Monday, November 27, 2006
Do publicly-traded companies have an edge in creating customer loyalty?
They might if they are retail operations.
During Wal-Mart's early years I noticed that every time their stock got to $40 a share, it would split 2 for 1. Very simply, that means that every stockholder owned twice as many shares as they did before. If you owned a100 shares prior to the split, you now owned 200 shares.
In a stock split, the value of each share moves down proportinately. In the Wal-Mart example, each share of stock would have a $20 value at the time of the split, instead of the $40 value it had prior to the split.
I haven't verified this, but it seems that Wal-Mart was keeping its stock value low to encourage it's price-conscious customers to invest in the company. Why? To increase customer loyalty!
Aren't you more likely to buy from companies whose stock you own? Absolutely! The stock's appreciation and dividends are like getting discounts on every dollar you spend. Of course, Wal-Mart, or any other company employing this strategy, has to continue to deliver on its promises if it wants customers/stockholders to remain loyal.
It's counter-intuitive, but publicly-traded companies that deal with the retail market - banks, insurance companies, building supply houses, brokerage firms and personal/home product manufacturers - could attract more customers if they kept their stock prices more affordable to the buying public.
If there's a question specific to your company or industry that you'd like me to address, email me at dale@furtwengler.com. I promise to keep your company information confidential.
They might if they are retail operations.
During Wal-Mart's early years I noticed that every time their stock got to $40 a share, it would split 2 for 1. Very simply, that means that every stockholder owned twice as many shares as they did before. If you owned a100 shares prior to the split, you now owned 200 shares.
In a stock split, the value of each share moves down proportinately. In the Wal-Mart example, each share of stock would have a $20 value at the time of the split, instead of the $40 value it had prior to the split.
I haven't verified this, but it seems that Wal-Mart was keeping its stock value low to encourage it's price-conscious customers to invest in the company. Why? To increase customer loyalty!
Aren't you more likely to buy from companies whose stock you own? Absolutely! The stock's appreciation and dividends are like getting discounts on every dollar you spend. Of course, Wal-Mart, or any other company employing this strategy, has to continue to deliver on its promises if it wants customers/stockholders to remain loyal.
It's counter-intuitive, but publicly-traded companies that deal with the retail market - banks, insurance companies, building supply houses, brokerage firms and personal/home product manufacturers - could attract more customers if they kept their stock prices more affordable to the buying public.
If there's a question specific to your company or industry that you'd like me to address, email me at dale@furtwengler.com. I promise to keep your company information confidential.
