Part 2: Driving sales through effective financial institution relationships.
By Glenn Hafner
Whether you are a furniture retailer, manufacturer or association, a key indicator of success is how well you establish and develop your business relationships.
With all the relationships retail furniture stores attend to that require focus, one that often takes a back seat is the one they have with the financial institution that manages their customer financing program.
In this issue, we will look at the basis and structure of this relationship, outline some of the key benefits for both parties and present several ‘Tips for Success.’
To begin with, while we have used the term relationships so far in this article, we could as easily speak of partnerships or joint ventures. Ultimately they all mean the same thing: Two parties working together to reach a common objective… to jointly manage a customer financing program. With that said, there are several factors that need to be understood and managed to reach the objective of a balanced / effective relationship.
Whose Customer Is It?
While this seems like an easy question, it can actually get sticky as you delve into the development and management of your programs. In the October/ November 2005 issue of FURNITURE WORLD, we discussed how your financial institution benefits directly from finance charges and fees. A good portion of their overall program success, however, depends on how well they cross-sell your customers into their other products (checking / savings / investments / personal loans / real-estate loans, ancillary products such as fraud / credit protection, etc.).
When you offer and manage customer financing programs, you extend your customer relationships beyond your immediate control. If you strive to maintain a high level of customer service and satisfaction, the fact that a financial services company will handle credit approval, servicing and collection may be cause for concern. That’s because their success (or failure) in servicing your customers will, to some degree, reflect directly on you.
Example: Let’s assume that you have a customer financing program with a 90-Day SAC (Same As Cash) feature. Your customer, Mrs. Smith uses this feature to purchase a dining room set. You complete all paperwork and notify the customer accurately. When your bank receives the paperwork, they input the account incorrectly due to human error. The result is that Mrs. Smith is billed incorrectly and needs to work out the error with the institution. This error, and the way it is handled by the financial institution will be seen as part of your store’s overall customer service. If, in this example, Mrs. Smith is treated poorly or needs to spend significant time and energy to correct the mistake, you may lose a customer and generate negative word of mouth publicity.
A key to avoiding problems in this area is to always handle customer complaints about customer service and collection issues promptly. You should take a proactive approach by asking customers about their service experience with your financing programs through customer service surveys, via random calls from the “back office” or by querying returning customers. Make sure to collect and keep documentation for use in discussions with your financial institution partner. Any issues that arise need to be handled immediately to ensure that your partner meets or exceeds your expectations for quality customer service.
Again, ask yourself - “Whose Customer Is It?” and manage your program accordingly. You work too hard to attract and keep each quality customer to let your relationship be soured.
As with many business relationships, the first question that many ask (or want to) is “What can you do for me?” When asked this question, financial institutions generally respond based on the sales volume of the retailer who asks the question.
The ‘bells and whistles’ that are part of a customer financing program will depend on the annual sales volume of your retail operation. While the “bucket” sizes offered will differ among financial institutions, the general offerings you can expect are as follows:
Under $10 Million
•Typically established and managed locally with your bank or financial institution manager or representative (eg. American General, etc.).
•Usually a ‘vanilla’ program with standard programs / pricing.
•Either a basic Revolving Program (credit line) or Closed-End Sales Contract.
•Limited, if any, specialty financing programs (eg. 6 month No Payment, No interest).
•Generic in-store marketing signage (Financing Available, Buy Now, Pay Later), statements, paperwork/documents, customer communications, etc.
•As the majority of program issues will be managed at the local level, having a close relationship with your representative will be key to your success. Working together, you can identify problems and manage the relationship to ensure it meets your needs as well as those of the financial institution.
•Customer Care will be handled locally and is usually ‘high-touch’.
Your financial institution may consider your account to be lower volume, and so it may not have all of the bells and whistles you may see elsewhere. You can still, however, build a quality, mutually beneficial program that provides value to your business and your customers.
Tip: As a smaller volume merchant, you can still gain access to the benefits of a larger volume dealer by becoming a member and participating in an association or buying group that leverages the aggregated sales of their members.
