Living as we do in a society where ads dictate many of our buying decisions, it’s not surprising that IR has started to use advertising to tap into the investor psyche. As many IROs have already discovered, this powerful communications tool helps ingrain a company’s message into the hearts and minds of retail and institutional investors. In today’s world, investor loyalty must be cultivated the same way as brand loyalty.
While it’s tough to determine the exact correlation between buy decisions and ad placements, it’s fair to say that investors and analysts often learn about investment targets through corporate advertising in financial publications. According to the IR Magazine US Research Report 2003, 50 percent of buy-side portfolio managers and analysts and sell-side analysts (out of a group of 4,000) were led to further investigate the investment potential of a company after seeing its corporate ad.
Companies use advertising in different ways, for unique purposes. Some consumer-oriented companies stick to product advertising, while others opt for a combination of corporate and product advertising. Some limit advertising spending to crisis situations where a well-placed ad is viewed as good damage control.
General Electric invests in both product and corporate advertising. As such, investors and consumers worldwide recognize the company’s logo, having seen it transmitted through a variety of advertising media over the years. With over 13 businesses, including its own media outlet, GE uses corporate advertising mainly to promote new technologies in wind and water energy, aircraft engines and medical systems, according to Jonathan Klein, a spokesman for the company. ‘We are not just a light-bulb company anymore,’ he notes.
According to Klein, one of the goals behind the mega cap’s current corporate ad campaign is to better explain the workings of a complex company like GE. The advertising slogan – ‘imagination at work’ – is meant to ‘consumerize GE’s technology for our three key audiences, which include investors, employees and customers,’ Klein explains. ‘All three of those [audiences] are influential, key players when we are designing our advertising messages.’
An ad is nothing without proper placement, however. A portion of GE ads are strategically placed with financial publications including Fortune, Forbes, CFO Magazine, nyse magazine, Bloomberg Markets and the Wall Street Journal, according to Klein, with the goal of targeting corporate clients and investors.
Global visibility
IR and corporate advertising share the common aim of trying to create visibility among investors (and potential clients) worldwide. Corporate advertising has played a vital role in the marketing of the Cemex brand internationally, according to Maher Al-Haffar, managing director of corporate finance at the firm.
The cement producer’s IR team is currently in the process of revamping the company’s advertising strategy to maximize its advertising dollars, says Al-Haffar. Because cement is more of a brand than a commodity, Cemex’s IR team has been very marketing- and consumer-brand oriented. ‘One of the things that we have obviously been doing is consolidating the brands as the company has gone global,’ notes Al-Haffar.
Cemex advertises primarily in US and UK media outlets because that makes the most sense strategically. Most of the company’s ads are found in the pages of the Wall Street Journal, the New York Times and the Financial Times. The goal behind Cemex’s campaign is to familiarize the international investment community with its financial brand. According to Al-Haffar, Cemex advertises more heavily during certain events – like World Bank/IMF meetings – and less so during the summer months.
Corporate advertising isn’t only about building brand identity, however. Sometimes Cemex places ads promoting senior management in local and regional publications to coincide with a special event. ‘If there is a conference we are participating in, we might want to put an ad in [local publications] ahead of it,’ explains Al-Haffar. ‘We communicate our CEO’s and CFO’s image to investors – it’s part of our IR effort in that location.’
Pigs can fly
Other companies use corporate advertising only very occasionally. At first, this tactic may appear less effective but when executed properly, it can improve shareholder value. That is what happened with Virginia-based Smithfield Foods. The company, which normally shuns corporate advertising, decided to place a full page ad in the Wall Street Journal in June 2001. The result: Smithfield Foods’ stock price went up – significantly.
‘Our CEO thought our stock was undervalued so we sort of collectively came up with this idea [for an ad] that just got better and better, and then we decided to run it,’ explains Jerry Hostetter, vice president of IR at Smithfield Foods.
The advertisement, entitled This pig can fly, was produced in-house. The idea originated with an article in Fortune that talked about Colgate-Palmolive’s strong stock performance. Smithfield Foods’ stock was actually outperforming Colgate-Palmolive’s at the time of the Fortune piece. So why wasn’t Smithfield Foods being hailed in the financial press? Senior management started to question whether the company’s story was being heard and that ultimately led to the placement of a one-page ad in the Wall Street Journal.
The ad was simple, as was the message. It depicted Smithfield Foods’ stock price and sales records, comparing its performance with that of Colgate-Palmolive. After the ad ran, the company’s stock price ‘had a nice little pop,’ says Hostetter. In the ten days following the ad’s run, Smithfield Foods’ stock went from $18.69 to $20.15.
Another company that rarely uses corporate advertising – but effectively targets investors when it does – is Home Depot. ‘We are the fourth-most widely held stock among investment clubs,’ notes Nancy de Jonge, manager of investor relations for Home Depot. Because of that, the company’s IR department has taken out a few ads in individual investor publications like Better Investing Magazine.
The relationship between Home Depot’s stock performance and its advertising efforts are extremely hard to measure due to the stock’s high liquidity, notes de Jonge. As such, IR plays a limited role in ad development and execution. However, de Jonge thinks it’s crucial for IROs to review different types of corporate and product advertisements in order to ensure fair disclosure and consistency. ‘We have our own Home Depot television station that gets played in our stores, for example, so we make sure that the scripts are consistent with our message to investors,’ she adds.
Backstage messaging
Even though some companies prefer product advertising over corporate, it doesn’t mean IROs aren’t backstage pulling strings and helping to develop the ad’s message. Take Dell, for example. The computer giant created a ‘communications council’ to oversee all external messages. The council is composed of IR, marketing and communications professionals who are all deeply involved in the messaging process.
‘We agree on what the overall message is going to be for the company every year and then we make sure that the messages going out to our specific constituents tie in with that overall message,’ explains Lynn Tyson, vice president of IR at Dell. ‘So whether you are talking to the media, customers, investors or employees the messages are very similar.’
Most Dell advertisements emphasize concepts such as value, customization and service support – which, according to Tyson, are also part of the company’s IR pitch. ‘The one factor that we always include in our online and print ads is something called ‘total cost of ownership’, which is a tool Dell offers to customers to calculate, once they buy a product, how much it is going to cost to maintain it,’ she notes.
‘We talk to the financial markets quite a bit about the total cost of ownership; it is a key part of how we market our product to our customers, so we will often see that cost of ownership referenced in First Call reports.’ Dell advertises in a wide variety of publications including some trade magazines and the financial press.
Corporate advertising can help raise a company’s visibility with investors. Most analysts and investors read the financial press and some even get their investment ideas from financial publications. For this reason, IR needs to be very involved in the brainstorming behind these messages.
