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For branding that stands out, choose red

The color red influences investor behavior, financial research reveals.

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The phrase “to see red” means to become angry. But for investors, seeing red takes on a whole different meaning. That’s the premise behind a new article by William Bazley, assistant professor of finance at the University of Kansas.

“Visual Finance: The Pervasive Effects of Red on Investor Behavior” reveals that using the color red to represent financial data influences individuals’ risk preferences, expectations of future stock returns and trading decisions. The effects are not present in people who are colorblind, and they’re muted in China, where red represents prosperity. Other colors do not generate the same outcomes.

The article appears in the current issue of Management Science.

“Our findings suggest the use of color deserves careful consideration when it’s to be used on financial platforms, such as brokerage websites or by retirement service providers,” Bazley said. “For instance, the use of color could lead to investors avoiding the platform or delaying important financial decisions, which could have deleterious long-term consequences.”

Co-written by Henrik Cronqvist at the University of Miami and Milica Mormann at Southern Methodist University, the article demonstrates how evolutionary biology and social learning are what creates this color-coded behavior. With regards to Western culture, it’s possible that social learning has reinforced biological underpinnings. Specifically, the physical and psychological context in which color is perceived influences its meaning and human responses to it.

“In Western cultures, conditioning of red color and experiences start in early schooling as students receive feedback regarding academic errors in red,” Bazley said.

Red is associated with alarms and stop signs that convey danger and command enhanced attention. Other examples include when California issues a “Red Flag Warning” that signals imminent danger of extreme fire or when the American Heart Association uses red in its guidelines to indicate hypertensive crisis (a blood pressure reading higher than 180/120) that necessitates medical care. Over time, repeated pairings of a color with negative stimuli can influence subsequent behavior.

In regard to finance, Bazley was most surprised to find how red color appears to prolong pessimistic expectations in relation to negative stock returns, while viewing the same information in black or blue leads to reversal beliefs.

He said, “This suggests the use of color may have broad implications for stock market liquidity during times of crisis and the momentum anomaly.”

Their research also drew on other examples outside the financial community where colors influence choice. An emerging field called color psychology analyzes how this affects human behavior. Bazley cites a 2005 study in the publication Nature that argued the color of sportswear may influence outcomes in the Olympics.

“Much like our everyday choices, our financial decisions are likely to be shaped by factors which are not specific to the decision at hand. This can be due to a variety of reasons, such as limits to our attention. Ultimately, it suggests that incorporating aspects of psychology when studying financial decision-making is likely to yield insights,” said Bazley, whose “Pervasive Effects” research is based on eight experiments with a total of 1,451 individuals.

He emphasized this particular project originated in a neuroscience course during graduate school. The research also benefited from the varied expertise of Mormann, who is a visual scientist, and Cronqvist, a behavioral finance expert.

Bazley’s interest in color effects relates to his overall study in the dynamics of financial decision-making.

“Our everyday choices are shaped by a multitude of factors,” said Bazley, whose expertise incorporates behavioral and social influences and fintech. A similar process plays out when we make our financial choices. We are still at the early stages of understanding these dynamics, but learning about them has the potential to yield insights that could ultimately improve the outcomes individuals realize from their decisions.”

So what is Bazley’s favorite financial term involving the color red?

“I appreciate the phrase ‘red herring,'” he said. “In finance, it refers to a preliminary prospectus that a company uses when issuing securities to the public. It is an important document for potential investors, but it tends to omit key pieces of information; hence, it usually has a red disclaimer on the front. I also find fish to be delicious.”

Strategies

The market advantage of a feminine brand name

What do iconic brands Nike, Coca-Cola, and Disney have in common? They all have linguistically feminine names. In fact, the highest-ranking companies on Interbrand’s Global Top Brands list for the past twenty years have, on average, more feminine names than lower-ranked companies.

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Researchers from University of Calgary, University of Montana, HEC Paris, and University of Cincinnati published a new paper in the Journal of Marketing that explores the linguistic aspects of a name that can influence brand perceptions without people even realizing it.

The study, forthcoming in the Journal of Marketing, is titled “Is Nestlé a Lady? The Feminine Brand Name Advantage” and is authored by Ruth Pogacar, Justin Angle, Tina Lowrey, L. J. Shrum, and Frank Kardes.

What do iconic brands Nike, Coca-Cola, and Disney have in common? They all have linguistically feminine names. In fact, the highest-ranking companies on Interbrand’s Global Top Brands list for the past twenty years have, on average, more feminine names than lower-ranked companies. How can you tell if a name is linguistically feminine? Easy–does it have two or more syllables and stress on the second or later syllable? Does it end in a vowel? If so, then it is a feminine name. Linguistically feminine names convey “warmth” (good-natured sincerity), which makes people like them better than less feminine names.

