The Cost to Develop a New Name for a Product: $3,000 to $75,000?

In a recent entertaining and informative article, The Weird Science of Naming Products, by Neal Gabler, published in the New York Times Magazine (January 15, 2015), Mr. Gabler discusses the process of choosing a name for a new product or service for a technology company in Northern California.  Notably, the article discusses the process of choosing a name by brand guru Anthony Shore.  Mr. Shore has created names such as Soyjoy and Yum!.  The article also describes the results of a study on the relationship between sounds of different words and emotions, and the use of that research to develop brands.  The article spends about a paragraph noting the importance of trademark law and the impact of preexisting marks.  Interestingly, the article does not discuss consumer studies of the potential names for products.  It notes that it costs about $3,000 to $75,000 US to develop a name, but tens of millions to establish the name in the marketplace.  Does that cost sound about right?  It seems low to me.  Any other estimates for the cost to develop a name? 

In the mood for a webbie and a bit of INTIPSA?

Mike Sharpe (Chief Operating Officer, INTIPSA -- the International Intellectual Property Strategists Association) has let it be known that the organisation is hosting a webinar on Tuesday 17 January, entitled "Brands, Tax and Finance".  He promises:

"We’ll be discussing IP tax regimes, transfer pricing and the IP issues around offshoring of brands. Panellists: Steef Huibregtse of Transfer Pricing Associates, Anne Fairpo of Atlas Chambers [and the IP Finance weblog] and Serena Tierney, former Head of IP at O2, Telefónica, Disney and Diageo [though not all at the same time ...]".

Registration and further details are available on INTIPSA's website here.


If any reader of this weblog is signed up for the webinar, will he or she please report back on the most exciting and/or useful bits.  And can that person let know whether "brands", in this context, only means consumer brands, or whether those unfashionable things, business-to-business brands, have any significance in this context ...

From Virtual Goods to Virtual Brands?

I must confess, for a long time, I had failed to appreciate the commercial potential of virtual goods, and the virtual currency to buy them. That changed recently, when I found myself involved in a transaction whose raison d'etre was to merge social networks with the revenue-enhancing potential of trade in virtual goods. Sure I had heard about Zynga and the wild success of its Farmville game. But only when the transaction forced me to learn more about the role of virtual goods in the social network space, did I gain insights into why, according to one report ("There's Real Money in Virtual Goods", by Gurbakash Chahal, TechCrunch, June 23rd here), "[w]ith more than 230 million unique users per month, games by Farmville publisher Zynga alone are played by half of the world's Facebook users each month."

As cogently explained to me, for gamers, the amounts expended on virtual goods have to be compared with an alternative expenditure for other forms of entertainment. Compare the $20-dollars or more (choose your exact price, local currency and exchange rate) paid for a two-hour movie with the cumulative engagement of a game such as Farmville, where each single outlay for a virtual item is a mere fraction of the cost of the movie. At the end of the day, there is no real difference between paying for two hours of pleasure via the celluloid screen and the untold hours tending to one's virtual farm and ensuring that you have the necessary implements to do so. Both are popular forms of entertainment based on the enjoyment of a vicarious reality.

One aspect of this gaming experience was tantalizingly described in the TechCrunch article mentioned above, namely, the role of trade marks and brands as a part of the effort to monetize virtual goods. Permit me to quote Chahal on this point as follows:

"Brands are already a prominent part of the social Web. Facebook users post branded gifts on each other’s walls—paid for with real money—and become fans of those brands’ pages. And why wouldn’t they? The essence of social networking is the expression and projection of one’s identity, and brand affinity is a central theme of nearly every modern consumer’s persona. Why buy a Gucci dress when you can get the same look from DKNY or even J Crew? Because it helps you express something different, and feel better doing it. Virtual goods are no different, except they are don’t cost as much. Already, branded virtual goods are clicked ten times more often than non-branded equivalents. In this light, it isn’t hard to visualize the virtual marketplace of the near future. (Emphasis added).

As more real-world brands in more categories extend into the virtual marketplace, branding will increasingly seem like the norm, pushing unbranded virtual items down in status to the level of store brands and generics. For some consumers, this provides the opportunity to replicate their existing brand relationships; for others, virtual items can help satisfy the desire for their unaffordable real equivalents. (Emphasis added). The hottest brands will command the highest prices, even if practically indistinguishable from lesser labels and knockoffs—just as in the real world."

