Q. We have a large number of individual investors and they provide a useful share price stabilizer at times when institutional shareholders are moving in and out of the stock. How can we encourage them to be long-term holders?
A. Many companies have programs designed to retain their retail shareholders. These usually come in the form of a discount on products or services, which can be tricky if you manufacture cruise missiles or provide services that an individual would not be purchasing. The other problem is that you want to avoid lots of people buying a minimal number of shares just to qualify for the discount. However, provided you set sensible parameters, such as a minimum number of shares that have to be held for a specific length of time, there is no reason why a discount scheme shouldn’t be a key part of a shareholder retention strategy. Have a look at the scheme offered by Holidaybreak plc (www.holidaybreak.co.uk) as an example.
In Australia, where private investors form a larger part of most companies’ share registers than they do in the northern hemisphere, this type of program abounds. The most popular is Coles Myer’s, which gives a qualifying shareholder, plus one other nominated person, discounts in a wide number of the company’s retail outlets. For a list of current Australian shareholder discount programs, have a look at https://members.iinet.net.au/~tighe/discount.htm.
Of course, the ultimate way to ensure shareholder loyalty is to have a well-managed company that is successful and posts steadily increasing profits and rising dividends. This may be harder to achieve than a simple shareholder discount offer, but it sure gets results.
Q. We are a retailing company and made a decision several years ago not to offer shareholders a discount in our shops. This decision was made on the grounds that such discounts amounted to a distribution of profits and were unfair to institutional shareholders that could not participate. Do you think we should review this policy?
And if not, what steps can we take to secure the loyalty of our private shareholders?
A. You should analyze the likely outcome of introducing such a discount program. How many people would participate and how much of a distribution of profits would it entail? If the cost (including the cost of administration) would not be enormous and individual investors are important to your company, then it might be worth launching.
If the policy is not worth reviewing or analysis shows it would be expensive, then the next best thing to pursue is what the advertising agencies call post-purchase reassurance. This theory suggests that people who have bought something are likely to feel much happier about it and repeat the purchase if they see a lot of advertising for the item and feel that they are associated with a quality product. Work with your advertising department to ensure that any corporate advertising appears in media read by private investors and any product advertising is well branded with the parent logo. All of the company’s media spend can be made to work for you in this way.
Q. I dread our annual meetings. There are always droves of retail investors intent on asking awkward questions and then virtually killing each other in order to get to the refreshments afterwards. Plus we have to rent a large venue, which uses up a large part of my budget. I wonder whether there is any way to avoid this?
A. Sure. Next time, tell the owners of the venue to leave the heating off, and cancel the refreshment order and any goodie bags you have previously given out. I think you will find there are fewer attendees the following year.
E-mail questions to Heather McGregor – [email protected]. McGregor is a former IRO and investment analyst who currently works on IR assignments for Taylor:Bennett, an executive search firm specializing in communications jobs
