Luke Lang, co-founder of Crowdcube tells Talk Retail how you can improve customer loyalty through crowd funded mini-bonds.
Loyalty programmes are costly to set up and operate and there is some debate among retail analysts on whether they really do provide retailers with any sales uplifts, it could well be argued that the era of the loyalty card is over. Does that mean that mini-bonds are a different way to connect with customers and gain their loyalty?
What it doesn’t mean that retailers should stop trying to connect to customers. There are other options that forward-looking businesses such as John Lewis, Hotel Chocolat and River Cottage are tapping into to forge a closer bond with customers while raising some cash in the process.
The world of alternative finance opens up new possibilities for retailers who want to finance growth and engage with their customers at the same time.
A mini or retail bond is an unlisted bond usually issued by companies directly to their customers and the general public and it allows these people to invest from as little as £500 in a retailer. This is an affordable sum and lets them feel part of that business.
Inviting customers to share in the success of the business in a much more direct way could well be the future of loyalty for retailers so it’s not surprising that research from Capita Registrars suggests that the market for mini-bonds could rise to £8bn by the end of 2017. That’s a lot of investment waiting to happen and presents a huge opportunity for brands and retailers to move a step closer towards better engagement with customers.
A mini-bond is also very flexible for the retailer. The issuer decides the level of interest paid and the length of term (i.e. the duration of the bond). Furthermore, the principle investment can be repaid at the end of the term meaning that the company has more working capital to grow the business in the intervening years.
As with any investment, it is not a guaranteed return. Mini-bonds are unsecured, non-convertible, non-transferable and do carry risk. But investors can earn interest at rates higher than the banks pay.
Mini-bonds provide an alternative to banks (with their lower rates of interest currently) that enables a company to take control and give something back to customers in terms of interest payments and other rewards.
Crowd funded mini-bonds with their online model offer improved efficiency and give companies an end-to-end service on one website. In contrast, traditional mini-bonds that were adopted by the likes of Hotel Chocolat and John Lewis tend to be a complex and expensive process, which involves corporate finance, lawyers and accountancy firms.
The crowd funding provider produces the invitation document, does due diligence on the financials, assesses whether they can sustain repayments and promotes it. Upfront fees are charged, depending on the bond itself, but they are much lower than the industry average of around £100k for traditional retail bonds.
For the investor, a crowd funded mini-bonds has the added attraction of being a more accessible form of investment that is easy to understand; there’s no need to get involved in complicated share deals nor investment portfolios. In addition, it gives the individual a greater sense of ownership from being involved in a business they admire, combined with the feeling that they are helping it on its way.
Mini-bonds and crowd funding are not only revolutionising the way retailers and brands raise money, but also enabling them to engage with customers in a very different way.