It’s hardly a secret that affordability is one of the biggest hurdles tripping up hot tub consumers along their buying journey. So how does a spa retailer turn this hurdle into just another stepping stone for these potential customers? The same way car, jewelry, furniture, and large appliance retailers make their products more accessible to their customers: financing.
Essentially, consumer financing offers the opportunity for your customers to buy the products they want today while making payments over time. This presents an opportunity for more sales for your business.
In an SGB article on cash flow, Dennis Murphy wrote, “A financing program can be a key marketing vehicle for your store, because it provides an incentive for consumers to buy and can be a mechanism to track sales data and drive repeat business. When used in a smart way, a financing program can be the hub of the retail marketing wheel.”
But of course, financing comes at a cost, which leaves spa dealers commonly asking if the benefits of financing are worth it. Assuming they are, the next question becomes “what’s the best way to move forward with a financing program?” In this article, we’ll take a look at both questions and provide information that will help you move forward with your financing offer.
Business Benefits of Finance Plans
Let’s briefly run through the list of benefits financing provides to hot tub dealers. Most obviously, offering payment options increases sales opportunities. With financing, the potential for lost sales due to affordability issues can be avoided at any point during the purchase decision.
Parent of what was previously GE Capital Retail Bank, Synchrony Financial reports that 89% of their cardholders say financing made their large purchase more affordable, and 76% of these cardholders always seek promotional financing options when making a major purchase.
The financial company conducted other industry-specific studies that involve major consumer products comparable to hot tubs. Here’s a summary of their findings:
- 46% of furniture cardholders would choose another retailer or not make the purchase if a financing promotion was not available.
- 55% of sporting goods customers said they would not have made the purchase, or would have gone to another merchant, if financing options weren’t available.
- Home improvement cardholders used additional funds available to upgrade or add features, pay for installation or buy a more expensive model/version.
So what does this say for the financing potential within the spa industry? Rick Hebb of Isaacs Pool and Spas in Johnson City, TN, credits his dealership’s finance program for boosting store sales 30-40%.
Nick Kasten from Arizona Hot Tub Company notes that it took his dealership less than a year to recognize a significant boost in sales once they started offering financing. “We had to get over the fact that, unlike cars, hot tubs don’t come with their own VIN numbers; so financing them is basically an unsecured line of credit.”
Consumer financing shortens the sale cycle, facilitates an immediate buying decision, and allows customers to purchase the spa they want rather than settling for one that doesn’t check all their personal boxes.
These results indicate that offering financing adds value for you and your spa customers. It shortens the sale cycle, facilitates an immediate buying decision, and allows customers to purchase the spa and features they want rather than just those they have to settle for. Plus, purchase totals tend to be greater under financing than those non-financed transactions.
Which financing strategy is right for you?
As a dealer, there are typically two different paths you can take. The first is through an established hot tub manufacturer’s program and the second is directly through a bank, credit union, or other financing company.
For smaller to mid-size dealerships, going through the manufacturer may be the best fit since it is typically more difficult to qualify for financing programs as an independent, lower volume retailer. Lower rates and better access to periodic promotions at reduced rates are also advantages for retailers to go with a brand’s finance program. Plus, dealers can minimize risk and ensure reliability of the financing when partnering with a manufacturer.
Dealers who are larger or have been in business longer may be set up better for finding an independent financial partner. Having identified customer needs in their local area, both Arizona Hot Tub Company and Isaacs Pool and Spas have established their finance programs with separate financial companies.
What should a dealer look for in a financing program?
When considering a finance program, the number one priority for a dealer should be working with a trusted partner. Sure, financing can boost sales…as long as the backer of the financing follows through. A dealer also wants to ensure the program is easy to implement. This means offering a simple and straightforward customer application, no enrollment fee, and quick electronic funding to the retailer’s bank account.
When considering a finance program, the number one priority for a dealer should be working with a trusted partner.
Next to reliability, relationship support offered is critical to the success of a hot tub dealer’s finance program. You’ll want to have online access to some form of resource center that provides training, processing, and reporting tools for your business. Live webinar training sessions with the finance partner serve as an excellent way of ensuring all your questions about the program are answered.
