SUCCESSFUL SECONDARY FINANCING PROGRAM

Transcription

1 CREATING A SUCCESSFUL POINT-OF-SALE SECONDARY FINANCING PROGRAM

2 CREATING A SUCCESSFUL POINT-OF-SALE SECONDARY FINANCING PROGRAM For many retailers and manufacturers, secondary financing could be the key to capturing more sales and increasing consumer satisfaction and loyalty. However, a poorly managed secondary financing program can also lead to brand damage and dissatisfied consumers. Before starting a new secondary financing program or changing an existing one, then, it s important for retailers to educate themselves. Using exclusive retailer research, this paper covers the secondary financing process, its benefits and potential pitfalls, and the steps necessary to set up and manage a successful secondary financing program for the long run.

3 WHAT S SECONDARY FINANCING? SECONDARY FINANCING OPTIONS OFFER LENDING ALTERNATIVES FOR CONSUMERS WHO DON T QUALIFY FOR A RETAILER S PRIMARY FINANCING PROGRAM. Consumers are declined for primary credit on roughly 50 percent of transactions for a variety of reasons, including lack of credit and tighter lending standards. As a result, retailers miss out on sales, and consumers are unable to purchase the products they need. From a consumer perspective, secondary financing often acts just like primary financing. Consumers submit an application to a lender through the retailer and, if approved, gain access to lending options. SECONDARY FINANCING PRODUCTS CAN INCLUDE: BANK CARDS Lines of credit accepted anywhere, providing customers greater flexibility and convenience. REVOLVING CREDIT Lines of credit available exclusively through the retailer, providing retailers the opportunity to strengthen customer loyalty. LOANS Term based loans with fixed payments, simplifying the customer repayment process. LEASE Fixed term payment plans that can be structured in a couple of different ways. Some lease programs allow the customer to fully own the product after the end of the term, others allow the customer to purchase the product for a set rate after the end of the term or sign up for another term. RENT TO OWN Open term payment plans where the customer pays on a weekly or monthly basis and has the option to purchase the product at some point during the agreement.

4 SECONDARY FINANCING OPTIONS Some retailers offer only one secondary financing option, while others work with several lenders to provide their consumers with multiple opportunities and methods for financing. By offering multiple financing options, retailers are able to cover a broader credit spectrum, offering financing to a wider variety of consumers, sometimes with no credit check required. LEARN MORE. PLAY VIDEO! FOR RETAILERS THAT OFFER MULTIPLE LENDING SOLUTIONS, THERE ARE SEVERAL WAYS TO STRUCTURE THE APPLICATION PROCESS: MULTIPLE APPLICATIONS. Consumers may need to fill out several different applictions for various lenders, which can subject their credit to multiple hard hits. THE WATERFALL APPROACH. Using this model, the retailer or one of its lenders makes it possible for consumers to provide their personal information only once to receive consideration from multiple lenders. That information is then submitted to the lenders, one at a time, in an order specified by the retailer, until an approval is received. However, the consumer still takes a hard credit hit for each application submission. ONE APPLICATION. In some cases, the retailer may use a third-party platform to further streamline the application process. These platforms allow consumers to fill out one form that s then pre-screened for multiple financing offers simultaneously, reducing the number of credit hits for the consumer. The platform then presents the best offer for which the consumer qualifies.

5 RETAILER BENEFITS OF SECONDARY FINANCING Secondary financing programs offer many benefits for retailers. In a recent study, one furniture retailer with between $50 million and $100 million in annual sales said, We offer secondary financing in order to maximize the number of consumers we are able to capture who do not have the resources to pay cash or use another credit card to make a purchase. A decline by the primary finance source does not necessarily mean the consumer is not credit-worthy. A secondary lender willing to consider consumers with less than perfect credit has significantly increased our sales. SOME OF THE SECONDARY FINANCING BENEFITS CITED BY RETAILERS INCLUDE: LARGER ORDERS: When consumers have financing options available to them, they re better able to afford big-ticket purchases or to upgrade their planned purchase, buying a 50-inch television instead of a 32-inch model, for example. Retailers selling items like furniture, appliances, jewelry and electronics often see order value rise once they offer financing products that work for a larger number of consumers. IMPROVED MARKETING: Funding programs capture consumer information mailing and addresses as well as purchase history data that can be used to enhance retailers marketing efforts and drive repeat business. POSITIVE WORD OF MOUTH: Secondary financing programs bring in more consumers and boost the chances that those consumers will leave satisfied. Those happy consumers then, in turn, spread the word about the retailer and its financing options, driving future business. INCREASED SALES: Without secondary financing options, consumers who are rejected for primary financing often leave the store without making a purchase. Secondary financing allows retailers to recapture those lost sales, increasing their profits and boosting market share. Additionally, promotions surrounding financing programs such as special terms, available credit and no credit check requirements can help drive more consumers to the store in the first place. LOYAL CONSUMERS: Consumers who are rejected for primary financing may leave the store dissatisfied with the retailer and its funding options. When a secondary financing option is provided, however, the retailer gains an additional chance to win a consumer s business, and if approved, the consumer is able to walk out of the store happy, having made the desired purchase. Additionally, when consumers know they can receive financing from a particular retailer, they re likely to frequent that retailer more often.

