- Determining the right mix of financing options comes down to having a deep understanding of your customer and your product set.
- With prices rising, it is safe to assume that shoppers are actively inquiring about ways to make their purchases more affordable.
- Nearly half (46%) of consumers surveyed said they are more likely to purchase from retailers who offer a variety of financing options.
by Mike Rittler
The Federal Reserve and the U.S. government are continuing to implement policy measures in an effort to curb inflation, raising rates by another 75 basis points in September. While inflation has been steadily slowing, the reality is that consumers will likely continue to see higher prices through the end of the year.
What’s more, an uncertain economic and political environment this fall may have an impact on consumer confidence, potentially squeezing spending ahead of the holidays. As retailers navigate the next few months, they should consider their approach to offering, promoting, and leveraging financing programs to build long-term customer relationships.
Finding the Right Mix
Financing programs can play an important role in making products accessible to more consumers, especially in light of rising prices. TD recently conducted a survey of furniture retailers at the Las Vegas Furniture Market, which found that nearly one in five had expanded or were considering expanding their financing offerings in light of the current environment.
Determining the right mix of financing options comes down to having a deep understanding of your customer and your product set. For example, installment loans and Buy Now, Pay Later offerings are becoming increasingly popular, especially among younger shoppers. These closed-ended products have a predictable and manageable payment schedule, which is easy for consumers to plug into a monthly budget.
Although, installment products may not make sense for every sector. High-end luxury retailers may find that customers do not see the benefit of breaking a large spend into four payments. Additionally, installment loans are short-term solutions with definitive payoff dates, which do not allow brands to foster ongoing relationships.
Building Brand Loyalty
In addition to making products more affordable, financing programs have long been considered a way to build brand loyalty. A revolving credit product provides an ongoing touchpoint with customers, opening the door to re-engage them with relevant offers, discounts, and perks that drive repeat business. TD’s 2021 Retail Experience Index (REI) survey found that consumers who carry a store-branded credit card tend to make more large purchases per year and spend more overall.
However, nurturing customer relationships takes more than simply offering financing options. It is essential that retail store employees are comfortable offering them to customers. TD’s REI survey found that 32% percent of consumers researched retailer financing options before making their last major purchase, and a majority did so with an associate in-store. With prices rising, it is safe to assume that shoppers are actively inquiring about ways to make their purchases more affordable.
Additionally, many retailers pulled back on marketing efforts during the pandemic amid a surge in spending and inventory challenges. Right now, promoting attractive financing options can be a powerful way to get budget-conscious consumers in the door. Retailers should equip their sales teams so they can confidently discuss financing options with customers, as well as support marketing efforts at the brand and store levels.
Competing Amid Uncertainty
As retailers set strategies for 2023 and beyond, financing programs should be viewed as a competitive differentiator. Nearly half (46%) of consumers surveyed said they are more likely to purchase from retailers who offer a variety of financing options. This is all the more important in an environment where price tags may be driving consumers to shop around.
Retailers who work closely with their financing partners will have one more tool to help drive spend and boost loyalty amid an uncertain environment.
Mike Rittler is the Head of Retail Card Services at TD Bank.