Will stock ownership work as a loyalty program perk?

Discussion
Source: Upstreet
Apr 26, 2021

The North Face, online retailer Kogan and meal kit provider Marley Spoon are among the many brands that recently began rewarding customers for their purchases with fractional shares of their stock.

The stock rewards program is made possible through a partnership with fintech start-up Upstreet.

Consumers sign up to the Upstreet app, link their bank account and start shopping for their favorite brands. Upstreet tracks and rewards purchases with fractions of shares in those companies. The payouts typically range from 0.75 percent to three percent of their order’s value in fractional shares, depending on whether they are new or existing customers.

For non-publicly listed companies, members earn shares in an Exchange Traded Fund (ETF), which is a basket of stocks exposed to a specific theme.

One goal of the Upstreet plan is to get people more comfortable with investing in equity markets. Founder and CEO Chris Eckelmann also believes stock ownership drives loyalty better than typical cash back programs.

He told BrewNews the idea came to him after seeing diminishing returns on frequent flyer miles. “Cash back doesn’t really drive loyalty we believe — you might go there because you get cash back, but you will go to a competitor if they offer more,” Mr. Eckelmann said.

Upstreet’s traction was helped by the success in the U.S. of Bumped, a stock rewards app that raised $10.4 million in a funding round last November.

An independent study from The Columbia School of Business, published in February, looked at Bumped’s two-year pilot with a number of retailers and restaurants, including Target, McDonald’s, Kroger, Lowe’s and Costco. The study found weekly spending at the selected brands jumped 40 percent once customers were rewarded in fractional shares of stock as part of a stock rewards program. Such schemes were also found to increase visits at those brands and decrease visits at competitors.

Michaela Pagel, a Columbia professor, said in a statement, “People buy brands they care about and we find that there’s a direct link between spending and stock holdings.”

DISCUSSION QUESTIONS: What do you see as the benefits and challenges of loyalty programs that link purchases to fractional stock ownership? Do you see this type of loyalty program offering taking off in the U.S.?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"I don’t think this type of loyalty program would be as popular as cash-back rewards, but for the right retailer it could help create a small group of brand loyalists."
"I believe this needs to be an alternative redemption option in a catalog of many choices."
"Customer loyalty is changing and while I applaud trying new strategies to retain shoppers, stock ownership is inherently volatile."

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28 Comments on "Will stock ownership work as a loyalty program perk?"


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Bob Amster
BrainTrust

To the extent that companies are willing to meet the increased loyalty sign-ups and the consequent issuance of equity stock, this is an effective tool to retain customers and increase the size and breadth of the market basket. Once a consumer understands that increased sales and profit will correspondingly increase the value of his/her stock, the consumer will be much more likely to support his/her own cause by buying more from retailers that have similar programs.

Jeff Sward
BrainTrust

Was this concept tested in both up and down markets? Miles and points may be boring by now, but I’m not aware of a program where the value fluctuates based on external market forces. This fractional ownership idea is easy to love in an up market. Let’s see how it weathers some uncomfortable market fluctuations.

Suresh Chaganti
BrainTrust

Good novelty and conversation starter. But I don’t think it will have a meaningful impact on consumer behavior after signup – which is what really matters in a loyalty program.

People buy products they love and like to consume. Keeping things in perspective, a 2 percent cashback equivalent will get about 0.1 share of Amazon for an entire year of spend of $15,000.

Gene Detroyer
BrainTrust

Excellent perspective.

Gene Detroyer
BrainTrust

I find this intriguing. Travelzoo did this about 20 years ago and I was attracted to make my travel plans with them. In the end, I made quite a bit of money.

For the most part, I like loyalty programs that are easy to understand and from which people can receive rewards without thinking about it. I rarely make a purchase based on a loyalty program (airlines are the exception as I am aware of the perks).

Unlike the companies mentioned, I was traveling all the time and could just as well make my reservations through Travelzoo rather than another site. The problem I see here is unless there is a way to get a constant accumulation of a given company’s stock, fractional shares don’t mean much.

Ken Morris
BrainTrust

What a brilliant idea. Loyalty programs always struggle with perceived value and this program speaks directly to the issue. Consumers frequent brands because they like them in most cases and to offer them shares in a brand to which they already have loyalty is a double incentive to shop. Offering points that may or may not be redeemed or discounts that are a one-time thing create a loyalty that may be fleeting but stock, even if fractional, is ownership and ownership is loyalty.

Raj B. Shroff
BrainTrust

This is a cool and smart concept. Loyalty is ripe for innovation. The benefits are giving people with connection to a brand a unique way to own it. It can help get over the hurdle for those intimidated with investing or not thinking they have enough money to invest.

