Marketing savvy IROs are looking to their customers for stock stability
Invest in what you buy. The stock tip that was popularized by such financial gurus as Warren Buffet and Peter Lynch is every bit as true today as ever before. And who could argue with the logic: companies with popular brands and loyal customers can make for some of the best investments.
Of course, you can look at the same picture from the other side of the corporate fence: customers are the best potential investors. The extreme example came in that old TV commercial for the Remington shaver. You know, the one where Remington's CEO Victor Kiam declared, 'I liked it so much, I bought the company!' Though your ideal shareholder may not be the one who buys the business out from under you, there is a direct relationship between creating attractive brands and attractive stock opportunities.
Think of what your ideal shareholder would be like. You probably think of some one who sticks with you through thick and thin, one who recommends you to peers, becomes your defender, your spokesperson, your cheerleader. Furthermore, this shareholder is probably one who stays up-to-date on your company's new developments. The interesting thing is, your marketing department would probably choose exactly the same characteristics for the ideal customer.
Investor relations and marketing are beginning to come together in ways that bring benefits to both departments. While CRM (customer relationship management) has long been a term in marketing circles, IROs are beginning to adopt the same principles for their own practice.
Marketing tips
Tony Sprague, technical director of UK-based CRM Technologies, says the internet's abundance of information has helped raise the knowledge level of customers and investors alike, and has made them easier for companies to identify, categorize and target. 'Ultimately we see parallels between IR and CRM. In the sales environment, the internet has opened up the aspect of competition and people are far better informed about products. The whole lesson of CRM is managing the relationship so you can hold on to that customer. And the same is true in the IR environment. The objective is to breed investor loyalty and ultimately to stabilize the stock.'
Stephen Klein, StockPower's CEO, sees himself as the bridge-builder between his corporate clients and their so-called investomers. 'When IR connects with marketing, there's truly a one-plus-one-equals-three scenario. Every time you take a customer and create a customer/owner – create that ownership mentality by putting stock in their hands – the value of that customer increases immediately and exponentially.'
A 1999 Bain & Company/StockPower study shows the benefits of marketing to investomers. The study compared the habits of customers versus customer/owners and found, on average, the customer/owner was worth twice as much in terms of profitability. Investomers spent about 60 percent more, their share of wallet was 33 percent higher, and they visited the store or web site almost 70 percent more. The study also found that each customer/owner referred two or three more customers to the company.
'Across the board the economics are profound,' Klein says. ' Intuitively we all knew this was a very powerful idea, but it's more dramatic than we thought it would be. It's the difference between how I treat a rental car and how I treat a car I own.'
Material impact
From an IR point of view, spending habits take a back seat to stock price. But at a time of record high trading volumes, high churn and volatility, the investomer can be of a stabilizing element. Investomers tend to be fiercely loyal. In fact, Klein considers them the antithesis day traders. 'These are people who believe in the company and feel they have an affinity with it. So over time as more customer/owners are created, they will have a material impact on things like cost of capital and market cap, not to mention decreased volatility'.
Maybe a world filled with customer/ owners would be more forgiving of earnings surprises. Maybe there would also be fewer IROs wondering why their company takes a drubbing for having met (merely met, not surpassed) analysts' expectations.
Ford Motor's director of corporate communications and IR, Mel Stephens, says the purpose of enticing customers is not to build a larger investor list; rather, it is to strengthen relations with those who already support the company. 'Ford has had a long history as a manufacturing company – we make the car, they buy it, we give them the keys and then we never see them again. But what we are evolving into now is a true consumer company. The new strategy is to build relationships. So we're moving from transaction-oriented to relationship-oriented,' he explains.
'That means you value and nurture relationships with customers, shareholders and employees; you make investments in them; you communicate freely and openly with them; you have lots of points of contact and make special offers to them. You really engage and embrace them.'
Ford's IR department is piloting a number of initiatives to reach customers. 'At the point of purchase, either in the glove compartment, at the dealer, or in follow-up mailings, we can communicate with them. We're working to put brochures that say, Welcome to the Ford family – if you're not already a shareholder and you'd like to become one, here's the simple form to fill out.' As additional incentive, Ford waives all transaction fees for customers who take this route. 'We feel that our customers would want to become shareholders and we would want them to become shareholders; it's more likely that they'll come back and buy another product and if they like it they may buy more shares.'
Targeting investors
Meanwhile, General Motors has launched a series of successful initiatives marketing to its investors. Susan Colby, GM's director of stockholder services, says her department began its initiatives with some studies of its own. 'We weren't sure about those reports that said shareholders buy products of the companies they own. We were sure that was true for a toothpaste company, but not necessarily for a large ticket item such as an automobile. So we did our own survey a couple of years ago and found it did hold true for us as well.'
