Friday, 21 July 2017

For When Life Doesn't Wait

Afterpay. Why pay now when you can pay later? Everyone wants to live in the moment and face the consequences tomorrow. It's a wonderful concept that delves right to the heart of what consumers want. But is it really what they need?

Previously Marketing Matters explored the future of Bricks and Mortar upon the ushering of a more sophisticated online shopping experience - something that is becoming increasingly more important, as outlined in Contemporary Consumer Behaviour. At the beginning, it looked as though the outlook for retailers were bleak. Traditional retailers were slow on the uptake of online, but now, many are augmenting their physical presence with digital strategies and payment innovations. 

What the customer wants, the customer shall have. 

Retailers who have thus far dominated the market have adopted a click and mortar approach, being neither exclusively online or offline. They've realised that they must respond to the customers' preference for a shopping experience that optimises both channels.

Image source: Afterpay review, The Wealth Guy

According to research carried out by Deloitte, 40% of retail sales are influenced by digital technology. Consumers today are highly informed, especially with high involvement purchases, seeking out product reviews, cost comparison, and recommendations from family and friends, both in-person and online, either at home and in-store via mobile. 

The new retail environment is adopting customer-centric innovations, with many traditional retailers investing not only in click & collect, but also in payment innovations. While click & collect makes shopping easier, allowing customers to purchase online and pick up in-store, it also provides the gratification of instant ownership. 

Image source: University of Sydney, Contemporary Consumer Behaviour (Teresa Davis)

But the real innovation is Afterpay. Brick and mortar retailers are leveraging the advancements in payment technologies to entice customers to purchase products they might not otherwise have bought. It encourages spontaneity in the decision making process and similarly to credit cards, Afterpay gives customers the ability to buy in store, take their purchases home immediately and pay later - except there are no fees or interest. 

Evolving spending habits and how this impacts the personal budget.

By August 2016, 140,000 customers in Australia had used Afterpay and a whopping 65% of those are repeat users. Only 1% of those users were failing to complete their scheduled Afterpay repayments, resulting in a net transaction loss rate of 0.9%. 

The structured repayment system allows consumers to keep their finances under control. Unlike credit cards, where consumers often spend more than they can afford. With this innovation in the decision making process, consumers are no longer inhibited by the barrier of debt and products with hefty price tags can be perceived as affordable. 

As a frequent user of this service, I've bought goods that I wouldn't otherwise have considered buying. Payments are manageable and there is the ability to make extra payments to speed up the process. Unlike making purchases with credit cards, Afterpay feels trustworthy and safe. 

Teresa Davis, lecturer of Contemporary Consumer Behaviour, explained the decision making process in detail. The types of decision rules that consumers apply include an evaluation of alternatives. And unlike purchasing goods with credit cards, the risks and barriers to purchase are minimised considerably. 

How does Afterpay work?

Image source: Afterpay review, The Wealth Guy 

Whether you have money or not, now instead of buying upfront, consumers have the option to pay off purchases - just like layby. But instead of having to wait until the purchase is fully paid off in order to take it home, consumers are instantly gratified, taking their purchases home instantly.

Either a debit card or credit card can be used for repayments, which means that sometimes purchases might not always get approved. Afterpay employs various metrics during the approval process, including location and even what model of phone you use. Unlike credit cards, purchases are 100% interest free but if a payment fails, there is a $10 dollar late fee, followed by another $7 fee if the payment is not made within 7 days. 

Afterpay isn't just for in-store purchases, in fact most of its success stems from online purchases. Online shoppers can go to checkout without filling in lengthy credit card forms, and once they have created an account with their first purchase, the payment experience is seamless. Goods can either be shipped express or picked up in store. 

Here's a recap of the benefits for consumers:

  • Afterpay is another way for a consumer to pay either online or instore. 
  • Merchants offer Afterpay to end-customers with a BUY NOW, PAY LATER offer.
  • End-customers pay for items in 4 fortnightly installments.
  • Afterpay does not charge consumers any interest, establishment or monthly fees.
  • After the initial Afterpay signup, no additional information is required at checkout. 
  • Afterpay pays merchants upfront (less Afterpay fee).
  • Afterpay retrieves funds from the consumer.

How is Afterpay delivering results for businesses?

Image source: Afterpay review, The Wealth Guy

Due to the barriers of shipping times, receiving below standard quality products and the risk of security, the rate of growth in online shopping has decelerated slightly. By June last year, it increased only 13.5%, down from 15.7% the previous year. 

Ever since the introduction of credit cards in 1950, retailers have been constantly searching for ways to entice consumers to spend more. Merchants will do almost anything to make a sale, with some paying as much as 3% of the sale value in fees to credit card companies. Some businesses pass these costs on to consumers, but in general this is a thorn in the side for businesses and consumers alike. 

The facts are undeniable, Afterpay users are 34% more likely to follow through with purchases than credit card users and their average spend is 25% more than the average customer. Depending on what side of the fence you are standing, this can be perceived as either a good or bad thing.  But the turh remains, Afterpay is getting consumers to part with their hard-earned cash and the shopping experience will never be the same again.

Alyce Brierley
Current student from the Master of Marketing program at the University of Sydney Business School.

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