The “buy now, pay later” installment loan is nothing new: It’s long been used by retailers to encourage sales of big-ticket purchases like furniture and appliances.
What is new is the wave of retailers who have begun offering consumers the option to finance smaller purchases. Everything from casual clothing to video games can be financed now, especially in digital channels, with shoppers able to break up purchases into smaller payments, spread over a set period of time—generally without interest.
Many of these campaigns are aimed at a younger audience, and with COVID-19 driving more people to digital—and shaking consumer confidence—the trend has only increased. Some recent examples:
- Klarna, a Swedish fintech that’s a leader in the space and is valued at over $10 billion, has seen 550% growth in the U.S. market in the first half of this year. It just announced a major partnership with Macy’s, and also recently partnered with Microsoft in the U.S. to allow consumers to purchase the new Xbox in monthly payments.
- PayPal, Mastercard, and Fiserv have all created installment products that offer retailers similar payment flexibility.
These new offerings have the potential to radically change consumers’ buying power, giving them access to purchases that, for some, previously wouldn’t have been possible.
For retailers, meanwhile, there is the chance to significantly drive sales. But to make the most of the opportunity, they need to change their supporting communications.
Focus on the offer
The first communications challenge revolves around fully leveraging the buy-now, pay- later offer, especially for retailers who are early adopters of it. This is a major differentiator for their customers. That means retailers need to:
- Clearly market the offering so that it becomes the lead message on all communications
- Promote benefits like ease and convenience—perhaps new additions to the retailer’s value proposition
- Think of pricing differently, putting the emphasis on installment amounts rather than total values
Build customer relationships
Retailers need to think of the longer-term relationship that this offering will spawn. Purchases are no longer a single, one-time transaction, but a series of transactions over an extended period of time. This presents an opportunity to build a relationship with customers through personalized, responsive communication that regularly reaches out to them:
- “You have only two more payments to make—here are some other items we thought might interested you!”
- “Congratulations: You’re now the proud owner of your <brand name appliance>! Browse other items for your <kitchen>!”
Acknowledge third parties
For brands that use a third party to manage installments, the brand needs to clearly communicate that fact to the customer. The reality is that after the sale, when the purchase novelty has perhaps worn off and customers are receiving payment reminders, it’s important that the brand retain that initial goodwill that drove the purchase in the first place. The brand needs to demonstrate transparency and lead that conversation.
“Buy now, pay later” is a significant change to the retail sales model. So while it’s a significant opportunity for brands, it requires extra-careful communications planning and execution.