GM's manager of stockholder services, Nancy Cunningham, says her department has taken a very aggressive stance in building business relationships with investors. 'One of the things we do is publish a quarterly letter that goes out with our dividend check and also goes out to the Street. We always include a product feature, and also make space available to our business partners so at no charge they can reach nearly 1 mn potential customers. GMAC Insurance sent out a family first insert talking about their mortgage services and the GM card is going to advertise an income-producing vacation opportunity.'
GM also stages regional events to keep stockholders abreast of product and service developments. These presentations include a state-of-the-business address, a public policy address for legislative or community concerns, as well as a Q&A with attendees. 'We try to inform as well as entertain the stockholders,' Cunningham reveals. 'We try not only to put product in front of them, but also to put substantive information in front of them; make them feel confident and enthusiastic about the state of the corporation.'
Cunningham says these events also give valuable insight into their audience. 'We recently surveyed people at the stockholder forum as to which came first, the chicken or the egg – ownership of our vehicles which led to investment in the company or vice versa. We found it was pretty much equally divided both ways.'
First step
As StockPower's Stephen Klein explains, the first step in targeting investomers is to establish a working relationship between the investor relations department and the marketing department.
However in some companies this is more difficult than it sounds: Klein admits to having had meetings where he was the one who introduced the two departments. On the bright side, companies today have more information about their customers and investors than every before. Once introductions are made, there's a wealth of data they can share.
CRM Technologies' Tony Sprague agrees. 'If you have someone as a customer, the next step is to get information about them so you can categorize them and conduct a targeted campaign. You could use the same techniques for gathering investors as well. It's purely about using the information you have sensibly and scientifically so you can tailor your marketing campaigns better.' CRM Technologies found its customer-oriented product adapted naturally to investor relations applications. 'Our product makes it easier to handle calls from all the different parties and handle all the communication centrally,' Sprague explains. 'That way you make sure all the people in the organization are all singing from the same hymn sheet. It's about making sure that when they get a call in their call center, they see on their screen This is an investor, and they know how to communicate in a specific way.'
The web is a natural portal to both customers and investors, and a link straight to IR from the home page has become the norm. Some companies are going one step further by offering direct stock purchase plans through their web site, something StockPower has helped the likes of Home Depot and Compaq achieve. 'If you like the company, you're loyal to the company and you use its products, you become even more fanatical once you become an owner. That locks you in,' Klein reports. 'Think about what it would be worth to the top 500 business-to-consumer companies to lock in the top 20 percent of their customer base – the top 20 percent represents 80 percent of their profit.' While many companies are trying to breed customer loyalty through frequent flyer programs, point programs, discounts and rebates, many of them have yet to discover the IR department's valuable database. '$300 bn is spent in the US every year on marketing programs to acquire and keep customers. In the meantime there's the IR person sitting down the hall with the Holy Grail,' Klein muses.
Ford's Stephens says that although he classifies the present economy as an information economy, it is quickly becoming a relationship economy. 'However you deal with people – whether it's by the internet or what have you – you're trying to build a closer intimacy with customers and investors. The key is to have them understand what you're doing and have them feel like they're part of it. They remain more loyal when that's the case.
Stephens admits 'that there can be tremendous value in that kind of loyalty. 'Instead of going and finding new customers and investing in each one, we would rather put a lot of emphasis on keeping the ones we already have happy.'
'After all,' Klein summarizes, 'the customer is the one driving the business. And as the competitive nature of business today makes it harder and harder to hold on to customers, the investomer becomes a very powerful influence. And IR is going to be at the center of that. It's all very exciting.'
Spending power
StockPower has conducted some of the most involved studies of investomer spending. One such test began with a retail client's databases. The company divided its database between customers and customer/owners. Then it sent out pre-approved credit card forms and monitored the results. 'As we all know, most credit card pre-approval forms go right in the trash,' Klein admits. 'But the response rate was just stunning. There was a 40 percent higher response rate when targeting customer/owners than when targeting ordinary customers.' Another study involved one of StockPower's largest e -commerce clients. 'We sent a $15 gift certificate to both customers and customer/owners. Although the response rates were similar, the customer/owners on average spent twice as much. So rather than just the $15, we found they spent $30 per visit.'
Discount investors
Donna Torrance, a principal of the strategic design and communications firm Via, says one of the best shareholder marketing opportunities is the annual report. 'Some companies put coupons in their reports and their shareholders ultimately become consumers. Frankly it can cover the cost of the report itself. Think about it: you include a coupon for 20 percent off a product and even if only 50 percent of them turn out, the money you get at the cash register could pay for the printing.'
Maintaining customer loyalty is the end goal. 'Everybody wants loyal customers. And one of the ways they can be loyal is to feel like they're part of the company. If IROs are doing a good job, they make their shareholders feel like they own a piece of the company.'