6 CONSUMER BENEFITS OF SECONDARY FINANCING Secondary financing options are also good for consumers. As one furniture retailer with $50 million to $100 million in annual sales puts it, It benefits the consumer to be able to finance when they do not have good credit or standard credit cards as an option. This is especially true for Gen Y. Millennials, who are typically between the ages of 18 and 34, haven t been borrowing and purchasing for very long, so their credit files are still thin. This can make it difficult for them to obtain primary financing, even if they have the means to make payments. SOME OF THE WAYS SECONDARY FINANCING CAN HELP CONSUMERS INCLUDE: UNPLANNED EXPENSES. Some purchases are necessary but may not have been expected or budgeted by the consumer - for example, if an appliance breaks down suddenly. LARGE PURCHASES. Secondary Financing allows consumers to make large purchases, even if they haven t had the chance to plan for them. LONG-TERM BUDGETING. Financing programs allow consumers to break a large one-time purchase into manageable payments over time. NO MONEY DOWN. Consumers can make a purchase without sacrificing funds that may be needed elsewhere in the short term. CREDIT BUILDING. Consumers making on-time payments over a period of time, can build their credit file, helping them qualify for additional financing options, including mortgages and auto loans, in the future.

7 SECONDARY FINANCING CHALLENGES SECONDARY FINANCING PROGRAMS CAN ALSO POSE CHALLENGES FOR BOTH RETAILERS AND CONSUMERS, INCLUDING LOW APPROVAL RATES, CUMBERSOME APPLICATION PROCESSES AND HIGH FEES. On the retailer side, secondary financing programs can be difficult to set up. Technologies sometimes don t integrate well with existing point-of-sale systems and processes, and complex programs can lead to staff confusion. Additionally, lenders or service providers may not offer training for staff members or a dedicated account representative for management, which can lead to more difficulties, especially if a retailer works with multiple lenders. As one jewelry retailer with between $100 million and $250 million in annual sales puts it, Associates have to understand different plans offered by different banks, learn multiple types of paperwork and know how to handle the different paperwork. Disclosure and notification processes may be different. Different cycle dates; different payment structures; different ways that consumer service is handled by different companies. Some secondary financing programs also don t live up to retailers expectations when it comes to approval rates. Depending on the approval criteria used by the lenders, consumers may wind up with multiple rejections, and those declines can be embarrassing for both the sales associate and the consumer. It can leave retailers upset about the fees they re paying to the lending program. Our secondary finance provider [finances] roughly 5 percent to 8 percent [of our sales] and growing, says one retailer. I would be much happier with this percentage growing if we weren t paying them as much of a discount rate. The approval rate is much higher but still unsatisfactory. To their disadvantage, they work more off of the consumer s income level and not as much for the credit, employment, or length of residency. Retailers also express disappointment in some programs lack of marketing and professionalism. Some lenders and service providers don t provide promotions or marketing materials for the retailers use, and some may not provide even general marketing support or advice on best practices. Others, when it comes to servicing the loan, may provide poor consumer service or offer no online options, which can reflect poorly on the retailer s brand. On the consumer side, confusion about terms and conditions can be problematic. Secondary finance sources rarely have the same finance promotions available as do the primary finance source, according to one furniture retailer with between $50 million and $100 million in annual sales. This can create problems with consumers who anticipated having longer terms for their finance contracts. Secondary financing options may also have rates and loan terms that consumers perceive to be unfavorable, and when multiple applications are submitted, consumers credit may take a hit.

