Competing in a Finance-Based World

It doesn’t take a long look at the retail landscape to realize that we’re living in a finance-based world.

When considering a new car, besides debating what make and model to buy, the savvy consumer considers the financing component as well. Can a $30,000 car with 1.9% financing cost you less than a $27,000 car that has no special financing? Did your refrigerator break down, or do you need a new computer? Your local big box electronics retailer can dazzle you with different ways to pay—for example, six months of no interest, 12 months with no payments, low fixed-rate financing. It’s your choice.

The list of examples could go on and on, but the bottom line is this: Consumers have been conditioned to expect special financing deals on almost every product they buy, and if you want to compete in today’s marketplace, you had better have something to offer. The benefits of a having a strong consumer financing program are numerous, according to a number of successful water dealers.

A Second Opinion

At this point you’re probably saying, “Of course Gary thinks financing is great. He works for a company that provides financing.” And you’re right to be skeptical. So, instead of me telling you how great financing is, I’m going to turn it over to someone who’s in your shoes—a retailer who is always looking for ways to sell more products.

His name is Leon Barbachano, and he’s president of the North American Retail Dealers Association (NARDA). NARDA represents thousands of retailers across the continent, and Barbachano recently had a few things to say about consumer financing. So instead of trusting me, let’s listen to him. The following excerpts are from “Retail Financing: It’s No Longer Just a Finance Program,” an article he wrote for the NARDA Independent Retailer.

The financial benefits to both the consumer and the retailer can be mutually beneficial. The consumer can effectively borrow money to purchase a product today and, depending on the finance plan used at the time of sale, often not have to pay the full balance and/or interest back for months at a time. Through discounts from manufacturers and the financing body, the retailer often pays a lower discount cost on private label credit cards than when accepting a purchase on a typical bankcard (such as Visa and/or MasterCard).

Financing makes sense for retailers and consumers simultaneously, making it an attractive option for everyone involved. Deferred payments really help customers manage their money, and they appreciate you offering it. Customers get another payment option and retailers can earn deals with credit card companies. Best of all, retailers increase their cash flow.

Although private label credit card financing offers the consumer an alternative to traditional credit card financing while helping to bring down the overall effective cost of the sale for both the large retailer and independent retailer alike, the more successful independent retailers are learning to utilize private label credit card programs as marketing tools.

Private label programs allow the independent retailer to brand a credit card with his or her company name and logo. Putting these cards in the hands of the consumer stretches the reach of the independent retailer brand and, when the time comes for a consumer to make a similar purchase, he or she is more likely to return to the dealer location. Savvy dealers are also utilizing a mix of short and long-term promotions and no interest minimum payment options to encourage a consumer to return for repeat purchases.

We all want to be more successful, don’t we? Branding encourages customers to remember your name and the excellent service you provided. This generates repeat business, further increasing your revenue.

While the branded card itself acts as a marketing tool, many private label programs also offer dealers free point-of-sale materials and cardholder mailings to further extend the brand name in the marketplace and drive feet into a dealer location. Consistent messaging combined with true, perceived value will create brand loyalty.

Branding through financing programs will encourage customer loyalty. The better a retailer is able to make his or her name known, the better the business will do.

Increased cash flow, more repeat business and more customer loyalty: That’s what a strong consumer finance program can do for you. If you’re not offering financing, ask yourself, why not?

Gary Slagle is vice president and general manager of Home Utility, GE Money – Sales Finance. He can be reached at 866.838.0654, or by e-mail at gary.slagle@ge.com.

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