By Matsui Yoshinobu, Adjunct Corporate Trainer of Shenton Institute of Applied Finance, on 17th September 2016, 2.25 PM held at 24-26 Sule Pagoda Road, Kyauktada Township, Yangon, Myanmar
(1) Good afternoon, everyone. It is a great honor to be given this opportunity to present “crafting market segmentations, strategies, & tactics for pre IPO businesses in Myanmar”. As you know, here at Yangon Stock exchange, 3 company’s stocks, First Myanmar investment, Myanmar Thilawar SEZ holdings, Myanmar Citizens Bank, have started trading this year. Furthermore, I’m conceived that a number of other companies will be also going public near future. Today, I’d like to talk about what pre-IPO businesses would be better to think about for going public.
(2) I’ve divided my presentation into three parts. First, I would like to talk about so-called IPO puzzles, which can be observed in all stock markets. And then, will focus on the strategies and tactics to avoid the downfall in its stock price in long run.
Finally, I will mention the importance of the human resource for marketing in financial area.
(3) Now Let us begin. Why does the company intend to go public?? Of course, there may be many answers for this question, according to its business situation.
However, one of the main purposes of an IPO is to raise money for the expansion of operations or to raise money for growth.
(4) This shows a stock price trend of an IPO financial company in Japan, which started trading stocks in October 2015. We can observe 2 typical phenomena in this chart. One is called, the under pricing phenomenon.(p) About 90% companies have experienced higher first price than public offering price. In the short-run, IPO can help them raising money for business expansion. However, about one year later after IPO, only 25% IPO companies can drive up or maintain their first price. The other 75% have fallen in stock prices as this chart shows, known as long run underperformance phenomenon.(p) So it’s not easy to raise money for growth in the long-run. This phenomenon could be observed not only in Japan but also all the other countries. So I’m afraid to say but some Myanmar company would go though like this stock price trend.
(5) By using a discounted cash flows model, investors must determine the present value of operating free cash flows. First, they need to predict the expected duration of the higher-than-normal growth and its cash flows. Next, after this high growth, the firm might be expected to go back into a normal steady growth, and the value of a firm in this period evaluates as going-concern value. Several studies have reported that over 70% of the stock value consist of going-concern value.So what does it mean? (p) The downfall in stock price after IPO might be caused by downward revision of investors’ expectation to its future cash flows.
(6) “Why will investors’ expectations be modified?” In my opinion, one of the reasons is that the IPO firm didn’t plan the right strategy. Then I’d like to move on the next point, “strategy”. What is the “right” strategy?? The answer is a strategy for enhancing customer loyalty, which makes customers more likelihood to recommend products or services to others, more likelihood to continue purchasing them repeatedly, more likelihood to purchase the other products or services, not actively seeking alternative products or services even if its prices are not discounted. These customers’ attitudes and behaviors will generate the future cash flow of the company. How can it do for a right strategy? To plan the right strategy, the company has to define the loyal target customers, and to create the value for them.
(7) Then I will show an example of the strategy in financial business , which could have succeed in improving customer loyalty and driving up its stock price as a result. At the kickoff meeting of the project, a staff of my client company, regional bank A, told me that 80% of sales in retail banking area came from only 8% customers. So I asked him “ Who are they??” He couldn’t answer my question sufficiently Of course, he knew about age, sex, amount of assets, transaction history of upper 8% customers, but he didn’t know how they felt after dealing with the bank, what their attitudes toward the finance were, what they would like to be in future.
(8) In the begging of the project, I investigated who loyal customers were, by doing qualitative and quantitative marketing research. All customers of bank A were divided into 6 segments based on differences in psychological characteristics toward finance. For example, A customer in Segment A had the highest loyalty to the bank but he didn’t take a risk at all in private life because they took a risk enough in business life. Next, A customer in Segment B was very active about everything and always seized the days even if he borrowed money. He sometimes preferred gambling. Next, A person who belonged to Segment C was very smart and had highest financial literacy. A wife and a husband had a high-salaried job each other such as a doctor and a teacher.
(9) After segmentation, we could notice an unexpected fact about upper 8% customers. Half of them had a high loyalty. A large part of them belonged to Segment B. However, the rest of upper 8% customers were in segment C and didn’t have feel loyal to the bank. In the interviews, someone in segment C told me as follows.
“ Why did I deal with the bank A? Just its promotion rate. Next time, I wouldn’t like to deal again.” Or other person in segment C said to me “My company let me open a payroll account of this bank. A few months ago, a bank officer forced me to buy its product for the sake of good relations between the bank and my company.”
As you know, these customers didn’t have any loyalty at all but they generated 35% of sales. It was in a dangerous situation that the bank would lose 35% of its sales, because they would indeed leave form bank A.
(10) And also we checked whether high loyal customers would contribute the long run profit or not. The answer was yes. There was a positive correlation between loyalty and profit. By word of mouth, high loyal customers introduced new customers 4 times more than low loyal customers. High loyal customers bought its product with less discounting, and purchased other products 1.7 times more than low loyal customers.
(11) The top management of Bank A would be going to promote the private banking toward wealthy customers before this project. But they had to reconsidered The most loyal customers in Segment A didn’t like to invest risky assets, so they couldn’t become targets. Customers who were most concerning to manage the assets belonged to Segment C but they also couldn’t become target due to low loyalty. As this figure shows, in the upper left area, there are potential customers in the market, who intended to try a new financial services and an intention to invest, but it already had been into industrial rivalry there. These evidences made the top management give up promoting the private banking. However, taking a closer look on this chart again, the upper right area was open. (p) If bank A would change the position toward the upper right area, it could avoid the price cutting war against other financial institutions. That is, bank A decided to define the target customer as segment B and to promote the retail banking.
(12) Next, I will show you some examples of tactics to realize bank A’s strategy briefly. First, ATM. In order to drop target customers into branches more often and to create an opportunity to talk with them, bank A decided to introduce a new ATM, which could give pleasure to segment B. When customers transacted by using ATM like transfer or withdraw, they could play lottery on ATM, capable of imparting excitements to segment B.
Secondly, Advertising. As a result of research, segment B customers were obsessed with amateur idols, not professional entertainers. Thus bank A recruited idols from its bank officers voluntarily and adopted them to advertising posters and actually held a concert. When fans came to the bank brunch at which she worked as an officer, she gave an autograph and shook hands like a real idol. These activities have succeeded in improving customer loyalty and raised its stock price.
(13) So far, I’ve talked about the importance to plan the strategy for enhancing customer loyalty. To conclude, I’d like to emphasize one more point, human recourse.
(14) As you know, to work in financial institution, advanced expert knowledge will be required. And an officer has spent so many years in the financial institutes that they sometimes forget a mind when they used to be a customer. If the officers who can’t understand customers’ mind will plan the strategy, it would be fault. This is the difficulty of marketing in financial area. So I’d like to propose that financial institutes will develop some young people as a financial marketing specialist who have the close mind to customers and simultaneously understand the financial knowledge to drive up your firm value.
(15) Thank you for your attention.