8 FINDING SECONDARY FINANCING SUCCESS IT S POSSIBLE TO BUILD A SECONDARY FINANCING PROGRAM THAT AVOIDS ALL OF THOSE PROBLEMS, THOUGH. RETAILERS JUST NEED TO DO THEIR HOMEWORK AND CHOOSE THE RIGHT PARTNER. There are many options available when it comes to choosing a secondary financing provider. It helps to start with the end in mind: Retailers should know roughly what they would like to achieve in terms of approval rates and business goals and then target providers well suited to help realize those results. AFTER LISTENING TO A PROGRAM S SALES PITCH, IT S IMPORTANT TO ASK THE RIGHT QUESTIONS. WHEN EVALUATING AN OPTION, CONSIDER: Does the solution work across all channels I sell through? Are multiple lenders offered? What types of products are available? What are the approval rates and terms for those products? How difficult is the application process for associates and consumers? Are multiple applications required? What does the solution s interface look like? Is it easy and intuitive to use? Is training support offered? Is it available only at launch or ongoing? Will retailer account support be readily available? Is marketing support available? How secure is the consumers information? What options do consumers have for managing their account? What are their consumer support options? How much are sales expected to increase with the program, according to projections? How does that compare to the program s costs? How long will it take to get up and running?

9 Performing detailed research upfront can avoid problems before it s too late. According to one furniture retailer with between $20 million and $50 million in annual sales: I HAVE FOUND THAT THERE ARE A LOT OF AGGRESSIVE SALES PEOPLE TOUTING THEIR FINANCING PLATFORM, SAYING YES BEFORE THEY KNOW WHAT THE QUESTION IS. IT S HARD TO FIND TRUSTWORTHY COMPANIES WITHOUT SENDING IN ALL OF THE PAPERWORK, GETTING STARTED AND HAVING TO CUT OUR LOSSES AND START THE PROCESS ALL OVER AGAIN. Once a provider has been selected, it s important to spend time training employees on the secondary financing process before it launches. If a secondary finance partner provides training, retailers should take advantage of it. Properly trained associates can make sure applications are filled out and run correctly, and their expertise can also help boost the number of offers that are actually accepted by consumers. If training is not provided, run through application, approval, decline and servicing scenarios with staff members until they feel comfortable with the program. Going forward, standardized training for the system should become part of the new employee onboarding process. Prior to launch is also a good time to set initial goals for the program. Retailers should determine the benchmarks they d like to meet over time and their methods for tracking performance in advance. This will allow for an honest, regular evaluation of the program, to ensure that it meets expectations over both the short and long term. After the program s launch, retailers can set about promoting their secondary financing options. Retailers should take advantage of any marketing support offered through lenders or service providers. To help reduce consumer confusion regarding secondary product terms and conditions, sales staff should be trained to clearly distinguish secondary financing offerings from primary financing offerings. Staff members must also be able to communicate the details of the secondary financing offer in a way that s compliant and straightforward.

10 TRACKING PROGRESS Secondary financing programs can t be launched and forgotten. Retailers should monitor and analyze results from the program on an ongoing basis. Some secondary financing providers offer assistance with performance tracking, or retailers may opt to do it on their own. Either way, when evaluating secondary financing performance, it s important to consider the program s impact on sales. Retailers should keep tabs on the ratio of secondary financing applications to secondary financing application approvals, offer acceptance, sales volume, order size, and repeat purchases. Are consumers using the secondary financing options offered to them? And is it having any impact on how much or how often they buy? Retailers should also closely monitor their consumers. Has the secondary financing program had any impact on the number or type of consumers served? And are they more loyal or satisfied as a result? With this data in hand, retailers can make adjustments as necessary. A good secondary financing partner should be open to ongoing communication and be able to provide feedback and suggestions for improvements if results aren t meeting expectations. If results are continually disappointing, however, that s a signal that lender or service provider choices might need to be reassessed. In the end, secondary financing programs should always drive business, not hurt it. As one furniture retailer puts it, [With secondary financing,] we are converting no into yes. When we say they have to put 50 percent down in our in-house program, historically, we would never see them again. Now, we can convert these consumers into sales. LEARN MORE. PLAY VIDEO!

11 WE OFFER SECONDARY FINANCING IN ORDER TO MAXIMIZE THE NUMBER OF CONSUMERS WE ARE ABLE TO CAPTURE WHO DO NOT HAVE THE RESOURCES TO PAY CASH OR USE ANOTHER CREDIT CARD TO MAKE A PURCHASE. A DECLINE BY THE PRIMARY FINANCE SOURCE DOES NOT NECESSARILY MEAN THE CONSUMER IS NOT CREDIT-WORTHY. A SECONDARY LENDER WILLING TO CONSIDER CONSUMERS WITH LESS THAN PERFECT CREDIT HAS SIGNIFICANTLY INCREASED OUR SALES.

12 FIND OUT HOW LEADING RETAILERS NATIONWIDE ARE INCREASING SALES WITH NEWCOMLINK. CALL OR VISIT US TODAY! NEWCOMLINK.COM