In 1987 in the movie “Wall Street,” the main character Gordon Gekko says, “First rule of business is never get emotional about stock.” While that might have been true when stock brokers were still necessary, even for the retail shareholder, today’s individual investors buy stock in what they love — and often reward that company through loyalty to its products and services.
According to research from Columbia Business School, data shows that investors actually increase their spending at those brands of which they own stock. Investor loyalty is becoming more common as retail investors are more easily able to research and trade on their own using platforms like Robinhood, SoFi and Charles Schwab. These retail shareholders not only want to invest in companies they know, trust and love, Columbia researchers found that they actually increase their spending at those companies as well.
“Our study is the first to show a very clean, causal link between stock ownership and consumption,” said Michaela Pagel, the Roderick H. Cushman associate professor of business at Columbia Business School. “It’s not only that loyalty matters in people’s investment decisions, but we show one step further that loyalty actually affects consumption of the very brands people are investing in.”
In the study, “The Effect of Stock Ownership on Individual Spending and Loyalty,” Pagel and co-authors Texas A&M University Professor Paolina C. Medina and Columbia Business School Finance Ph.D. candidate Vrinda Mittal, used transaction-level data and found that weekly spending at the selected brands jumped by 40% after people received their brokerage accounts – an average of $23 per week.
In terms of the psychological mechanisms at play, the study concludes that familiarity and loyalty heavily influence stockholders spending decisions. Specifically, through survey evidence, loyalty appears to be the dominant psychological driver to spending.
“As we’re seeing with Robinhood, investors putting a lot of leverage in certain stocks, investing is not just about maximizing your returns, but people’s preferences play a role,” said Pagel. “People buy brands they care about and we find that there’s a direct link between spending and stock holdings.”
That’s why creating loyalty is so important for public companies. Simply put, retail investors increasingly respond to shareholder marketing, including stock perks that reward individual shareholders for their ownership position.
TiiCKER, the leader in building shareholder loyalty, last year commissioned The Harris Poll to explore shareholder loyalty and how ownership engages the 120 million U.S. consumers participating in the market for individual stocks. Its findings match what Columbia researchers discovered: retail shareholders buy what they know and that ownership position builds loyalty to the brands they own.
In fact, 8 in 10 (79%) would be more likely to buy stock in a company whose brand or products they know than a company whose brand or products they don’t know. 86% said they are likely to buy stock if it’s a brand, product or retailer they love. And 83% said they agree that owning stock makes them more likely to be a customer or buy the company’s products and 81% agreed that that owning stock makes them more likely to buy from that company over a competitor. Those sentiments are growing as well. The percentage of agreeing to the questions above rose between TiiCKER’s 2020 and 2024 survey results.
Shareholder sentiment is clear: focusing on retail investors is good for a public company’s bottom line and these shareholders are loyal and willing to spend on what they invest in. Contact TiiCKER today to learn how you can connect with this important — and growing — group of investors through a shareholder reward program.
