2021 has been a big year for stonks. Day trading has increased dramatically throughout the pandemic as more people are at home and out of work, and the GameStop short squeeze in January briefly directed national intrigue toward the world of amateur investing, a phenomenon powered by no-fee trading apps like Robinhood.
And while some, like Robinhood CEO Vlad Tenev, believe investing to be the new American dream, a little more than half of Americans (55 percent) own some form of stock, according to a 2020 Gallup poll. Ownership was more common (62 percent) prior to the Great Recession and is still largely tied to factors like education, household income, age, and race.
Yet, stocks are more accessible than ever: Trading fees are extremely low, and employee stock ownership plans (ESOPs) are on the rise. The concept of the “ownership economy” is gaining steam, even among regular Americans who aren’t tuned into the latest tech developments, as evidenced by the NFT craze. The ownership economy’s basic premise is that equity — allowing people to have a stake in a brand, business, artist, or even influencer — generates loyalty, and establishes a relationship between the stakeholder and whatever they’ve invested in.
According to research released by the Columbia Business School in February, stock ownership drives consumer loyalty, and retail investors increase their spending at companies in which they own stock. This is, of course, good news for recognizable brands with devoted followings. The rise of conscious consumerism during the Trump presidency has moved consumers to think critically about the brands they buy from. For better or for worse, people are demanding more from corporations and are willing to boycott or wage social media campaigns to demonstrate their discontent.
On the flip side, the Columbia research shows how consumers are moved to financially support brands they have a stake in — even if it’s only a few shares. The study, titled “Bumped: The Effects of Stock Ownership on Individual Spending,” analyzed transaction data of more than 9,000 American users from Bumped, a fintech app that opens a brokerage account for users and rewards them with stock through purchases from certain retailers. Users are able to preselect their preferred brands from 16 different groups, like travel and fashion (the study only observed the six most popular categories), and are automatically granted stock when they spend at those stores.
The researchers accessed data on users’ spending transactions before and after they opened Bumped brokerage accounts. They found that after users were granted stock from selected companies, their weekly spending increased by 30 to 40 percent (an average of $23) toward those companies, and remained around that rate for three to six months. Loyalty, the researchers concluded, was a driving factor in maintaining a consumer’s relationship to a brand, and this incentivized relationship “closely resembles the compensation programs which address executives through stocks.”
Bumped CEO David Nelsen told Vox that the app allows for consumers to participate in an “entirely new reward mechanism,” similar to points or cash-back rewards. This isn’t exactly a novel idea; people naturally hold greater affinity for things they’ve invested in, but fintech developments that track and categorize credit card spending have only recently made this rewards process possible, he added.
“The concept of having millions of people investing small amounts became much more prevalent with Robinhood,” Nelsen said. “We didn’t have fractional shares when I was an investor, and it was harder to own things. Now, this technology is more widespread, and companies are building tools that break things down into smaller units to allow more people to participate.”
This idea of fractional ownership and equity is not exclusive to publicly-traded companies. Tech enthusiasts can become accredited “angel” investors for startups in need of funding, now that the Securities and Exchange Commission expanded its eligibility requirements for private investors. Similar to NFTs, fans can use bitcoin to “invest” in influencers through BitClout, a startup that claims to sell “shares” of a celebrity’s clout on the blockchain.
Most research into consumer and investor behaviors has generally categorized people as either a consumer or an investor. A 2009 study published in the Journal of Consumer Marketing was one of the first that sought to combine those two categories, although it relied on self-reported data to analyze participant motivations. Still, it found that investors are motivated to engage in brand-supporting behaviors in addition to purchasing more from the company, such as serving as informal brand ambassadors.
These behaviors solidify a longer-term commitment to a company’s success, compared to cash rewards or points that can be redeemed over a shorter period of time. Some user testimonies Bumped shared with Vox emphasized the value of having an ownership stake, but similar to ESOPs, it’s unlikely that the fractional stocks offered will amount to a significant percentage of total company shares.
However, this could still have a greater impact on the corporate end, as Bumped looks to expand its offerings through partnerships with different companies and banks. “You’re allowing millions of people to become small shareholders,” Nelsen said. “That can be extremely impactful for any brand.”
source https://www.vox.com/the-goods/22380411/stock-customer-loyalty-columbia-study
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