Find the Virtual Superbrand

The thrust of these comments seems to be that the most successful brands in the virtual goods world will be derived from their three-dimensional countparts in the tactile world. Moreover, unlike the tactile world, the financial likelihood of success in the virtual world for marks that are anything less than these superbrands is slim. Assuming that I have understood Chahal point(s) here, permit me to make the following observations:

1. Superbrands are characertized by careful nurturing and monitoring of their owners. It is not clear to me how this "tender loving brand care" is supposed to be transformed in the social networks/virtual goods world. Instead of an utopian outcome, I could plausibly foresee the opposite. Thus, uncontrolled use of valuable brands in undesirable virtual settings could have a deleterious, if not worse, affect on the value of the brand, especially given the huge number of players engaged in and exposed to these brands.

2. Instead of an uncontrolled and possibly destructive nexus between brand use in the tactile and virtual worlds, might it not be the case that brands will develop solely in connection with virtual goods. That is to say, might not some enterprising entrepenuers see their ultimate product offering in the virtual world not as an array of farm implements, or virtual replications of three-dimensional luxury brands, but rather the development of brands whose sole context is the social network world. Just as with a strong fanciful mark that is successfully used in connection with a widget, so too might the day not be too far away where a strong fanciful mark is developed in connection with a virtual widget. Aldous Huxley--here we come.

More on Farmville here.
More on Aldous Huxley here.

Can a House Mark or In-House Brands Be Saved Despite Bankruptcy?

Nearly two months ago, I looked at the demise of the Mervyn's retail chain in the US as an example of what happens when a brand loses its cache, first because it was acquired by a retail conglomerate more interested in its cash flow than brand longevity, and then by private equity owners more concerned with the value of the real estate than the brand. The fate of Mervyn's got me to thinking about whether a service-oriented brand that goes into liquidation has any residual value, particularly when the brand had anyway been on a downward trajectory for a number of years.

My initial sense was that, in such a case, the brand itself would likely be irreparably impaired with the result that it would have little or no value, but that there may be bits and pieces of the operation, either product lines or discrete sub-services, that might be attractive to a potential buyer. Little did I know that my hypothesis would be put to an early intitial test. And the result seems to be that I may be only partly correct. As reported by the Wall Street Journal on February 15th ("Family Aims for A Return of Mervyn's", written by Kelly Nolan), the Mervyn's house brand, and most of the house-brand porfolio of the chain's apparel lines, were each separately sold.

As for the Mervyn name, three of the founder's sons agreed to purchase the retailer's house mark, plus a number of otherwise unspecified "Internet-related intellectual properties". Contrary to what appears to be an irreparable decline in the value of the Mervyn name, son John Morris opined that "[w]e strongly believe we have a very strong, loyal base of families in the Western states that would support Mervyn's." So on first blush, I was wrong. The Mervyn children appear to be willing to put cold cash to reacquire the house mark.

But for how long will these customers stay loyal?

That said, it still seems to me difficult to fathom that a declining brand can be so righted, especially given the state of the current world economy. Even assuming that there is a critical mass of a "strong, loyal base of families" (something I about which I am skeptical), then every week that passes without the reopening of the Mervyn chain will diminish such loyalty, no matter how fervent it once may have been. Time will tell, but my instincts tell me that either the sons purchased the name out of paternal respect to preserve the family name, or that there is some material value in the "Internet-related intellectual properties."

The sale of the apparel lines, most notably --High Sierra (for casual sportswear), Hilliard & Hanson (for woman's fashion), and ellemenno (for young women's apparel--to four other entitities--is perhaps more understandable. After all, the way that lines can be shuffled from owner to owner, it may be more likely that one or more of these lines can be revived. It also suggests that the purchasers viewed these retails lines as having value separate from the chain itself.

High Sierra, Bogart-style

Interestingly, the rights to these apparel lines were purchased at a bankruptcy auction. I have always been surprised that anyone would purchase apparel brands at auction without acquiring substantial underlying assets. Goodwill is a basic component of a mark, and there does not seem to have been any acquisition of any underlying goodwill in the case of these Mervyn house brands. (Indeed, given that U.S. trademark law requires that the acquisition of a mark be accompanied by goodwill, lest the assignment be viewed as a naked assignment, one wonders whether the acquired marks are at legal risk.)

The bottom line is that the acquisition of both the Mervyn house mark and the various house brands raise a raft of questions about the economic viability of such moves. Given that retail consultants direly predict the demise of additional retail entities during the current economic downturn, we will likely encounter additional instances in which brands and marks are purchased in the insolvency context. It will be interesting to see how such acquisitions play out.