A brand’s name is incredibly important. In most cases, the name is the first thing consumers learn about a brand. And a brand’s name does the work of communicating what the brand represents. For instance, Lean Cuisine conveys the product’s purpose. Others, like Reese’s’ Pieces, have rhyming names that promise whimsy and fun. Making a good first impression is critical, so it is not surprising that the market for brand naming services is booming. Boutique naming fees can run as much as $5,000 – $10,000 per letter for brand names in high-stakes product categories like automobiles and technology.

Specifically, the number of syllables in a name, which syllable is stressed, and the ending sound, all convey masculine or feminine gender. People automatically associate name length, stress, and ending sound with men’s or women’s names because most people’s names follow certain rules. Women’s names tend to be longer, have more syllables, have stress on the second or later syllable, and end with a vowel (e.g., Amánda). Men’s names tend to be shorter with one stressed syllable, or with stress on the first of two syllables, and end in a consonant (e.g., Éd or Édward).

We often relate to brands like people–we love them, we hate them, we are loyal to certain brands but sometimes we cheat. We associate brands with masculine or feminine traits based on the linguistic cues in the name. So, attributes associated with gender – like warmth – become attached to a brand because of its name. “Warmth” is the quality of being good-natured, tolerant, and sincere. Researchers believe that warmth is incredibly important because deep in our evolutionary past, primitive people had to make a quick, critical judgment whenever they encountered someone new–is this stranger a threat or not? In other words–is this stranger dangerous or warm? If the newcomer was not warm, then a fight or flight decision might be called for. People still rely on warmth judgments every day to decide whether someone will be a good partner, employee, or friend.

So, it is no surprise that warmth is an important characteristic of brand personality. And because linguistically feminine names convey warmth, features like ending in a vowel are advantageous for brand names. As Pogacar explains, “We find that linguistically feminine brand names are perceived as warmer and are therefore better liked and more frequently chosen, an effect we term the Feminine Brand Name Advantage.”

But does all this matter in terms of dollars and cents? Yes, according to the Interbrand Global Top Brand rankings, which is based on brand performance and strength. Angle says that “By analyzing the linguistic properties of each name on Interbrand’s lists for the past twenty years, we find that brands with linguistically feminine names are more likely to make the list. And even more, the higher ranked a brand is, the more likely it is to have a linguistically feminine name.”

After observing this feminine brand name advantage, the researchers conducted a series of experiments to better understand what is happening. Participants reported that brands with linguistically feminine names seemed warmer and this increased their purchase intentions. This pattern occurred with well-known brands and made-up brands that study participants had no prior experience with.

There are limitations to the feminine brand name advantage. When a product is specifically targeted to a male audience (e.g., men’s sneakers), masculine and feminine brand names are equally well-liked. Furthermore, people like linguistically feminine names for hedonic products, like chocolate, but may prefer masculine names for strictly functional products like bathroom scales.

It is important to note that results may vary based on the linguistic patterns of name gender in the target market country. Lowrey summarizes the study’s insights by saying “We suggest that brand managers consider linguistically feminine names when designing new brand names, particularly for hedonic products.”

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Strategies

How to get customers to talk about you

WOM is arguably the most influential means of persuasion and can be a critical driver of a company’s growth. For this reason, many companies offer consumers incentives to encourage them to generate WOM.

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Researchers from Arizona State University, New York University, and Northwestern University published a new paper in the Journal of Marketing that examines how marketers can fuel positive word of mouth (WOM) without using explicit incentives.

The study, appearing in the Journal of Marketing, is titled “How Marketing Perks Influence Word of Mouth” and is authored by Monika Lisjak, Andrea Bonezzi, and Derek Rucker.

WOM is arguably the most influential means of persuasion and can be a critical driver of a company’s growth. For this reason, many companies offer consumers incentives to encourage them to generate WOM.

Classic examples of WOM are referral and seeding programs, whereby a company literally “pays” current customers to generate positive WOM and attract new customers. Despite its intuitive appeal, however, this practice can backfire. Ironically, incentivizing WOM sometimes can hamper, rather than increase, consumers’ willingness to engage in WOM.

This research shows that commonly used marketing perks–e.g., gifts, benefits, and rewards–can effectively foster WOM without being used as explicit incentives. Their effectiveness at boosting WOM, however, depends on how they are framed and therefore perceived by consumers: Marketing perks are more effective at fostering WOM the less they are perceived to be given out of contractual obligation. The term “contractuality” refers to the degree to which a perk is perceived to be given to consumers in exchange for engaging in specific behaviors dictated by a company, such as filling out a survey or making a certain number of purchases.

Lisjak explains that “We demonstrate that marketers can influence the perceived contractuality of a perk with easily implementable pivots. Consumers can perceive the exact same perk, say a free coffee, as more or less contractual simply based on how it is framed.”

As one example, the perceived contractuality of a perk can be lowered by giving consumers a free item after a set number of purchases, but not making the number of purchases salient to the consumer. As another example, the same perk could be accompanied by a thank you note, as opposed to a note that highlights all the effort a customer had to put in to earn the perk. In both instances, companies do not have to change the offering, only how consumers perceive it.