Service is important, but what about the finance product itself? As a spa retailer, you want to make sure the program you use offers competitive discount rates, along with periodic financing promotions and rebate opportunities based on financing volume. Some dealers may want to look for a variety of products offered to meet different customer needs and circumstances, such as low-interest, long-term, and no-interest loans. But others, like Isaacs, may prefer to offer just one financing option to simplify processes that allow the store to incorporate one cost into overall pricing.
Each of these products typically presents varying dealer costs. When these start getting to double digits, you may think no way can a dealer cover that kind of cost. But Kasten would argue that’s not the case at all. In their experience, both Hebb and Kasten have learned that consumers are more concerned with how much it will cost them each month rather than the overall price.
Here’s a list of questions dealers should ask when considering a financing program:
- How do I qualify?
- Why do I have to qualify?
- How do I enroll?
- Where do I send my enrollment documents?
- How long does the enrollment process take?
- How do I know if my enrollment has been verified?
- After the enrollment process, what is the next step?
- What materials can I expect?
- What kind of training is provided?
- When can I start submitting applications?
- Will I need any logins or access codes?
- What is the pricing for the program?
- Does this program work for commercial projects?
How do I implement the program within my dealership?
When considering a financing program, a retailer needs to devise effective in-store strategies that maximize the value the program brings to the business. Yes, this means that your financing options should be a part of your overall marketing and advertising plan. What does it take to launch a successful program? Here are five steps to take before and after you introduce consumer financing into your business to ensure the best results.
A dealer should prepare the financing program for the marketplace, just as it would a new spa product line.
1. Display in-store signage.
Putting prominent signage about financing options in your store windows, on the sales floor, and at the point-of-sale can convert a browser into a buyer. You should also display financing information on product price tags, providing the estimated monthly cost for that spa model with term details. This will help customers weigh the benefits of financing, which usually leads to an increase in spending.
Kasten relies on product price tags to promote his financing program. Kasten’s ultimate goal is to show customers that his store’s hot tubs can fit their personal monthly budget. And he’s found that 0% financing, at least in the Prescott, Arizona market, has worked best despite the higher cost that is passed on to the buyer.
In addition to having the MSRP or market value on each price tag, Kasten gets extra benefit from displaying monthly payment options. Instead of having to come out and ask about how the customer plans to pay, he waits and listens for their response to the information on the price tag. If the customers are quick to recognize budget fit, then he has a good idea that they plan to finance.
Of course, you should also put banners on your website (which serves as your online storefront) that shout “Payment Options Available.”
2. Develop special promotions and advertise these offers.
To encourage consumers to enroll in your financing program, retailers can offer financing promotional incentives. Many lenders have promotional opportunities built into the product and manufacturers may offer factory sponsored promotional buy-down rates dealers can take advantage of. Common promotions include:
- No money down
- 0% interest for 6-12 months
- Low introductory rates
- No payments for 12 months
In addition to financing discounts, spa retailers can offer special promotional pricing or free extras like a chemical start-up kit or other spa accessory to increase consumer participation and draw attention to your payment options.
Once you’ve integrated consumer financing into your business, it’s time to get the word out. Special financing offers make for excellent advertising, whether it’s TV, radio, online, or in print. Not only do these investments capture the attention of your current customers, but that of a wider, new consumer base as well. In your ad messaging, be sure to promote the in-store incentives, mention fast approvals, and highlight affordability with mention of “as low as” monthly costs. During limited-time financing promotions, make sure to set up additional signage in high-traffic areas, points of sale, and next to spas to alert customers and generate interest as well.
3. Train sales staff and practice the sales process.
Though a large discretionary spend, hot tubs can still play as an impulse purchase. So if approval, along with other product and pricing information, isn’t provided fast enough, the one-time very hot prospect may grow cold. For financing to be most effective, the application process must be convenient and simple for both customers and employees. Therefore, instructing employees on how to submit applications and get customers approved is the first step in the training process. Many financing partners offer training tools and support to help onboard their clients which can serve as a useful resource for these purposes.
Once the back end is understood, sustaining a successful consumer financing option means knowing how to sell it. This starts with employees knowing how to bring up the idea of financing with the customer. Understanding who the potential customers of financing are and how to discover that is key. This often entails simply asking the question upfront, “How do you plan to finance your spa purchase?”
