More and more eCommerce stores and omnichannel retailers are exploring alternative payment options like lease-to-own and buy-now-pay-later to connect with non-prime retail consumers.
In a recent survey of 116 retailers sponsored by Payments Dive and Katapult, a lease-to-own partner for eCommerce and omnichannel retailers, the most common reasons retailers offer lease-to-own and buy-now-pay-later options include the following:
- Enabling as many shoppers as possible to obtain their products (78%)
- Direct customer research indicated that these would be popular options (42%)
- Customers were asking for these options (36%)
"Almost half the U.S. population is not able to qualify for traditional financing options," said Robbie Lester, Director of Client Success at Katapult. "That represents millions of potential customers who would benefit from features like payment flexibility, return options and a path to ownership. And these consumers shop from anywhere, 24/7, making digital experiences mission-critical."
In reality, however, reaching new customers only scratches the surface of the real value of these kinds of programs. Overwhelmingly, the key benefit most retailers would expect from offering lease-to-own and buy-now-pay-later options is getting access to customer data and analytics.
Customer data and analytics play an increasingly important role in the eCommerce and omnichannel retail space. According to McKinsey & Company, brands that make the most of this data will be able to develop more informed and targeted strategies to attract new customers and craft a more compelling customer experience that drives both first-time transactions and recurring lifetime value.
We connected with experts at Katapult to explore this concept in more depth. Here are three surprising ways retailers are using lease-to-own data to achieve better results:
1. Understanding who's really shopping
Because lease-to-own providers like Katapult do their own consumer screening, they end up collecting and aggregating much more detailed data about customers than retailers tend to collect. Where retailers might stop at name, birthday, and purchase history, lease-to-own screening is required to collect or receive simple, but powerful information such as income and geographic location for approval purposes.
"We always advise our retail partners that as we dig into customer data to be prepared for surprises," Lester said. "Often the customer using lease-to-own is from a very different demographic than retailers assume they will be, whether that's age, location, or income level. An LTO customer often has different attributes than originally thought."
At first, this benefit attempts to connect with non-prime consumers. But over time, retailers can apply these insights to any and all repeat transaction efforts. For example, Lester recounted one eCommerce partner that received increased click-throughs and conversions on social media posts and pay-per-click ads that included mention of lease-to-own payment options on the retail site. Phrases like "No credit required," and "Low initial cost" paired with a product name rang true with both the subprime and prime consumer base.
2. Growing lifetime value
Customer lifetime value (CLV) is a strong area of focus for good reason. Optimizing for CLV reduces customer acquisition costs (CAC), boosts revenue, and provides a steady cash flow for eCommerce and omnichannel retailers. And yet in a recent report by Chief Marketing Officer and Deloitte Digital, the majority of retailers surveyed (68%) rated their CLV-to-CAC ratio as average, below average, or very poor. Lease-to-own customer data can help retailers tighten and target their marketing efforts specifically to increase CLV.
"The way eCommerce works is not always set up for how customers actually shop," Lester said. "We assume the right picture or the right message will convert right away when in reality there's a lot of moving parts at play. Yes, you might draw a customer in with those things, but conversion happens over time — seeing intriguing products, noting convenient payment options, getting personalized and targeted remarketing emails, excellent customer service, things like that."
One strategy retailers have used is deploying lease-to-own data to guide remarketing efforts. Over time, customers receive tailored emails to their unique product views with calls to action that emphasize pay over time options, with no credit required. The messages have resulted in a 10 to 20% increase in transaction volume as well as reduced cart abandonment. When customers do transact, their positive experience with the lease-to-own provider extends to the original brand they wanted, as well.
3. Building win-win partnerships
Many retail brands have found success from niching into specific products or categories and owning the space, such as a clothing brand that specializes in loungewear for women or a razor brand that specializes in natural shaving products. But what can happen is that these brands exhaust the demand for their products when the transaction occurs, and then customers can languish within their marketing system waiting for the next best promotion to come along. That's where the final benefit of lease-to-own partnerships can come in, using a brand's customer data to connect them with other, complementary products for remarketing.
Let's look at a practical example. Consumers might only need one mattress at a time, so the repeat transaction rate would stretch over years, not months or weeks. That mattress brand could tap into the lease-to-own partner's network of other brands to cross-promote other products, like electronics, appliances, mobile devices, or tires, and in return get cross-promotions from those brands, as well.
"Customers that utilize a retailer's lease-to-own program often have such a good experience that they come back to the lease-to-own partner over and over again," explained Lester. "These customers are not usually one-and-done consumers, they start to treat the lease-to-own partner as its own marketplace, seeking out other merchandise that is now accessible to them."
Connect more deeply with half the U.S. consumer population
Retail has always been an ecosystem that operates in uncertainty. Whether navigating economic downturns, global pandemics, or surging demand, it's the brands that stay close to their customers that navigate these times of upheaval successfully. Lease-to-own data offers retailers incredible insight into a population that makes up almost half of the U.S. consumer population base — data retailers can use to attract and connect with a whole new customer base.
Katapult partners with leading eCommerce and omnichannel retailers to provide incremental growth via a new customer segment that was previously unable to shop without alternative payment options. Partners who have implemented our lease-purchase solutions have seen that they are now able to reach and convert new shoppers, increase transactions, and gain strong customer loyalty at minimal risk to them.