Consumers will be happy as long as their money is appreciating — even though the amounts will be so small, a chart going up is always going to make people happy. The interface and tracking have to be SUPER simple and clear, consumers aren’t very financially literate so anything even a tad bit complex will be an impediment.

As for this type of program “taking off,” I think it makes sense for certain brands where there is some connection. If it ends up being oversaturated, it could become less meaningful. All in all, good potential to get some traction.

Venky Ramesh
BrainTrust

If employees can be incentivized to stay longer with a company and work towards their financial goals, so can the customers. I think this is a great experiment to see how ownership influences repeat purchases and customer advocacy.

Meaghan Brophy
BrainTrust

Fractional stock ownership is a creative approach to building brand loyalty and getting customers invested (literally) in the success of the business. For the right brands, this approach could really resonate with customers. 
However it’s hard to compete against straightforward cash-back rewards. I don’t think this type of loyalty program would be as popular as cash-back rewards, but for the right retailer it could help create a small group of brand loyalists.

Neil Saunders
BrainTrust

It’s an interesting concept and I’m sure it will have some takers. However it seems a little involved, with participants having to sign up for an app, then linking bank account information, and then essentially track stocks to understand the value. Getting cash to spend via Target Circle or a dividend from REI based on the amount spent in the prior year are much simpler and more tangible loyalty rewards!

Peter Smith
Guest
1 month 24 days ago

It’s a very interesting model and it would be all the more so if we knew what the sample size was from Columbia. Other than anticipated customer resistance to linking their bank account information (have there been studies on that?), there would seem to be little downside. That said, brand performance and execution will, I suspect, always be the reason customers stay loyal or shop elsewhere, and disappointing customers on that end likely won’t be saved by ownership of fractions of a stock.

David Adelman
Guest

The majority of consumers and the general population don’t understand the stock market. I don’t believe forcing them to take a very small bit of a stock or an ETF as a reward will work long term. If I am a fan of a brand I will keep buying at their stores especially if I am rewarded with a special VIP sale event, loyalty cash or earned points.

I feel that for those who are “truly educated investors,” this may seem like a way for large companies to increase their stock value through their most loyal customers. Today it’s all about trust and transparency; perhaps consumers should have a choice rather than an extremely small piece of pie that might be worthless years down the road.

DeAnn Campbell
BrainTrust

This is a fun concept that should certainly lift engagement, but I’d be interested in learning the age range of the engagement lift cited in this article. I suspect it’s Millennials — who are the primary buyer of NFTs today, and users of the Robinhood app. So using stock as a loyalty strategy will be highly specific to the brand/retailer and the type of customer they seek to attract.

Yogesh Kulkarni
BrainTrust

That’s a very novel concept and combines loyalty with fractional ownership. The single largest challenge for any brand is the customer churn and astronomical cost of acquisition for new customers. This unlocks the loyalty in a very different way to engage the customer as a shareholder and an advocate. It will create a positive cycle with well performing brands whose stock shows appreciation and value, but not for others that are inherently struggling to keep the stock prices attractive.

Mohamed Amer
BrainTrust

Fintech has been a hotbed of innovation. Applying this creativity to retail loyalty programs can only improve their standings with customers with reinforcing mechanisms. For retailers, the significant risk is intrinsic to the company’s financial performance in its future share price and the overall market direction. In a bear market, stock ownership can be less attractive despite the potential to accumulate (fractional) shares at lower prices.

Harley Feldman
BrainTrust

If consumers are given even small amounts of stock, they will tend to pay more attention to the shares and therefore the brand as their stock ownership will vary in value every day. Having said that, people like stocks that go up and dislike stocks that go down, so if the stock does not perform well, the consumer will eventually give up on tracking it, and the recognition value to the brand will fade or stop.

I don’t think the stock loyalty program will take off, but it will be attractive to some consumers. The brand still needs to sell the consumer on its products and their values, and the number of stock shares will be so small as to not be a huge incentive to buy the products.

Steve Montgomery
BrainTrust

There are several reasons I don’t see this as being a winner. Cash has a known value and universal appeal. The amount the customer gets back may not be much depending on the value of the customer’s spend but they know and understand cash. Fractional share value may go up and may go down. To accumulate a few shares or even a single share will take time and fractional shares have no value on the open market. Add to this that to be able to sell it on the market you need to have an account.

