The Power of Perception Studies

On a recent episode of the Winning IR podcast, Gene Rubin discusses how perception studies can be used by IR teams to gain a competitive advantage. Drawing on his decades long tenure at Rivel—the largest global perception study provider— Gene talks about the value of conducting a perception study and strategies for implementing them effectively.

What is a perception study?

According to Gene, perception studies are fundamentally customer satisfaction surveys conducted among the investment community. They target investment professionals who follow your company closely and are responsible for determining your market valuation. A successful perception study consists of three key components: good questions, a comprehensive list of respondents, and professional interviewers.

For these studies to be most effective, they should be objective, which is why having a third party conduct them can be beneficial. The anonymity provided allows investors to speak candidly about their perceptions of your company.

Common insights from perception studies

When companies undertake perception studies, they're primarily seeking certainty. Gene notes that companies want to verify that they know what investors think. A perception study measures the effectiveness of a company's communications with the investment community. Gene explains:

"What you're trying to do is figure out if the facts are appealing? Are your assumptions appealing? Do they have confidence in the fact that your assumptions are correct? And if they're not confident, well, then why?"

The key questions companies try to answer through perception studies include:

• Did investors hear the message?
• Did the right people hear it?
• Do they like it?
• Do they believe it?
• If they don't believe it, why? 
  
  • Is it something the company said or did, or is it due to external factors?More specifically, companies use perception studies to:

1. Benchmark understanding of their story
2. Gauge the investment community's support for management
3. Pinpoint valuation-draining gaps in understanding
4. Create a roadmap to close those gaps
5. Ensure alignment between the investment community and management
6. Identify any potential risks from activists

When to conduct a perception study

The timing of a perception study is crucial. Gene identifies three main factors that determine when to conduct one: valuation, events, and internal arguments.

Valuation concerns

If leadership is not satisfied with the company's valuation and wants to understand why, a perception study can provide clarity.

Key events

Conducting a perception study before a key event can provide a useful benchmark for success. Several events might trigger the need for a perception study:

• A new management team
• A new strategy
• An upcoming investor day
• A recent acquisition

Internal arguments

When there are disagreements about strategic direction, a perception study can provide objective data to inform decisions:

• Whether to buy back stock
• Increase dividends
• Reinvest organically
• Pursue M&A

Perception studies are also valuable for showing progress over time. While investors might consistently rate management as "great," the specifics of what makes them great can evolve significantly, affecting valuation. Gene explains the subtle differences between good and great evaluations:

"Companies that are in a pretty good standing with the investment community, if you conduct a survey, what you might find out is when investors speak about management, they say management are great operators. You do one two years later and they're saying management are visionary, highly strategic and shareholder friendly. In both cases, they're saying management is wonderful. I'll tell you, the first one does not get you a very high valuation. The second one is where the valuations are garnered."

Best practices for successful perception studies

To ensure a perception study delivers meaningful results, Gene recommends several best practices:

1. Nail down the purpose

The purpose for conducting a perception study shouldn’t be something vague like "getting feedback." It should have a specific goal attached, such as understanding valuation drivers or gauging support for capital deployment strategies.

2. Get internal buy-in

Everyone involved—the CEO, CFO, corporate communications, the IR team, and relevant board members—must support the study.

3. Determine the audience for results

Knowing who will see the results affects the questions you ask. Will it be presented to IR, management, the executive leadership team, or the board? When you know your audience, you can tailor the questions you ask and the way you present results appropriately.

4. Anticipate potential issues

Ask the C-suite what problems they expect the study might uncover. This prevents surprises and ensures they're prepared to accept the results.

What to avoid in perception studies

Gene also highlights several pitfalls to avoid when conducting perception studies:

1. Poor timing

Don't conduct a study immediately after a significant event like a merger announcement or a big earnings miss. Allow time for the market to digest the information. Gene shares an analogy:

"This is [like] a blood test that you do at the doctor's office. You don't want to do it after a night of partying. And you don't want to do a blood test if you just played three hours with a basketball because both readings are gonna be wrong." 

2. Unexpected results

IROs should have a good idea of what the study will reveal before conducting it. The value of perception studies comes from measuring the depth of perceptions and distinguishing between noise and substantial issues.

3. Overly narrow focus

Don't make the study too narrow (e.g., focusing only on capital deployment, management, or IR). This can tip your hand about strategic considerations or force respondents to provide negative feedback they wouldn't otherwise mention.

4. Comparing executives

Avoid questions that compare one executive to another, as this can create internal tension when results are presented.

5. Excluding investor groups

Don't exclude certain investor groups, as they will likely find out about the study and may question why they weren't included.

Common misconceptions about perception studies

Gene identifies several misconceptions about perception studies:

1. Investors don't want to participate

While investors don't eagerly anticipate surveys, they often engage enthusiastically because they can provide anonymous feedback that will reach management.

2. Studies will uncover unknown issues

The biggest misconception is that perception studies will reveal issues management isn't aware of. In Gene's experience, this never happens. Instead, studies measure the depth of known issues and help determine which ones are merely noise versus substantial problems.

3. Repetitive feedback is unnecessary

Some believe that once they've heard the same issues repeatedly, they've gathered enough information. However, repetition is precisely what helps quantify the importance of each issue, and helps you measure if you’ve addressed the issue sufficiently over time.

Learn how Irwin Pulse integrates regular perception intelligence into your IR CRM.

Next steps after completing a study

Once the perception study is complete, Gene recommends taking the following steps:

1. Prepare tailored reports for the IR team, the management team, and the board
2. Anticipate questions that may arise and incorporate them into your presentation
3. Make focused recommendations
   
   • Gene suggests limiting your recommendations to a few high-priority action items (3-5) rather than an exhaustive list.
4. Determine who will be responsible for implementing each recommendation and the best approach for doing so.

Final Thoughts

Perception studies are powerful tools for understanding how investors view your company. When conducted properly, they provide valuable insights that can enhance your communication strategy, improve investor relations, and potentially impact valuation. By following Gene's expert advice on timing, preparation, and implementation, you can maximize the benefits of these studies for your organization.

As Gene puts it, a perception study is like a blood test—it won't surprise you with unknown conditions, but it will help you prioritize issues and develop effective solutions. With over 700 perception studies under his belt, Gene's experience offers a roadmap for companies looking to gain deeper insights into investor perceptions and leverage those insights for strategic advantage.