National and regional big-box chains regularly use long-term, interest-free financing as an attention-grabbing promotional tool to stoke sales and build traffic.
These offers put smaller independent dealers without the financial clout or internal resources to arrange for comparable credit programs at a competitive disadvantage. To even the playing field, independent buying organizations have long offered private-label credit card programs as a complement to the merchandising, healthcare, extended warranty, floor financing plans and other services provided for members.
But besides giving dealers a powerful promotional tool and a higher marketplace profile, credit programs help forge stronger ties between customer and merchant, and provide a “gold mine” of customer data and direct marketing opportunities, buying group executives said. Unfortunately, they noted, many dealers have yet to mine the full potential of financing programs, or worse yet, have shunned private label programs outright.
“Our theory is that you need to be able to say 'I have a financing program,' and appear as a full-service dealer, or people will go elsewhere,” said Mallory Parker, business services manager of MEGA Group USA, and a former independent dealer himself. Private-label credit cards also create an emotional bond between dealers and their customers that is a critical tool for ensuring customer retention.
“Dedicated credit lines are golden handcuffs,” Parker said. “They have a card in their pocket with their name on it and the dealer's name on it, and they know they can just walk in and get a new refrigerator.”
Ed Kelly, president/director of the Nationwide Marketing Group, said financing programs also provide a wealth of information about customers and their buying habits, and a platform from which to reach them with targeted and cost-effective communications. “The finance companies can provide analyses of each customer's average ticket, identify who is paid out, who bought a washer but not a dryer, and who bought a big-screen TV,” he said. “Dealers can then include special offer inserts along with the billing statements that target specific customers. You can even do mailings on their birthdays.”
To assist dealers in their marketing efforts, Nationwide creates direct-mail pieces, inserts and other collateral material and helps members develop marketing ideas.
“Some dealers put enormous efforts into this, and others struggle with it,” Kelly said. “It's a gold mine, but you've got to mine it. It can be an incredibly effective and cost-efficient way to build mind awareness and repeat business. That's why Lowe's and the other big players place enormous emphasis on getting their cards into customers hands. But it takes work — you've got to develop a plan and execute it.”
John White, general manager of major appliances for AVB/Brand Source, noted that another advantage of private-label credit cards is their generally low transaction fees. Fees on purchases made on Brand Source credit cards are 2 percent or less, compared with the average 3 percent transaction charge for nationally branded cards like Visa and MasterCard, he said. But unlike most private-label credit cards, which are tied to individual dealers, Brand Source plastic is good at any one of 3,000 Brand Source locations around the country.
In terms of terms, White said that 12 months is still the standard bearer, although 24-month, no-interest, equal payment plans are also popular. Brand Source's finance partner, GE Retail Sales Finance, also offers a 36-month same-as-cash program, while the buying group will launch a 48-month Frigidaire promotion in July. Other special finance promotions are tied to manufacturer rebates, holidays and other special events.
MEGA's Parker said the outer limits of terms has been a 60-month, no-interest offer that's largely the province of the group's furniture dealers, who can better absorb the higher cost thanks to the category's higher margins.