that you become difficult to ignore among competing market choices.

Rather than the complexity of the shout employed in far too many advertising and new media campaigns, understanding that simple is better is why we refer to our campaigns.

As a Whisper.

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