Bump up your sales, give your customers stocks

If you have worked with private investors for long enough, you will inevitably come across a person who wants to invest in the stocks of a specific company with a well-known brand. Whether they want to buy shares of their beloved electric car manufacturer because they love the cars, or whether they like to own shares of a clothing retailer because they enjoy shopping there and like to buy their clothes. As a professional adviser, you may argue until you are blue in the face that there is a difference between a good product and a good investment but to no avail. Well, it turns out, this mental link between a good product and a good investment is not a one-way street, so if you happen to run a consumer goods or services company, here is how you can boost your sales by 40% at almost no cost.

In the United States, there are now several apps available that allow people to link their shopping with a brokerage account. The basic premise is simple. You apply for a brokerage account on the app and link your debit or credit cards to the app. Then, one the brokerage account has been opened for you, whenever you shop at specific stores or buy items of specific brands, a partial share is accounted to your brokerage account. It is the same as your usual cashback or customer loyalty scheme where you get 0.5% to 2% off the ticket price, but instead of cash, you get shares of the company you shop with.

The brokerage accounts tend to be very simple insofar as one cannot move money into that account but one can sell the partial shares accumulated in the account and move the money on the personal bank account of the user.

From traditional loyalty and cashback programmes we know that for every $1 cash paid back to customers, spending in these shops or on these brands increases by $3.51. Loyalty programmes are incredibly effective.

So what happens when you give customers stocks instead of cash? It is incredible how big the difference is between giving back an “anonymous” rebate in the form of cash, or making them part of your company as shareholders. For every $1 granted in shares to customers, spending in the four months after the share grants doesn’t just increase by $3.51, it doesn’t increase by $5 or $10. It increases by $23 according to this study with real life data.

Customers who were granted stocks for their previous purchases increased their spending at these stores by up to 40% in the four months after they received the stock grant. The research examined what drove this increase in spending that was so much larger than typically spending increases from loyalty programmes ad it turns out that a big part of it was the feeling of control that people get from owning shares (or rather, the illusion of control). They thought, if I spend more money in that shop, my shares will go up as well. Even more, the customers who were rewarded with stocks not only became more loyal customers but also started to invest more in their other brokerage accounts and turned themselves into loyal shareholders of these companies, thus helping to stabilise the share price.

Corollary: Many parents tend to give their children a couple of stocks as a present to familiarise them with saving and investments. Shares of companies like Disney or McDonald’s are particularly popular because the kids know what these brands do. The results discussed here indicate that giving children stocks is a great way to turn them into investors and teach them lessons about saving and investing. But be careful with the stocks you give them or otherwise they will constantly want to go to McDonald’s for lunch and you end up with an obese child.