Interestingly, however, perks lower in contractuality can sometimes backfire against companies. This is more likely to occur when a perk characterized by low contractuality comes from a disliked or distrusted company. Under such circumstances, consumers become wary of the company’s intentions and then interpret the perk as a manipulative act of persuasion driven by ulterior motives.

When this happens, perks lower in contractuality in fact hinder rather than fuel WOM. To illustrate, many consumers do not like utility providers or financial institutions. To the extent that such dislike prompts consumers to make hostile attributions of benevolent gestures, such companies might be better off using perks that are higher in contractuality.

Finally, contractuality can entail a trade-off. Despite being more effective at fostering WOM, low contractuality perks might be less effective than high contractuality perks at inducing compliance with a direct request. For example, if a company wants consumers to complete a customer satisfaction survey, offering a high contractuality perk can be more effective and efficient than offering a low contractuality perk.

Simply put, when brands have a specific action other than WOM that they would like consumers to take, perks higher in contractuality might serve as better incentives because they make behavior-reward contingencies clear and salient.

Bonezzi summarizes the study by saying “Our findings suggest that marketers could nudge consumers to generate positive WOM by providing them with perks that have fewer strings attached. Of note, this could be achieved at a similar cost to perks that come across as highly contractual.”

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Strategies

Consumers say compact logos signal product safety

The findings reveal that typography — specifically tracking, or the spacing between letters in a word — can influence consumers’ interpretations of brand logos.

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Compact logos can encourage favorable brand evaluations by signaling product safety, according to a new study by researchers at Boston College’s Carroll School of Management and Indian Institute of Management Udaipur, who reviewed the opinions of 17,000 consumers and conducted additional experiments with a variety of logos.

The findings reveal that typography — specifically tracking, or the spacing between letters in a word — can influence consumers’ interpretations of brand logos. Further, the interpretation is influenced by cultural factors, the researchers reported in a recent edition of the Journal of Consumer Research.

In addition to the survey data, the results were confirmed in experiments, even during the Covid-19 pandemic, when public health guidance on social or physical distancing put a new emphasis on space, Hagtvedt said.

“We found fairly consistent patterns in these responses, even during the pandemic, when some brands were experimenting with placing the letters of logos farther apart to emulate a social distancing signal,” said Boston College Associate Professor of Marketing Henrik Hagtvedt, who co-authored the paper with IIM’s Tanvi Gupta.

The researchers analyzed data from 17,000 consumers rating 629 brands. Hagtvedt and Gupta found compact logos, where tight tracking leaves less space, encouraged favorable brand attitudes when compared to loose logos, where loose tracking creates a more spacious appearance. According to consumers, compact logos signaled that the brand was reliable, secure, and trustworthy.

Logos are central to the ways brands communicate with consumers. Logos that appear physically robust imply a brand’s products are safe to use, Hagtvedt said. Compact logos were shown to send a message to consumers implying their products were sturdy and secure. This is particularly the case with textual logos, where consumers show sensitivity to the spacing between letters. Tight lettering equates to sturdiness in the minds of most consumers, whereas too much space may imply vulnerability, Hagtvedt said.

Cultural influences are also at play, according to the new report, titled “Safe Together, Vulnerable Apart: How Interstitial Space in Text Logos Impacts Brand Attitudes in Tight versus Loose Cultures.” Drawing on the work of anthropologists, the researchers focused on two groups of consumers: those considered culturally “tight” or “loose.” Tight cultures are a function of adapting to threats, such as violence or natural disasters. Individuals from this group are likely to favor the appearance of tight structure.

In the US, studies have shown southern states tend to display cultural tightness, while states in the west and northeast reveal looser structure. Factors such as religion, organization, or industry, can influence cultural tightness.

Gupta and Hagtvedt report that consumers tended to favor compact logos over spacious ones, regardless of cultural tightness, under ordinary circumstances. However, when the experiments involved contexts with potential safety concerns (such as products related to pharmaceuticals or mobile financial services), only culturally tight consumers responded more favorably to the compact logos.

The researchers suspect that the latter findings stem from culturally loose individuals associating space with freedom or autonomy, and being especially sensitive to that signal when safety is threatened. Among these individuals, the restrictive associations of compact logos can balance out the positive security signal.

The findings add to the understanding of how people draw meaning from visual communications, a key insight for brand managers and businesses of all sizes, said Hagtvedt. At the same time, they provide practical tips to organizations and individuals seeking to signal safety, depending on the context as well as the relevant culture.

Developing better quantitative standards can help organizations better assess how their designs may be perceived, rather than going on “gut” intuition about what makes a successful logo.

“It is important to know what kind of signal a logo sends,” said Hagtvedt. “Businesses spend millions on not just designing their logos, but on using their logos in brand communications. It is arguably the most prominent representation of a brand, wherever that brand operates. It has an enormous influence on consumers. To design and deploy a logo haphazardly is a questionable practice.”

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