Letting ecommerce customers pay for purchases via financing has powerful business benefits. Alternative financing can boost average order value, reduce cart abandonment, and increase convenience. It also gives back purchasing power to the consumer.
Why is it important to give purchasing power back to consumers? Because the rise of ecommerce has changed the relationship between customers and brands. Before, brands could rely on a strong brick-and-mortar retail presence and their customers’ lack of easy access to competitors for success. Not anymore.
Now, the growth of the online retail worldwide—set to increase 8.9% by 2023—has brought about greater choice for consumers, and fiercer competition for retailers. To stay in the game, retailers need to offer the flexibility to both shop and pay in a way that suits their consumer, not just their business.
Add to that the increased wariness around credit card debt—one survey from Bankrate indicates that only 33% of Millennials actually have a credit card, warned off by a fear of personal debt—and you have the perfect backdrop for alternative financing options.
Let’s cover six different ways you can leverage alternative financing to engage your customers and positively impact your ecommerce store’s bottom line.
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1. Use a Little Pricing Psychology
Ever wondered why you see so many “odd prices”—$1.99, $2.98, etc.—in stores? It’s thanks to a marketing strategy called pricing psychology. The theory is that some prices have a positive or negative psychological impact on consumers. This impacts their willingness to purchase.
While some pricing psychology strategies come down to writing persuasive sales copy, others center on reducing the pain of paying. This is where alternative financing options can help. The following tactics may reduce psychological barriers to consumers opening their wallet:
- Directly on the product page, list the total cost of an item and the installment amount due if the customer took advantage of financing. Consumers may feel more comfortable paying the smaller monthly installment, even if it works out to be the same cost in the long run.
- Be clear at checkout. Rather than sharing their monthly installment amount as a percentage, write it out in dollars and cents. For example, write installments as “10 x $198”, rather than “10% of $1980.” This will help consumers to better mentally allocate this amount in their budget planning.
- Add visual contrast to payment options. Pricing psychology studies show that consumers tend to assume that prices with different visual design—for example, in different colored font—are more of a bargain. Using different visual design on alternative financing payment amounts may encourage shoppers to opt for alternative financing options rather than paying the full amount at once.
When they see prices broken out in this way, customers are less intimidated about making the purchase. Doing the math for them reduces friction during the checkout process—which can lead to an increase in sales up to 42%.
2. Introduce Financing Options Early in the Buying Process
Research shows that cost is a major barrier to completing purchases. Potential customers might be frightened off when they see the full ticket amount on their shopping cart, or by higher than expected shipping costs. What looked like a bargain at the beginning of the shopping journey can turn into a scary sum when everything is added up at checkout.
Promoting financing options early in the customer journey, such as on your homepage or product pages, helps consumers stay positive about their purchasing power. When consumers know they can pay in interest-free installments, they’re more likely to fill their cart and complete the checkout.
Bread’s data confirms that people want to know how much money they will be spending before they reach the checkout page. If you look at two of the biggest online shopping days of the year—Black Friday and Cyber Monday—shoppers applied for financing well before checkout, with 80.2% doing so on Black Friday and 77.3% on Cyber Monday.
Custom computer company and Bread customer Digital Storm used a full-funnel approach to allow customers to pre-qualify anywhere on the site, and 54.8% of customers pre-qualified before they reached checkout pages.
3. Promote Special Financing Offers on Big Shopping Days
Your ecommerce store has peak shopping times when online shopping skyrockets, such as sales seasons or holiday periods.
Since the number of customers coming to your store will naturally be higher, peak shopping days are the perfect time to leverage exclusive financing offers and give customers greater incentive to purchase. Try time-limited promotional activities such as:
- Offering promotional bundles on complementary products, and letting shoppers pay over time with financing. You can use the Jobs to be Done framework to figure out which products to bundle together.
- Offering time-limited promotions via email, not just landing pages. People on your brand’s email list are likely to have bought from you before, making them a valuable asset. Repeat customers spend up to 300% more than first-time buyers; prioritizing these customers on big shopping days will pay dividends.
