Sponsored by Katapult
After more than a year of unprecedented demand in the mattress space, many furniture and bedding retailers are still figuring out how to maintain this momentum moving forward. Given that experts recommend consumers replace their mattresses every eight years or so, one key way to continue that growth is by expanding your consumer base. Offering a lease-to-own payment option is a valuable opportunity for retailers to connect with new customers who may need alternative ways to obtain their new mattress.
By understanding what lease-to-own is and how it’s different than other payment options, retailers can work to expand their consumer base and provide them with a safe and trusted way to obtain the products they need.
What is lease-to-own?
Lease-to-own (LTO) is an attractive option for consumers who have no or evolving credit to obtain items they need through a lease-to-own agreement with the lease-purchase provider.
There is no long-term obligation for the customer to continue leasing, and customers are able to return leased products to the LTO provider, not to the retailer, with no further obligation other than amounts past due. In the LTO space, leased goods are owned by the LTO provider, and therefore, if the retailer return window has expired, the goods are returned to the provider and not to the retailer.
Roughly 67% of those with a FICO score of 700 or less need a pay-over-time option. For retailers with average product prices of $300 or more, having a lease-purchase option available to customers not only gives them more brand reach to new segments of customers, but also influences the number of transactions because more customers can generally access the LTO solution.
How is LTO different than Buy Now Pay Later?
According to a recent study done by The Ascent, over one-third of U.S. consumers have used a Buy Now Pay Later (BNPL) service—a number that’s risen significantly over the past couple of years. Unfortunately, the study also found that only about one in five consumers who use these services actually understand how they work. Being able to communicate the differences between LTO and BNPL is important for retailers looking to support their customers’ financial needs.
BNPL providers offer a similar benefit as LTO, but have more traditional terms akin to credit cards. For example—unlike a LTO option, which allows a consumer to return the product and terminate the agreement at any time without further obligation other than paying fees already incurred—a BNPL customer agrees to pay off the price of the item it purchased, which can include interest if the consumer does not pay off by a certain date.
BNPL providers are structured to break purchases into parts or finance over a few weeks or months, typically six to thirty-six months, depending on the provider. Most BNPL providers have interest-free periods, where if the balance is paid-in-full before the period ends, paying interest is avoided. If the consumer doesn’t pay off the item within the interest-free timeframe, they are charged regular interest rates that are generally high. BNPL providers generally don’t check a consumer’s credit score to qualify them for that option at checkout and do not report on-time payments to credit bureaus. That said, some providers may report late payments or send the debt to collections, which will damage a consumer’s score.
How can retailers market LTO to their customers?
Offering an LTO solution can help retailers expand their customer base. But in order to maximize that reach, they first must make sure their customers know this option is available to them—and what it really means.
Here are three tips for effectively marketing LTO to your customers:
Understand Who The LTO Customer Really Is
Despite the stigma that can sometimes be attached to having a low credit score, there are, in fact, a number of different reasons why someone may be in that situation. Approaching these customers with transparency, grace and understanding can be a transformative experience. Rather than counting them out, LTO solutions create an inclusive and meaningful result that works for both the retailer and consumer.
Highlight Checkout Options And Details Clearly
Whether in-store or on your ecommerce website, make sure it is easy for customers to learn more about the checkout options that are available to them. By promoting the option widely and being transparent about the terms and conditions, customers can feel free to explore your product mix more broadly.
Focus Your Messaging On Flexibility & Reassurance
A lease-purchase agreement offers consumers flexibility that may make it more attractive than traditional financing. With an LTO transaction, consumers typically have several paths to ownership for the product they are leasing. With each payment, the customer has the option to exercise a buyout option at any time, continue leasing for the full term of the agreement resulting in automatic ownership of the item(s), or return the items without any further obligations other than paying any outstanding amounts already incurred. LTO gives customers the power to obtain what they need when they need it.
Unlock The Benefits Of LTO Solutions With Katapult
Katapult is a leading omnichannel point-of-sale payment platform, providing alternative payment solutions for retailers and consumers. Its cutting-edge technology integrates seamlessly with online platforms, enabling its retail partners to expand their customer base, increase sales and grow revenue. Katapult’s consumer-centric focus ensures a quick application and approval process, transparent terms and tailored payment plans. Katapult associates with hundreds of retailers across the U.S., with merchant support teams, marketing insights and suggestions for continued success.