A company's share register may be an untapped market.
A public company's private shareholders are not merely investors, not merely part owners. They are also householders, motorists, passengers, parents, patients, consumers. In short, they constitute a market, one with which the company has a standing relationship and to which it has an existing channel of communication. It's a market that few businesses bother to cultivate, however. So are the majority missing out?
It has to be assumed, of course, that the company operates in the consumer arena. A manufacturing company which deals only with fellow industrials has nothing to offer its shareholders - beyond dividends and capital growth - so nothing to gain from them. But a business that already provides goods or services to the public at large should not neglect its share register, asserts Justin Urquhart Stewart, development director at Barclays Stockbrokers. 'Faced with a competitive market place, companies are always looking for points of differentiation,' he argues. 'Proactive methods to encourage (shareholders) to buy their products can be extremely effective.' Above all, they can help to cement shareholder loyalty and customer loyalty so that the two become mutually reinforcing.
'A lot of private shareholders do like to be involved,' points out one of the City's top PR advisers. 'That's why people like retail stocks. It makes them think "It's our company".' And the more involved they feel, the more goods they will buy and the more likely they will be to retain their shares. 'Why not encourage customers to be shareholders, and shareholders to be customers?' agrees Tony Carlisle, chairman of Dewe Rogerson, another of the best known City agencies. 'Shareholder incentives can make a lot of sense, as long as the cost doesn't get disproportionate.' In terms of cost, many of the existing shareholder incentive schemes are modest indeed. Kwik-Fit Holdings, the tyres and exhausts specialist, sends out vouchers (two per year, along with the annual report and interim statement) entitling shareholders to a 10% discount on expenditures over £5. 'It's merely a token to encourage their custom and loyalty,' says company secretary Robert Huthersall. Last year almost 2,000 of Kwik-Fit's 8,500 shareholders availed themselves of the offer. Sketchley allows 25% off cleaning bills to holders of 1,000 shares. It used to be 50 shares when the scheme was introduced in 1969. Nevertheless, according to Brenda Harrison of the secretary's department, there is strong evidence that a lot of people still buy Sketchley shares with a sharp eye to the discount.
Holders of 100 Boots Company shares get 10 vouchers with their annual reports, each of which is worth £1 whenever they spend £5 or more in the company's stores by November of the year of issue. 'It's not a high financial inducement,' says Barbara Young who administers the scheme. 'The idea is to give shareholders some incentive to go into the shops and see what we're doing.' Around 60-70% of the vouchers are cashed in annually.
Transportation is another sector which lends itself to shareholder incentives. British Airways offers to knock 10% off its published fares 'to reward shareholders for their loyalty and encourage them to continue flying with us'. The offer is limited to individuals with at least 200 shares. Owners of £600 nominal of Peninsular & Oriental's 5.5% preferred stock are eligible for reductions of up to 50% on certain short-sea routes. However this is not so much an incentive as an 'enshrined right', explains assistant company secretary Michael Owen. It goes back to the days before P&O took over European Ferries in 1987. No more of the stock will ever be issued, and anyone seeking the discount now has to buy his qualifying stake in a seller's market.
Clearly, when an 'incentive' passes beyond management's control, the incentive element disappears. But when European Ferries' preference shares were first issued back in 1984 it was by way of a capital raising exercise. This is one situation in which a 'special offer' to shareholders is undeniably effective. 'It adds to the attraction of the offer and so helps to optimise demand, and it is very economical to do,' says Carlisle. Hence the discount vouchers - to set against phone bills - used as bait in British Telecommunications' flotation.
Not every plc wants an army of private shareholders. But companies which have such a following might think about using it, in Urquhart Stewart words, 'as a positive part of their business strategy'.