In the first meeting of my undergraduate elective "Competing for Customers and Capital" at Tulane University I projected the following word on the computer screens in very large letters: LUV.
Then in the big classroom, speaking softly into my lapel mike, I asked:
What company owns this brand name?
My question was greeted with stunned silence. The students quietly discussed what it might be. Finally someone asked:
Is it Procter and Gamble's (NYSE:PG) brand of disposable diapers?
To which I replied:
Close but no cigar. LUV actually is the ticker symbol for Southwest Airlines (NYSE:LUV).
We knew that -- but a ticker symbol is not a brand name!
To which I replied:
On Wall Street it is.
This is the 3rd in my series of posts on brands in enterprise marketing. The first, "Sears Brand Bonds," was followed by "Coca-Cola's Brand Bonds." In this post I take an entirely original approach to co-branding from the first page in my book Competing for Customers and Capital.
In the Wall Street Journal article Does Stock By Any Other Name Smell as Sweet? the author cites research that concludes:
"... companies with clever symbols do better than other companies. Any suggestion of a cause-and-effect relationship may be hokum, but tickers that make investors chuckle -- think Sotheby's BID, Advanced Medical Optics Inc. 's EYE or the apt PORK of Premium Standard Farms Inc. -- also may make them richer, at least for a time."
One of the papers she's referring to is a working paper by Alex Head, Gary Smith, and Julia Wilson titled "Would a Stock by Any Other Ticker Smell as Sweet?" Here's the abstract of their paper:
"Some stocks have clever, eye-catching ticker symbols: for example, Southwest Airlines (LUV), United Stockyards (NYSEARCA:MOO), and Internet America (OTCPK:GEEK). These clever tickers might be a useful signal of the company's creativity, a memorable marker that appeals to investors, or a warning that the company feels it must resort to gimmicks to attract investors. This paper investigates the performance of stocks with clever ticker symbols during the years 1984-2004. Surprisingly, a portfolio of clever-ticker stocks would have beaten the market by a substantial and statistically significant margin, contradicting the efficient market hypothesis."
The authors found that 51 clever-ticker stocks delivered annual compound returns of 23.5% compared with the whole NASDAQ/NYSE portfolio which delivered returns of 12.3%.
Another paper cited in that WSJ article is by Adam Alter and Professor Daniel Oppenheimer of Princeton University's Psychology Department. They studied a refined property of tickers dubbed "processing fluency." To do so the authors gathered data on the rate of return on IPOs over 14 years. Their study, published in the Proceedings of the National Academy of Sciences:
"... investigated the impact of the psychological principle of fluency (that people tend to prefer easily processed information) on short-term share price movements. In both a laboratory study and two analyses of naturalistic real-world stock market data, fluently named stocks robustly outperformed stocks with disfluent names in the short term (abstract)."
Another of their series of studies is most relevant here because it examined:
... the effects of fluency on stock performance in a semantically impoverished context: by using the pronounceablity of each company's three-letter stock ticker code as a predictor of performance (page 9370)."
A fluent ticker is one that could be pronounced [e.g. KAR] compared with one that could not be pronounced [e.g. RDO].
The authors calculated the excess profits earned by an investment of $1,000 in the basket of NYSE and AMEX stocks with pronounceable tickers compared with non-pronounceable tickers. On the first day of the IPO the excess yield was $83.35. At the end of one week the excess yield was $42.40. After six months it was $37.10. Even after one year the excess was $20.25. Their tests for company size and industry effects were not significant.
Semantically Impoverished Tickers
In 2007 Interbrand released a list of the 100 most valuable brands in the world. Fourteen of the top 15 brands also have a ticker symbol. How many of the following tickers (in alphabetical order) are pronounceable?
American Express (NYSE:AXP), BMW [BMW], Citigroup (NYSE:C), DaimlerChrysler (DAI), Disney (NYSE:DIS), General Electric (NYSE:GE), Hewlett-Packard (NYSE:HPQ), IBM (NYSE:IBM), Intel (NASDAQ:INTC), Coca-Cola (NYSE:KO), McDonald's (NYSE:MCD), Nokia (NYSE:NOK), Microsoft (NASDAQ:MSFT), Toyota (NYSE:TM).
Only five of the tickers (in bold) owned by 14 of the top 15 most valuable brands in the world are pronounceable. But none are particularly clever. And the other nine are more or less semantically impoversided.
It turns out that at least 80 of the 100 most valuable brands in the Interbrand list also have ticker symbols. The other 20 brands are owned either by private companies or are divisions of public ones. Only 15 of the 80 are pronounceable. Among the remaining 65 tickers the most semantically challenged are 005930 (Samsung on the Korean Stock Exchange) and Reuters (RTRSY). Only four of the pronounceable tickers are as clever as LUV. These are Anheuser-Busch (NYSE:BUD), Caterpillar (NYSE:CAT), Harley-Davidson (NYSE:HOG) and Pepsi (NYSE:PEP). Why was LUV not included in the fluency study? Probably because Southwest Airlines was not among the stocks listed in their "Global New Issues Database" from 1990 through 2004.
Why Not Put LUV in Their Heart?
If LUV is the brand name for Southwest Airlines on Wall Street, then why didn't my students know this? It's probably because undergraduate seniors, even in a business school, don't trade many stocks on their own. But this raises a more important question: what would be the impact on its stock price if Southwest's management were to co-brand its corporate logo and its ticker symbol? Let's see, the company's logo is:
That red heart with wings makes co-branding easy. Why not put LUV in their heart?
Just because it's easy, doesn't mean co-branding will succeed.
Can Co-Branding Tickers and Trademarks Succeed?
In their book Co-Branding: The Science of Alliance, Tom Blackett and Bob Boad write that:
... the term 'co-branding' is relatively new to the business vocabulary and is used to encompass a wide range of marketing activity involving the use of two (and sometimes more) brands. Thus co-branding could be considered to include sponsorships, where Marlboro lends it name to Ferrari or accountants Ernst and Young support the Monet exhibition ... The list of possibilities is endless. (page 1).
Would these authors consider combining trademarks and tickers as one of those endless possibilities? Tickers are not listed in the index to their book. And my students said a ticker symbol is not a brand name. But ticker symbols have all the salient characteristics of a brand name:
Ticker symbols are a unique proprietary asset. It is a financial trademark. It stands as assurance to investors that buying it will deliver a genuine share of a company's stock. Because the ticker symbol, practically speaking. is the product, it's superior to a trademark: when you buy a share of LUV online you know you get a genuine Southwest Airlines common stock, unlike when you buy a Gucci bag or a Cartier watch on a city street.
Stock markets and product markets operate separately, but interact in many subtle ways. Maybe more passengers would become stockholders, thus driving up the demand for Southwest Airline shares, if they saw LUV in the logo at the front of their Boeing 737.
Would it pay to marry your company's ticker to its trademark? It might, if that ticker were clever or fluent ... or both. What do you think?
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.