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Why Your Business Should Consider Buy Now, Pay Later

techsm5

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Not so long ago, if you wanted something you couldn’t immediately afford, there were only two options: take out a loan or use a credit card. None of these choices have much sparkle because they require you to pay interest. In the end, customers who did not want to use a credit card usually had to pass on the product or service.

At Vagaro, we realized that our salon, spa, and fitness businesses faced a similar dilemma: customers were interested in more expensive items but didn’t want to pay the price all at once. Our solution to this problem was a buy now, pay later (BNPL) model. These models are a loan/card alternative that can simultaneously meet customer needs and help businesses in virtually any industry maximize revenue.

Related: Turning to ‘Buy Now, Pay Later’ Models: E-Commerce Giants Are Bolstering Financial Offerings to Operate in the ‘New Normal’

BNPL, the abbreviated version

BNPL is a type of short-term financing. In a typical BNPL plan, the total cost of the item or service someone wants to buy is divided into multiple payments. The buyer pays a small deposit. Then they make payments at regular intervals, such as every two weeks or every month, until they have paid the full cost of the item or service.

More often than not, retailers will work with a third-party company to operate BNPL plans. The third-party company will pay the seller the full amount of a customer’s purchase, which protects the retailer. The third-party company may charge interest depending on the type of deal, but typically they charge a one-time transaction fee of 2-8% instead to reduce their own risk.

BNPL allows businesses to attract and retain customers while the third-party company also makes money. Consumers like the fact that they eliminate interest while getting immediate access to what they want. BNPL plans represent only 5% of all e-commerce spend. But because the plans can be win-win-win, they are the fastest growing online payment method, increasing nearly tenfold from 2019 to 2021.

Listening to customers results in a win-win-win solution

The decision to adopt any type of service or business model should consider customer feedback, and BNPLs are no different. Business owners who use our marketplace have told us that their customers want to buy more expensive options and want to know how they can finance them. Our clients wanted to meet this demand, but they asked themselves questions: how to avoid taking too many risks? Was there a way to avoid getting bogged down in legal work for every contract?

By listening to our customers, we knew they had a clear picture of customer demand. We just had to help them answer it. We realized that BNPL could be a solution: the expectation based on our industry research was that business owners could sell 30% more if BNPL was an option for their customers (i.e. that 13 customers would buy something instead of 10). At the same time, because services were more affordable under BNPL, customers would likely choose to purchase more services at once (eg, a haircut and highlights rather than just the haircut). Thus, overall, ticket prices would potentially increase by 40%.

Reviewing the data, we considered whether to integrate another provider to manage the funding. We decided to do this in-house and pay our customers for customer purchases ourselves. We care about our customers and always want to provide them with the best level of support. We believed that internal funding would achieve this objective.

Because our salon, spa, and fitness marketers listened to their customers, and because we listened to our users, we were able to develop a BNPL plan that benefits everyone. Customers benefited because they did not have to pay a higher price upfront. Companies have benefited because they have not had to take unnecessary risks. And we took the opportunity to retain our users, who ended up doing more business, thanks to our funding.

Related: When your customers speak, silence your brand voice and listen.

With customization, BNPL can work virtually anywhere

Although Vagaro has implemented its BNPL plan in the salon, spa and fitness industries, the basic process of listening to customers to develop a custom BNPL model can be applied to any industry. Most BNPL models ultimately result in greater convenience for customers and tend to increase revenue for any business offering the service. E-commerce sites saw a 2.1% increase in conversion rates after implementing BNPL options.

Customers today have grown accustomed to making multiple payments for items by credit card. But they now face tougher economic circumstances, with inflation hitting rates not seen in four decades. McKinsey research shows that only a third of people globally are optimistic about their finances, while more than half are worried about job loss. And although people splurge selectively, they are still looking to save money.

In this environment, a Bluedot survey found that nearly half of millennials and Gen Z said they would trust BNPL with their 2022 holiday shopping – 19% of respondents said they would because they lack money. McKinsey also found that 60% of consumers plan to use a BNPL model in 2023. Thus, the conditions are ideal for companies to adopt BNPL as a means of retaining existing customers and attracting new ones.

BNPL can be a path to long-term loyalty and profits

Treating a customer well means giving them the right set of tools at the right price with great customer service. When you do this, you can secure that customer for life. BNPL models aren’t the only way to meet customer needs, and they may not work for all businesses. But they are a legitimate route to earning the long-term relationships that businesses want.

As inflation continues to create serious economic problems, customers still want to buy, and they will if they find convenient payment solutions that don’t add to the debt. Because BNPL models can bring benefits to everyone involved and because economic circumstances are pushing clients to prioritize funding options, now may be the perfect time to include BNPL in your strategy.

Related: The Future of Online Shopping is “Buy Now, Pay Later”

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