In current times, credit is a great way to help customers “reach” what they really want with the bridge of easy payments. Adam Hankinson, Managing Director at Furniture Sales Solutions, asks: Would you credit it?
I always wanted a Bang and Olufsen TV. My dad has inherited one from his dad in the 70’s and I remember what a big deal he made of having one. Somewhere in my psyche this has become embedded without a lot of conscious thought but it was there and every now and then I would stand outside the B & O shop in Southport and gaze longingly at the ‘Rolls-Royce” of TV and Hi-fi brands, never having the confidence to enter because I didn’t think I could afford it!
One day, around 25 years ago, in summer both doors were wide open and I ventured in with my two young sons, a Disney film was on at the back of the shop and they ran to watch it. As I browsed longingly at the TV’s on the floor stands, a TV in front of me swivelled, as if by magic, silently, slowly, and smoothly. My mouth dropped open! “Wow! That’s amazing”.
The salesman who was stood behind me with a heavy, chrome remote control in his hand, obviously moving the TV with it, smiled at me and said “Yes, it is, I’ve sold six of those this week!” I wanted it all the more, I said “how?”, he said “we do this brilliant interest-free offer where you pay a 10% deposit and the rest interest free in a year!”. 15 minutes later I’d paid my deposit and agreed an installation date for the following week.
In my dealings with many retailers I often hear them say that “our customers don’t need credit to buy” or “we don’t want to push interest-free credit as it costs us a lot of money”. Now, this is of course a point of view that the owners, operators, and managers of these, often independent, retailers are absolutely entitled to hold, and they can choose how and what they do in their business all day long.
I ask them, though, to consider a number of facts and reasons that they might consider before finalising this costly, in my opinion, decision. The first fact is that 25% of people who buy on finance, whatever type, interest-free, low rate interest or normal credit terms would not have bought at all, if these “easy” terms were not available. In the case of the market leader, DFS, that quarter of “finance” customers is £125m per year. I repeat, these people say that they wouldn’t buy at all without a finance option being available.
The second fact is that the average order value of a 3-year interest free sale is 50% greater than an average cash order. At a 5% subsidy rate that makes the gross margin £600 on a £1500 finance order versus £450 for a cash order at £1000 (after the subsidy has been paid).
The third fact is that people don’t say “can we do it on finance please?”, what they do say is “we’ll go away and think about it” or “we’ll go and measure up”. Unfortunately, people get really embarrassed talking about money and especially about their own personal financial situation, and any possible hint that they need some type of ‘credit’ to buy what they want. Easy terms or small monthly payments are the “bridge” that the customer needs to get across the ravine of “I want that but how can I get it?”. There are many customers who want to buy what you sell, often because their parents or grandparents have bought from you but they think that they can’t afford it!
As you struggle to see sub-35-year-old customers visiting and buying from you consider why and how you might build a bridge for them to cross easily into owning furnishings from you! “I’ve always wanted to buy from there but really thought I couldn’t afford it, they showed me a way that I could!”.
P.S. The fourth fact is that customers who buy from you on finance are more loyal actually twice as likely to buy again in the same way as “it’s so easy to pay monthly, we hardly miss it”.