"You’ve been writing a lot about how great those DRPs and Direct Stock Purchase Plans are," a reader told us, "and I see how they can be good for stockholders. But where’s the hard evidence as to the benefits for us companies?"

We have lots of evidence, we said, but the very best and most detailed "success stories" tend to be proprietary and strictly confidential...precisely because they do impact the bottom line.

Nonetheless, we promised to publish the best hard evidence of the hard–dollar impact of successful DRPs and DSPPs that we could find and that we’re free to reveal. The numbers should impress you:

• JC Penney compared the buying behaviors of stockholder and non–stockholder credit card holders and found that stockholders visited JC Penney stores more than twice as often and spent 52% more money per visit than non–stockholders, thus spending more than three times as much. (Source: The Shareholder Service Optimizer, Sept/Oct ’95)
  
  
• Real Goods Trading Corp., a company that sells environmentally friendly products via catalog and that went public over the Internet , found that its stockholders bought twice as much as other buyers. (Source: Wall Street Journal, 6–29–99)
  

• A major Midwestern financial institution, which, like most of its peers, conducts continuous direct–mail campaigns for gold and platinum cards, car loans, CDs, mortgages and home equity loans, etc., found that its stockholders accepted such offers at three times the rate of non–stockholders. In the expensive direct–mail marketing business, this added "edge" has major financial significance, even before the added benefits of prompter than average payments and much lower than average default rates that arise from having stockholders as customers. (Source: Carl T. Hagberg and Associates)
  
  
• Sears Roebuck, which included a broad array of product coupons in its mid–year 1997 report to shareholders, garnered 43,000 redemptions. The profits generated by the incremental sales paid for the entire interim report. (Source: IR Update, Sept. ’97)
  
  
• Texaco, which has been cultivating "affinity groups" for as long as we can remember, took two investor surveys in recent years. They found "the correlation between stock ownership and a preference for Texaco products is overwhelmingly positive." No wonder they have one of the best–marketed and best performing Direct Stock Purchase Plans in the country.
  
  
• A study of 500 stockholders who participate in DRP/DSPP programs, commissioned by First Chicago Trust Co., found that 77% recommend products and services of companies in which they own stock to friends and associates, 47% would use products of the companies they own even if it were more convenient for them to use those of competing companies and 44% would buy where they own stock "even if a competitor offered a better price." (Source: First Chicago Trust Co. Investor Purchase Behavior Study, Nov. ’97)
  

Impressive as these statistics are, you may still be saying to yourself, "Our company doesn’t sell directly to consumers" or "Even if we added a million new stockholders who bought our products exclusively, we wouldn’t sell enough additional ketchup or computer programs or whatever, to make it worth our while."

But guess what, dear readers; if you think like this you’ll be missing out on the biggest hard–dollar benefit of affinity group ownership by far, and that’s the added franchise value, or "brand equity" it creates.

Here’s some explanation from none other than Warren Buffett, the inventor, we’d say, and surely the world’s most successful practitioner of "affinity group" investing – witness his purchase of American Express stock, after he counted the number of their charge card receipts at his favorite restaurant, or Gillette’s, which helps him sleep blissfully every night, knowing that whiskers are growing all over the world while he snoozes:

"If (you go into a store and) they say ’I don’t have Hershey bars, but I have this unmarked chocolate bar that the owner of the place recommends’, if you’ll walk across the street to buy a Hershey bar, or if you’ll pay a nickel more for the (Hershey) bar than the unmarked bar...that’s franchise value."

So how much is franchise value worth?

Buffett says, "If you gave me $100 billion and said ’ take away the soft drink leadership of Coca Cola in the world,’ I’d give it back to you and say it can’t be done." (Both quotes from: Warren Buffet Speaks: Wit and Wisdom from the World’s Greatest Investor, John Wiley & Sons, Inc.)

And here’s another, more recent example from a first page Wall Street Journal article (6/28/99) that focused on the huge advantage – competitively and in the stock market – that the "number–one company" realizes vs. the number–two:

"During the athletic–shoe wars of the early 1990s (just before Nike’s innovative outsourcing and celebrity endorsement campaigns), Nike’s market capitalization was roughly $4 billion vs. $3 billion at Reebok. By 1998, Nike’s market cap had risen to more than $10 billion, while Reebok sank to about $2 billion."

Readers, we’d urge you to ask yourselves how much of Coke’s stock price, or Hershey’s, or Motorola’s, or IBM’s is attributable to its "brand equity." (The way IBM’s franchise value has been recently rehabilitated and very effectively remarketed is especially noteworthy.) Then ask if your own affinity group stock ownership programs are adding to the considerable store of value that brand equity represents...and if not, why not.