Understanding private label credit: Cards can power sales at dealers of all sizes
By Marc Sczesnak
No matter the economic climate, there remains a need for outdoor power equipment among homeowners, commercial landscaping businesses of all sizes, and other entities such as municipalities. However, dealers cannot depend entirely on that need to bring customers into their showrooms and keep them coming back. For some dealers, a key marketing strategy includes introducing a private label credit card that can be used not only to buy equipment, but also for service and purchases of parts, accessories and supplies.
Many dealers have already boarded the private label credit card train. Some merchants, especially those with a significant volume of commercial customers, are seeing a high percentage of sales charged on their private label credit cards, while for others, the percentage is more modest. The extent to which the dealer promotes the card plays a big hand in the proportion of sales driven by private label programs.
No matter a dealer’s size, the structure of private label credit programs is rather simple. Customers can complete applications at the point of sale, with their information then electronically submitted to the third-party program provider for immediate review and credit decision. Once an application is approved, the provider assigns and shares with the dealer an account number and the size of the credit line. Some dealers also give customers the option of completing an application online.
Third-party credit card providers’ methods for handling sales transacted with their cards varies. Some issue terminals exclusively for this purpose; others have designed payment processing software programs that are Web based. With either method, funding for private label card transactions usually arrives from the provider within 48 hours. That funding covers the cost of the equipment, parts and/or services purchased, less a transaction fee. The line of responsibility is drawn here, as the provider, not the dealer, holds all loans, manages all customer accounts, issues monthly cardholder statements, and shoulders the financial risk should customers fail to pay their bills.
The recent economic slump and slow recovery — coupled with consumers’ lingering tendency to limit credit card usage, avoid extra debt, pay down existing debt, and use fewer credit cards in general — may lead some dealers to question whether now is the time to introduce a private label credit card. So, too, might the recession-induced tendency among some commercial contractors and other entities to curb investments in new equipment and delay servicing existing equipment until it is absolutely necessary. Merchants that have attempted to finance their own consumer credit options as a profit center, or have regarded themselves as too small to implement any kind of private label credit card, may also have some hesitation. All of these questions and concerns are valid, but the benefits of introducing a private label credit card usually outweigh the drawbacks.
Major advantages
While some customers will not use credit cards under any circumstances, a private label program lets dealers accommodate most of those with a willingness to leverage credit. It also sets those dealers apart from competitors, yielding a better shot at making a sale. Notably, a private label card program allows dealers to extend to qualified customers an additional line of credit that does not interfere with the spending caps on their bankcards. “Zero-percent interest” and other special financing deals brought to the table by private label providers — and unavailable from bankcard issuers — can convince customers to buy or repair whatever they want or need because the financing was too attractive to pass up. And unlike vendors in most other industries, several outdoor power equipment manufacturers sponsor dealers’ private label credit programs. These manufacturer programs typically include special financing offers for consumers with extremely attractive dealer costs.
Financing through a private label card also allows a dealership to use its service department as a point of origination for a relationship with consumers or commercial accounts. Most private label providers offer short-term (six-month) plans that a dealer can use in its very profitable service area. Offering deferred payments on repairs enhances the loyalty that a good service department typically generates — the kind of loyalty that could also bring these residential or commercial customers back when they ultimately need to purchase new equipment.
Although there are other factors dealers must consider when deciding whether to introduce a private label credit program, size does not come into play. Under traditional customized programs for larger or mid-sized dealers, the cost dealers pay per transaction differs in accordance with such factors as the transaction volume and specific parameters and financing deals each provider sets.
But there are also strong options for smaller dealers who cannot meet volume or other requirements set by some banks. Working in tandem with manufacturers, some private label providers have put together consortium or umbrella programs that operate under a common brand name. With these programs, individual dealers benefit from the economies of scale created when multiple merchants process transactions as participants in a shared program, delivering lower processing fees and other benefits.
While medium-size and larger merchants may enjoy more opportunities than their smaller counterparts when it comes to customizing a private label program, umbrella providers frequently work with dealers to individualize as much of their program as possible — for example, embossing the individual dealer’s name on the card. Once on a private label credit card program, whether custom or consortium, merchants can run any program offered by their provider.
Assessing programs
Dealers should ascertain whether a private label credit program is the right fit for their operation by assessing whether their consumer and commercial clientele can comfortably accept the terms and conditions of any given program. For example, will these customers accept the higher interest rate they will be charged for purchases made on the card once interest becomes applicable? Are dealers themselves comfortable with the applicant approval rates and credit limits quoted by providers? In the case of traditional programs, do they fit the minimum application and volume requirements of the providers they are evaluating?
Exercising due diligence is essential once a definitive decision to implement a private label program has been made. In assessing prospects, dealers should inquire how quickly commercial and residential customers can obtain a decision on their application. A long, time-consuming process will dissuade those who are prepared to make a power equipment purchase on the spot, but need the new credit line.
Equally important, dealers should be certain to determine whether the providers they’re considering offer consumer and commercial credit lines commensurate with the unique needs of the outdoor power equipment market.
Service and support to the dealers should also be examined closely, because at some point, showroom associates will need to contact the provider’s credit department to get answers to general questions or resolve issues in order for a transaction to be finalized. Additionally, dealers should inquire whether the provider offers assistance in marketing their programs to potential and existing cardholders. This can range from creating mailers and e-mail blasts to designing promotional inserts and messages for mailing with monthly statements. Dealers should also be able to partner with providers to receive mailing lists that can be used to drive incremental sales.
Cardholder service is another piece of the evaluation puzzle. Dealers that implement a private label credit program must feel comfortable yielding a certain degree of control. Customers become a client of the provider, whose customer service operation is responsible for handling credit- and payment-related issues. When such issues arise, customers typically believe that they are contacting the dealer whose name appears on the branded card in their wallet or the statement in their hand. These encounters with issuers ultimately reflect on the merchant — so choosing a partner that offers high-quality customer service and whose customer-service philosophy aligns with one’s own is key.
For a better idea of how a private label credit provider approaches service and support, dealers should request references and ask these sources for details of their experiences. While it may seem like a natural step to also research providers online, dealers should exercise caution here, as consumer-oriented blogs are almost always used as a forum for complaints. Indeed, cardholders and merchants that have positive interactions with a private label card issuer may mention it in the course of conversation with someone, but few will spend time finding a website on which to report it.
In the final analysis, a private label credit card program may not be a viable choice for every outdoor power equipment dealer, but the myriad advantages offered make such a program an option well worth considering.
Veteran retail credit executive Marc Sczesnak is president of TD Retail Card Services, the private label credit card division of TD Bank, N.A. For more information, visit www.TDRetailCardServices.com.
