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Arindam Chaudhuri, Editor-in-Chief, 4Ps B&M Chief Consulting Editor's Desk
Rajita Chaudhuri
A.Sandeep Editor's Desk
A.Sandeep
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IPO MARKETING
What Should Matter in IPO Marketing?
With Companies eyeing to Wreck more Moolah from Primary Market, Marketing and Communication have become Critical aspects for every Public Issue
Issue Date - 24/03/2011
 
In the 1980s, 1990s, and even the early 2000s, all that a company need to do in India to spike up the hype about their organization was to simply announce an IPO. The very act of announcing a public offer used to result in over-hyped discussions about the impending IPO and a subsequent heated mad rush towards applying for the public issue. An IPO announcement – for the investors – was a sure shot god gifted method of making the regulatory bales of hay; and of course, the sun was supposed to shine on forever. The corollary to all this was that there was no particular killing need for any corporation to go overboard in attempting to hype up their IPO. In fact, hyping up an IPO was a sure way to generate cynicism and negative views from the public – about why the company needed to advertise so much in the first place? In essence, all that a company needed to do then was to release an excuse of an advertisement in one of the main newspapers, and leave application forms for the IPO in hundreds of thousands lying around banks and other investment hubs – and the deed was done; the IPO was oversubscribed.

And then the Sensex crashed; and again; and again. With volatility gripping the Sensex, and sense getting drilled into investors about the fact that IPOs need not always give returns, the Indian financial market was faced with a brand new situation. It wasn’t enough whether you were a top performing corporation, unless you were able to advertise your IPO with a post modern fervency, your IPO, more often than not, would end up at getting the short end of the stick by investors. In other words, for the first time, the importance of addressing the marketing issue in an IPO has started taking bigger relevance than the fundamentals of the IPO itself.

So what should be the marketing paradigm that IPOs should follow to ensure success in subscription? Empirical evidence does give some insight. The successful IPO of DLF in mid-2007, which raised $2.3 billion and the market euphoria that got generated over Reliance Power’s $3 billion IPO are critical learning chapters. As a matter of fact, the Reliance IPO received a record 5 million applications from retail investors, got oversubscribed by 73 times and generated a demand worth over $196 billion. It’s a different story altogether that the issue witnessed one of the worst listings on the bourses eroding 17.22% of the shareholders’ wealth on the very first day itself.

 
But then, the biggest take for any marketer in the financial domain was that despite not weighing heavy on fundamentals (the stock is currently trading at Rs.122.35 less than half of its issue price of Rs.281.25 adjusted for a bonus issue of 3 shares for every 5 shares held), the RPower public offer put the market on fire in terms of investor participation – and a structured marketing and communication strategy played the most critical role in the same.

Sudhir Gupta, Consulting Editor of BFM (Banking, Finance, Markets), comments, “An IPO can be successful in today’s times only if IPO managers understand that IPO marketing is much akin to marketing of a soon-to-be-released movie or an FMCG product. Just as companies market their products or services, IPOs too have to ensure a touch of brand marketing and a primal focus on the 4Ps of marketing.”

Gupta says that issuers have to realise that just like a company stimulates its customers to consume their product, they too need to stimulate prospective investors to consume their IPO. Gupta quotes the IPOs of Emaar MGF and Wockhardt, which despite hitting the market around the RPower IPO, failed to succeed in similar vein. Statistically, the correlation between IPO marketing and IPO success (even post listing) has been proven beyond doubt in America and Europe. A University of Mississippi paper on the Marketing of IPOs that studied IPOs over a period of seven years, comments that “the promotional efforts of investment bankers influences the valuation of an IPO, its initial returns, the wealth gains of inside shareholders, and the likelihood that an issuer will switch investment bankers for a subsequent seasoned equity offering.” A study by Università Commerciale Luigi Bocconi – Milano and The Pennsylvania State University representatives proves that “the larger the quantity of shares offered to retail investors, the higher [should be] the communication investment made by the IPO.” But then, how does the process work?

          
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