Here’s an experience that you might have encountered many times. While at a checkout counter, you’re asked if you want to sign up for the store’s credit card. It’s an experience that’s so common that you reply “no” by default. Have you ever wondered why these businesses bother making such an offer? Why take the risk of offering their shoppers credit?
Small businesses these days face uncertain times. To survive, you need to adapt your business processes to combat the effects of the COVID-19 pandemic. Building customer loyalty is key in these tough times. This is what ensures they’ll return and provide you with much-needed revenues. Even in the best of times, a loyal repeat customer is worth a lot more than a new one.
These people spend up to 300% more money on your business than regular customers according to RJMetrics. There’s also the fact that these customers are far easier to sell to. It’s also much easier to promote new products to them. They’re your biggest champions. Treating them like VIPs is a sure shot way to ensure your revenues keep growing.
The question is: How do you get more of these people? Over 68% of customers are one time buyers. Converting even 10% of these buyers into repeat customers will result in tremendous revenue boosts. Recognizing this, businesses use all sorts of tactics to make this happen. Email marketing, gathering feedback through forms, and special discounts are some of the methods they use.
Yet, there is one method that not enough small businesses implement. These are private label credit cards.
What are Private Label Credit Cards?
On the surface, private label cards are simple to understand. They’re credit cards you can offer your customers with your business’ name on it. These simple things are powerful tools when it comes to building business loyalty. These credit cards allow businesses to offer solutions to their customers that they wouldn’t otherwise be able to provide.
For example, let’s say a customer visits two separate businesses and aims to check the prices of similar products. The first business offers them a line of credit that they can apply for. They’re even offered flexible repayment options because the credit line is offered in-house. The second business does not offer them this solution. Which one is the customer more likely to pick?
A business that can offer its line of credit to its customers comes across as being a larger institution. This is going to make an impact on a first-time buyer and will leave a larger imprint in their minds. When the time comes for them to shop once again, they’re more likely to visit the one that made a bigger impression.
Setting up a line of credit might seem to be a hassle, one that you want to avoid. When times are tough, why would you want to provide credit? After all, in times of uncertainty won’t default rates spike? This incorrect pattern of thinking stops many small business owners from expanding their potential revenues.
Benefits Outweigh Risks
While credit risk will increase, this will be compensated for by increased customer loyalty. According to Forrester Research, customers expect businesses to treat them as partners during tough times, not as cash cows. Translating that to everyday language, it means the customers you offer better payment solutions to today are more likely to become loyal repeat buyers tomorrow.
This is especially true in the Business to Business (B2B) space. Vendors in these fields provide credit lines that extend up to 30 days or more . They incentivize early payment by offering invoice discounts. Data shows that few customers take advantage of such incentives. During times of crisis, credit cycles only increase in length and strain your working capital even more.
If credit is managed in house, the possibility of offering customized payment plans increases. Vendors will have more leeway in deciding how they wish to deal with delinquent accounts. The result is that customers feel as if their suppliers are working with them instead of trying to squeeze as much cash out of them as possible.
Credit cards and financing are not the only private label solutions you can use to boost customer loyalty.
Private Label Portals
Collecting payments is an issue for most small businesses. Their reliance on paper-based processes leads to lengthy invoice processing times and cash application. One way of reducing processing times is to embrace automation. Why not take that a step further and create a private label automated payment solution?
This isn’t a unique idea. Pizza makers such as Domino’s have been using this to enable faster payments and generate user loyalty by increasing switching costs. Once a customer makes a payment, the portal saves their payment method and address. This enables them to checkout with one click the next time they order.
One-click checkout imprints deep in a customer’s mind and it creates a barrier to switching providers. For example, if you know you could order a pizza with one click why would you choose to create an account, add your address, and enter your payment information all over again with another company?
A private label solution even allows businesses to save their customers’ order preferences and increases the speed of checkout. All these solutions add to the loyalty your customer feels for you. The best part is that business can turn the payment process into something that generates a feeling of convenience.
Traditionally, customers associate pain when paying for a product. By reducing these barriers a business can break that association or weaken it. The result is that a customer is more likely to return to the business that made them feel this way.
Private Label Financing
Businesses that operate in the B2B space, as well as the B2C retail space, stand to benefit the most by offering their customers private label financing. This goes beyond offering credit cards they can sign up for. Many businesses offer tailor-made payment programs that result in customers returning to these businesses for future purchases.
From the business’ point of view, the advantages are huge. First, they get to maintain brand continuity in the mind of the customer. They aren’t buying from X and paying bills to Y anymore. It’s all done in-house as far as they’re concerned. This in turn increases brand awareness which is something many businesses spend millions in advertising to achieve.