$10 Million - $50 million
•Managed centrally on either a national or regional basis.
•Key contact for this level program will often be a regional or national sales manager/ executive, who works directly with each location or through the central headquarters.
•Customized programs will be offered including specialty financing programs (12 month Same As Cash, No Pay / No Interest are common).
•Typically a ‘Private-Label’ (customized with store logo / colors, etc.) program designed to drive customer loyalty and repeat purchases will be offered at this sales volume level.
•Customer promotion options will use statement messaging and/ or statement inserts.
•Customized training efforts that provide program details and information on how to sell financing will be included as part of the program.
•Branded customized marketing materials such as signage, take-me-home tags, advertising, statements and customer communication will be included.
•Cross-sell efforts by the financial institution will typically be centralized. You can expect your customers to be contacted by direct mail and telemarketers. Make sure that you know the details, since you may get queries from your customers about this aspect of the program.
•You will get a basic reporting package focused on all key performance areas of your relationship such as number and dollar volumes, specialty program usage, pricing, delinquencies, etc.
$50 Million Plus
•Highly customized programs complete with ‘private labeling’ and branding.
•Program will include a wide variety of specialty financing programs such as Same As Cash and NO Interest / No Payment programs that may contain ‘preferred pricing’ due to volumes.
•The financial institution may develop and manage a separate P&L for your business to help you to track your retorn on equity (ROE).
•Joint-Venture opportunities may be available so that both you and the financial institution benefit from the profitability of your relationship. This takes into account the value of successful cross / up-sell (the success of the Financial Institution's efforts in selling their various products to your customers)?and should be considered when reviewing your joint-venture as this is a key driver of program profitability.
•Joint efforts with Marketing / Customer Development programs. Many financial institutions are experts at segmenting populations and target marketing. Don’t be hesitant to utilize their models to help drive new customers?to your store as well as encourage additional purchases from existing customers.
•Customized training materials and programs.
•Relationships managed at various levels throughout both organizations (eg. Finance, sales, operations, etc.).
•Ability to negotiate specific service level standards. In other words, at this level program, discussions should be held that specify exactly how customers will be serviced. Customer service call center metrics reporting, for example may specify how fast and how well your customers are serviced.
•Customized reporting packages focused on the various key success metrics (eg. Profitability, revenue share, etc.)
Keys to Success
First, identify your volume classification to adjust your expectations to the general outlines above. If you are in a lower sales volume category and would like to add more features to your financing plan, you may find that either you are out of luck or you will need to fund these efforts yourself.
It doesn’t matter if you are a $3 million dollar volume retailer or produce $113 million in annual volume. You deserve to have your customers treated with the same quality service that you deliver in your operation. It is up to you to make sure that the company you partner with, ensures this level of service.
Again, unless you have an exclusivity agreement with your financial institution (meaning that they cannot solicit or cross-sell your customer, which is rare) your customer will be “marketed” by your financial institution partner. Have a general knowledge of what products they are cross-selling so that you can be knowledgeable if you find yourself fielding questions from your customers.
Keep in regular contact with your financial institution, establish key performance program metric benchmarks (volumes, delinquencies, etc.) and analyze them regularly to ensure that your program is mutually successful. This will help to keep your program on track. You may also avoid unhappy surprises such as having your program pulled with 30 days notice. Knowing where your program stands will help you to actively manage it.
Those of you who are financing your own customers (carrying your own paper) will need to manage all of the above key performance metrics with your portfolios to ensure that your customers are not only receiving quality service throughout the purchase/delivery process but throughout the financing and account servicing relationship as well.
Glenn Hafner is the president of Hafner and Associates, a consulting firm that focuses on providing ‘Strategies that Drive Revenues’. Formerly the National Director of Sales Contracts for Beneficial Credit Services, National Director of Strategic Initiatives of Household Finance, and Group Director of Brand Management and New Product Development of HSBC – US, Glenn provides detailed insight on driving sales through the effective use of Customer Financing Programs. Inquiries on any aspect of financing programs can be made to Glenn care of email@example.com.