Chuck Ehredt
BrainTrust
This is an interesting idea that will appeal to some customers. But just like most other programs, offering only one type of reward will not appeal to many customers, so I believe this needs to be an alternative redemption option in a catalog of many choices. The other point is that it sounds interesting and cool (good buzz). However in practice, people might spend 10 percent of their discretionary monthly spend at the grocery store, but only 1 percent to 2 percent at any other retailer. So for a person spending $30,000 per year on “stuff” – only 1 percent of that will go to a particular retailer (i.e., $300). If the retailer gives 1 percent in loyalty value to buy shares, they are getting $3 per year in a particular company. That doesn´t really move the needle. However on a credit card with 1 percent cashback, if I invested that in the stock market over 30 years, we are now talking about $15,000 to $20,000 in future wealth. Not huge, but would buy a… Read more »
Scott Norris
Guest

I’ve been wondering if this concept to broaden share ownership and create beneficial liquidity might work instead in the form of a “sovereign wealth fund” built up by a state lottery, intended to invest in locally-headquartered companies. For instance, in Minnesota, our lottery funds build a dedicated environmental/cultural trust fund. I could picture buying a $2 ticket, scanning a barcode on it to register, and win or lose on that week’s prize drawing, still building fractional value tied to the portfolio that I could cash out or pass to my heirs. Plus, it would help local firms grow and build employment. In short, why not make investing as easy and as fun as playing the lottery?

Shep Hyken
BrainTrust

Love this concept if executed well. Make the customer an owner. The key is for the retailer to properly inform the customer about what the perk is. There are many consumers out there that have no idea how the stock market works. So, for this to be successful, there must be a little education mixed in with the idea of being emotionally connected as an owner.

Patricia Vekich Waldron
Staff

Customer loyalty is changing and while I applaud trying new strategies to retain shoppers, stock ownership is inherently volatile. Depending on the brand and its target customers it may be the right reward.

Evan Snively
BrainTrust

I see high potential for the right brands utilizing this model. Three immediate thoughts why:

  • It’s novel: Getting stock back will be way more memorable to a customer in a sea of points and cash-back;
  • It’s buzzworthy: It definitely has an upside for PR and word-of-mouth referral (both for the brand and for Upstreet itself);
  • It’s a gateway: If a customer gets a hooked on the high of earning and saving through their direct purchasing, they may be inclined to purchase a larger position in in the company, which would deepen their sense of attachment and loyalty.
James Tenser
BrainTrust

Shares as rewards is a very creative idea, but … all shoppers are split shoppers and I doubt they will be nudged toward exclusive loyalty by a few pennies worth of stock. Cryptocurrency might be a better lure? Maybe the folks at Coinbase should take a stab at this.

Mel Kleiman
BrainTrust

If you are reading my comments you have looked at 22 other comments before you got to mine and note a split decision on whether this is a good idea are not.

My vote is for the right company, with a consumer who is interested in long-term benefits and likes the company and the product, this will be a great move.

For example, if I could get shares of Costco stock for purchases, I would be shopping more at Costco than Sams.

Compared to frequent flyer miles, I would take stock in the airlines even though the stocks have been hit hard in the last couple of years. My milage value has also decreased over the years. Stocks will come back but my mileage value never will.

Jlauderbach
Guest
How do you keep customers loyal to your brand? That has been the challenge of retail. Most retailers try to accomplish this by offering their customers what the customer values – price, selection, service, convenience, or some combination of all. Depending upon the vertical of retail/hospitality rewards generally equate to a function of price. Redemption of rewards lowers the marginal cost of doing business with the company. Loyalty rewards have historically been a fixed value. Whereas the number of shares is fixed, the value of stock is variable. Does this mean the customer will have variable loyalty? Incremental fixed value rewards offer a path to a tangible goal. E.g. if I spend x, I will get … a round trip, a night’s free lodging, x dollars/percent off or a greater number of perks per spend (precious metal level). The stock reward must be viewed differently to be effective. It must be important to the customer to be part of the business journey and not just a monetary reward. A company with a socially conscious or… Read more »
Craig Sundstrom
Guest

I think “not publicly listed” is the key here, since otherwise it would just be a cash-equivalent giveaway; and that’s also a problem because it makes it difficult to “redeem” it (unless the stock later goes public). I give the idea high marks for novelty — though it reminds me of a promo Quaker Oats had done decades ago giving away land titles — but I definitely do not see it “taking off.”

Rachelle King
BrainTrust

A smart, new take on loyalty. This will appeal to consumers who really want to stretch beyond their current savings schemes and feel like they are accomplishing something tangible–without much effort. Retailers and brands will reap the benefits. The long term ride to getting meaningful value out of fractional shares might discourage a few. However, for the patient and the willing, this could be a building block to even more investing. The US market may be influenced by early adopters. Initially, the more perceived equity in participating brands, the more perceived equity in the program.