Payment Options: Is Deferred Preferred in A Slow Economy?

Multichannel Merchant has posted some of the highlights of last week’s eTail East conference, including Live From eTail: Alternative Payments Becoming Mainstream.

What I found interesting from the session recap was the results that Brad Wolansky of Orvis.com shared regarding Bill Me Later’s impact on average order value. While credit card customers’ average order value is around $150, Bill Me Later customers AOV is $175. And customers who opt for Bill Me Later’s 90 day same-as-cash option spend ~$400.

267% higher AOV is impressive. It appears 90 days interest free is a strong incentive for Orvis customers. If Orvis’ competitors do not offer this option, this could be a significant advantage for Orvis – creating more loyalty among a higher-spending segment. And for high-ticket items, deferred payments are all the more attractive in this economy — the more interest expense there is to save.

Using Bill Me Later’s deferred payment option is also an opportunity to attract new customers that browse 90 day same-as-cash offers. Such customers are motivated to meet the minimum spend threshold to qualify for the offer.

An alternative to the interest free pay period is to defer full payment through installments like HSN:

The customer owns the item outright after the last payment is made.

The benefit of this approach is the customer does not need to have already created a Bill Me Later account, and there is no third party payment processor to deal with for the retailer. However, many ecommerce platforms and systems are not set up to handle split-payments without customization. And installments may have little to no impact on average order value since they are not an incentive to spend a certain amount to qualify, nor do they feel like the “win” of a full deferred payment. In fact, buying several items on installments means making up to 4 significant payments each month. This is not a positive feeling for a customer.

For retailers looking to improve average order value and conversion rates on high-ticket items in a tough, deferred payments and installment plans are something to consider.

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