Susan J. Soprovich, Phoenix Strategies
“Individual investors have become far more powerful than anyone gives them credit for. Today, 85 million Americans invest in stocks. Collectively, that kind of buying and selling power can move markets.”
Maria Bartiromo
The retail investor is an often ignored component of an investor relations program, yet one that can provide solid value to a company. The reality is that in order to target this group effectively, a company needs the resources and budget to undertake the tactics required for success. In addition, a company needs to generate a yield and have growth potential to attract this audience.
Some of the benefit of incorporating a solid base of retail investors in a company’s investor mix is that they are often loyal, long-term investors who can act as a balance to institutional investors. With effective marketing, a retail component can create healthy market demand and impact volatility positively, although this does not necessarily impact liquidity. And retail investors represent a significant capital base, especially in the U.S.
On the flip side, retail investors are typically not sophisticated, and so significant resources in terms of budget and time are required to identify, target, attract, educate and maintain them. They tend to be emotional and can overreact to news, conversely impacting volatility negatively.
That said, here is some advice on how to effectively target this audience should an IRO decide to foray into this world.
Tips and Tricks with the Retail Audience
The first piece of advice is basic: respond to retail inquiries within 24 hours and treat these calls with the same importance as those of other investors. Be prepared to provide assurance that it’s ‘business as usual’ – retail investors are tuned in to rumours and fears with respect to share price volatility. If the IR department is unable to respond quickly (due to high call volumes or other priorities), retail investors become angry because they believe they are being ignored or there really is something wrong. If they do not get someone ‘live’, the IRO may hear about it on chat sites and bulletin boards.
Secondly, be knowledgeable. The IRO is the main, and sometimes only, contact for retail investors, and they expect that a company will take the time to educate them about itself and the industry. A successful IRO knows the company in depth, acting as a mini-CEO/CFO/COO. Use plain language to explain the company and its financial situation. How does the company compare to peers? What are the business and its key drivers? What do the numbers mean, and how will this translate into value to the shareholder?
Undertake a proactive campaign, which entails expanding the roadshow schedule. The retail market is typically reached on an active basis by making time for broker/dealer meetings and conferences, often in smaller centres (e.g. Mississauga, Kelowna, Saskatoon, etc.). Many retail-focused companies spend a considerable time on the road, often utilizing two or more IR teams to expand their reach. In Canada, an IRO can access brokers by researching retail branches and setting up retail presentations directly.
In the U.S., broker access can be more difficult as U.S. retail brokers can only solicit trades if the company has analyst coverage with their firms (which is also how a company gets invited to conferences). Otherwise, they will only trade if clients direct them. Another issue pertains to the fact that in order to increase U.S. retail holdings, a company needs to trade on a valid U.S. exchange to facilitate trades. As a result, many IROs influence the retail investor and brokers directly, through attendance at retail investor tradeshows, and consider having a U.S. listing.
When dealing with the retail market, it’s crucial to provide ongoing regular communication. If a company is not willing to or can’t provide monthly (sometimes weekly) new information, it should reconsider targeting this audience. One tool that is especially useful for the retail investor is the corporate website. To maximize its potential, it should be dynamic and updated regularly in order to drive interest back to the company. Utilize other communications vehicles on and with the corporate website. For example, post videos that provide information on corporate strategy, messages from the President, operations, investor days and presentations. Corporate videos enable an investor to see and hear management, while allowing for broad distribution of the company’s strategy and investment value.
Consider implementing a component of social media into the campaign, such as Twitter, Facebook, LinkedIn, blogs, etc. More and more retail investors are using these means of communication to research companies, and stay connected. For example, website videos can be downloaded to YouTube, in conjunction with a social media release. If social media is incorporated, it’s important to have clear policies and guidelines to ensure disclosure is appropriate.
In order to maximize the effectiveness of a proactive retail campaign, also consider the following tactics:
- Assign specific IR resources to service the retail audience (if not internally, consider hiring a consultant to help);
- Maximize time in cities by setting up broker lunches/presentations with multiple investment houses;
- Cultivate relationships with analysts to elicit their assistance in accessing the retail broker network;
- Gather key retail broker contact information to build an extensive database;
- Utilize peer networks to determine what works best in various cities;
- Build relationships with newsletter writers, but be wary. Newsletter writers can be extremely influential with the retail market, but companies have no control as to whether newsletter writers will pick them up or not, and no influence on what they will say about the company once covered. If they don’t like a company, the newsletter can hurt the stock;
- Use technology to the best advantage to update investors on a timely basis (e.g. website, phone lines, conference calls, automatic emails, social media and webcasts);
- Implement a dedicated investor relations toll-free telephone number with pre-recorded messages for common questions. This will significantly cut down on the number of calls to be returned; and
- Consider utilizing third-party providers and consultants. An IR firm that specializes in programs that target retail investors can have a beneficial impact if it has established relationships with retail brokers. These firms typically require a retainer for a period of time. This works well when a company has limited access to brokers/analyst coverage and/or resources in terms of staff and time.
Some Considerations
When implementing a retail campaign, IROs should never underestimate the resource requirements. A successful proactive campaign is resource intensive, in terms of both time and money. Unfortunately, the results are often difficult to measure. Most companies find a ‘middle ground’ for their retail strategy that effectively meets the needs of investors while balancing available resources and overall value.
Susan Soprovich is Principal at Phoenix Strategies in Calgary.