The better your employees understand and reinforce the financing options, the more convenient the process becomes.
Hebb reminds his colleagues, “We don’t live in someone else’s pocket.” And it shouldn’t be assumed that financing is only for cash-strapped consumers. Wealthier consumers with limited funds may appreciate the option of using someone else’s money for six months to a year just as much as any other customer. In fact, if one were to look into the demographics of Isaacs’ local marketplace, you would find quite a bit of money in and around Johnson City, TN. Even so, a good chunk of their business comes through financing.
Kasten reported a similar trend in his market in Prescott, AZ. Many people simply prefer to buy with payments. Then there are millennials, 63% of which don’t even own credit cards. Yet they have money and are, in fact, outpacing other age groups in retirement savings. So even though they’re making money and saving money, with no credit card available they could only provide cash or check for their spa purchase.
So how should employees discuss the financing offer once the customer has been identified? Conversation can move forward with an intentional focus on effective word choice. And which wording works best to present financing options to customers?
First, we’ll mention the obvious: “payment options” typically sounds more appealing than “financing”. Hebb has found that customers respond better to the idea of running a “financial statement” rather than a “credit application”. When presenting the quote to his customer, Hebb likes to bring the focus back to affordability with something like, “How will this low payment work for you and your budget?”
Some dealers prefer to hold off until later in the process to present financing specifics. Isaacs has found the most effective way of promoting its finance plan is by incorporating it into their initial quote. They have customized pricing program in Excel so quotes automatically present finance pricing to customer. These prices already have the finance cost built into quoted pricing.
To keep the sales team up to date, Nick Kasten of Arizona Hot Tub Company suggests weekly sales meetings “to make sure everyone is up to speed on the latest financing offer and how to present it.” Using staff meetings and training sessions, you can reinforce the importance of payment options and ensure every salesperson on the showroom floor knows how to market them. Training can include simple how-tos about initiating the topic, submitting an application for approval, and answering customer questions and concerns.
Because his financing offers may change from week to week, Kasten has found that weekly sales meetings provide an ideal opportunity to go over specifics. He also uses that time to role play with his staff “to make sure everyone is up to speed on the latest financing offer and how to present it.”
The last thing to address in training is how to answer the cash discount question. If the customer says financing isn’t necessary, Isaacs staff are trained to sweeten the deal by offering a cash discount. Some dealers are not comfortable with the idea of putting the cash option upfront for fear of losing profits. But as long as it builds the financing cost into its pricing (as its Excel program does), Isaacs can still make money off of cash sales with the right negotiating tactics.
Kasten also starts with the margin he’d like to get, then factors that financing cost into the price. The objective is to recognize a strong anchor price for each product, along with the optimal discount for financing versus cash or other promotions. His store went through several cycles testing different terms to find out which was the most profitable.
A dealer may find it better to average financing costs into sales price, then offer cash discounts on a case-by-case basis where/when it makes sense. In other words, if interest in financing is high during discovery, then the salesperson proceeds without mentioning cash discount. But if interest is low, then offering a cash discount may make offer more appealing.
4. Monitor metrics.
As with every aspect of your spa business, it’s important to pay close attention to the performance of your financing plan. In targeting a few specific metrics, you can see where you saw the most and least improvement. In particular, pay attention to the following:
- Number of sales
- Average purchase amount
- Number of customers enrolled in a payment option
- Changes in gross revenue
- Changes in expenditures
- Lender fees
In knowing this information, you can alter how you present your consumer financing options or increase marketing efforts. Finally, you can determine if your plan or financing partner is a good fit for your business.
It can’t be denied that financing can be more costly for the hot tub industry than for other major purchase industries like cars, furniture, and appliances. The spa business is challenged because it’s financing portfolio is not as established from a volume perspective. And the hot tub purchase is often seen as a more discretionary spend that consumers don’t necessarily presume will be financed as they do with a car.
Are the fees associated with consumer financing simply a cost, or can they be considered more of an investment?
The takeaway here could be how we look at the cost of financing. Are the fees (or, as the financing companies like to say, discount rates) associated with consumer financing simply a cost, or can they be considered more of an investment? Sometimes a matter of perspective can make quite a difference to your bottom line.