It also builds better relationships between the customer and the vendor for reasons noted previously. The vendor becomes a partner to the customer by offering better payment plans that can be flexible. For the vendor’s part, their profitability is optimized since they already have data on the customer and can provide realistic payment solutions.
This leads to better deals for the customer and improved relations all around. All of this comes together to create a huge loyalty boost that the customer feels.
Now that you’ve seen the benefits of implementing a private label solution, what are some of the things you need to take care of? For starters, you want to work with a good service provider. One of the first things they’ll need to walk you through will be PCI compliance. What does this mean?
PCI is a shortened version of PCI DSS. This stands for Payment Card Industry Data Security Standards. These are a set of rules and protocols that payment card providers need to implement to ensure a safe environment for customers. Rules regarding data handling procedures and processing credit card information are specified here.
Levels of Compliance
These standards are maintained and defined by the PCI SSC which is the Payment Card Industry Security Standards Council. Any organization that transmits, accepts, or stores card-related data is subject to the PCI DSS. There are 4 levels of compliance that all merchants must adhere to, depending on the kind of data they process. These are:
- 1 – Any entity that processes over 6 million Visa transactions per year or any merchant that Visa designates as requiring Level 1 compliance
- 2 – Merchants processing between 1 to 6 million Visa transactions per year
- 3 – Merchants processing between 20,000 to 1 million Visa transactions per year
- 4 – Merchants processing less than 20,000 Visa transactions per year
Most small and medium businesses are categorized as Level 3 or Level 4 merchants. To determine your exact category, your private label provider will have you answer a questionnaire that determines your compliance requirements. Based on these results you will need to provide documents to a third-party auditor to ensure you’re compliant with PCI standards.
As a business owner, you must choose a partner that supports you in this goal. Choose the wrong partner and you’ll end up doing a lot of damage to your business’ credibility.
How to Research Private Label Financing Services
All the benefits of private label financing aside, there’s no denying that it’s a big step to take. This isn’t something you should choose lightly. The best way to approach this decision is to conduct a step by step analysis of what your business needs and whether this benefits your customers.
Step 1 – Are Your Customers Interested in This Type of Financing?
This is the most important question to answer. If your customers won’t experience any benefits by you offering them a line of credit, there’s no point in implementing such a solution. You’re better off pursuing other loyalty generation mechanisms such as feedback forms and email marketing offers.
A quick survey of your customers will unearth the answers you need. It’s even better to examine their prior payment patterns. B2B companies will find a lot of benefit in offering a private label financing scheme to their customers. Select B2C companies might realize these benefits as well.
Step 2- What Will a Solution Cost Upfront? Monthly? Quarterly? Yearly?
Most service providers operate on a Software as a Service (SaaS) model and the cost combinations can be confusing. There are upfront installation and on boarding costs after which there is a monthly service fee. These fees can reduce depending on the kind of payment volumes you expect to generate.
Make sure you shop around and ask for demos before choosing a provider. Your first step should be to visit their website and take a look at their blog. A well-maintained blog shows the company is serious about providing value to their customers and educating them.
Step 3- Does the Service Provider Have References?
The last thing you want is to buy a product and then have your service provider go silent. Small business owners are especially vulnerable to this because larger service providers might ignore them thanks to the relatively low volumes they generate. Ask them about their existing small business clients and talk to their references.
Don’t rely solely on the testimonials on their website. Ask for contact information and get in touch with the people who have provided the references. Make sure you ask about the hurdles they faced as well.
Step 4- What Will Your Workflow Look Like?
Your service provider will provide you with a detailed analysis but you will need to install new processes to educate your clients about your program. Sales staff and customer-facing employees will need training to push the program. You might also need to dedicate resources to support new workflows. Take the time to map these out and estimate what this will cost you.
Step 5- Does the Service Provider’s Values Align With Yours?
This is a crucial question to ask. It determines what kind of support you’ll be offered and how well your solution will work for your customers. While technical know-how is important, if it isn’t directed according to the way you run your business, there’s no point working with such a solution provider.
Look at the kinds of reviews they highlight to you and whether they’re honest about their shortcomings in the past. Look at how they communicate possible flaws in your workflow and whether they’re interested in providing you with value or are looking to charge you fees.
Tough Times Call for Creative Measures
As a business owner, you’ll always encounter tough times. While the current times are tougher than most, getting out of it requires implementing creative solutions. With customers likely to request credit it makes sense for you to offer them a private label solution in-house.
Prepare to convert every first time customer into a repeat customer and you’ll deal with the next crisis much more efficiently.