Bread partner Original ScrapBox provides a great example of a brand making the most of promotional holiday messaging. Ahead of the holiday shopping season, the specialist cabinet makers offered 0% APR financing and sent targeted email blasts to call attention to this attractive rate. As a result, they made more financed sales in November and December than they had over the past twelve months with their previous financing partner.
Figure out who your most valuable customers are with Bread’s Guide to Ecommerce Metrics.
4. Include Alternative Financing in Cart Abandonment Campaigns For a 155% Revenue Increase
Cart abandonment is a big pain point in the ecommerce industry. On average, 69.57% of shoppers abandon their carts before checking out. That’s almost three quarters of shoppers who fall out of the funnel.
Fortunately, cart abandonment email campaigns have proven to be effective at coaxing those customers back into the funnel. Statistics show that cart abandonment emails have an average open rate of around 45%; compare that to an average open rate of 20% across industries for regular email campaigns.
However, you don’t just need consumers to open those emails—you need to inspire them to complete their purchase. You can do this by promoting your financing options directly in cart abandonment campaigns. Doing so makes the cost of the order feel more manageable to shoppers, and encourages them to make it all the way through checkout.
Bread customer and cabinet company The RTA Store conducted a simple A/B test to understand the impact of offering financing in their cart abandonment emails. The emails that included the personalized financing offer saw a 38% lift in click-through rate, 3X improvement in conversion rate, and 86% higher Average Order Value—which ultimately drove a 155% increase in revenue.
5. Offer Financing Only to Certain Shoppers
Not every customer will be a fit for alternative financing. Someone with a relatively small cart total, for example, probably isn’t interested in taking the extra steps to learn about your financing options. Typically, it’s the customers who are buying high-cost items or have costly shopping carts that benefit most from this pay-over-time approach.
That’s why it’s smart to offer and promote financing options only to customers who have a cart size over a certain dollar amount. This way, financing is only triggered once the cart passes that pre-set total.
You can figure out the perfect point to start offering financing options by segmenting drop-off rates. Start by breaking out cart totals for all customers over a period of time; for example, you might break out customers with carts totaling $1-$50, $50-$100, $100-$200 and anything over $200. Then look at cart abandonment rates by segment. If there’s one segment that sees a steep drop-off in checkout completions, try introducing financing options for those shoppers.
Doing this means you give those customers increased confidence to complete their purchases, without overwhelming any who wouldn’t benefit from financing.
6. Offer Alternative Financing In-Store, Not Just Online
A reported 58% of Americans prefer shopping online to in-store. But that doesn’t mean you should start to ignore those who visit your brick-and-mortar location. There are still 42% of shoppers who prefer the in-store experience. Foster increased customer loyalty and engagement by ensuring that your in-real-life shoppers have the opportunity to take advantage of the same benefits as your online customers.
While not all retailers will be able to implement the kind of omnichannel payment experience that Amazon Go is pioneering, there are still ways retailers can integrate the online and offline payment experience:
- Endless aisle: Retailers provide mobile devices in-store for shoppers to search products and have them delivered to their homes. This means shoppers can see items in person and still pay online using alternative financing.
- Click and collect: This lets the consumer buy online and pick up in-store, ensuring that shoppers who reverse-showroom are more likely to stay in the sales funnel.
- Loyalty programs: Add alternative financing as an in-store option for customers on a loyalty program. The element of exclusivity encourages returning shoppers, as exclusivity drives purchases.
The above solutions cater to consumers’ desires to shop and pay across multiple locations. They’re also relatively lightweight additions for retailers to implement in their physical stores.
EraGem took advantage of in-store financing by introducing Bread’s array of financing options into their jewelry showroom. This gave customers the option to pick something out in their showroom and pay over time; financed purchases now account for 11% of the showroom’s total sales.
Make the Most of Alternative Financing
Offering alternative financing is a solid option for giving customers greater purchasing power, increasing convenience, closing more sales, and improving AOV.
But you won’t experience all of the benefits if you simply offer financing—you need to actively promote it and make that perk known to your shoppers.
Use these strategies to better leverage alternative financing in your ecommerce store and positively impact your bottom line.