With the rise of buy now, pay later payment platforms, fashion brands and retailers are increasingly turning to these models as a marketing strategy in the face of rising costs of customer acquisition.
This is according to a report in Vogue Business, which examines Klarna’s place in the marketing plan, in light of its heightened visibility at New York Fashion Week at the beginning of the month.
Why it matters: In effect, what’s interesting is how the service – which carries options to pay later, pay in instalments sometimes with no interest, or to simply process an instant payment, thereby offering retailers flexibility – can act in a similar way to a promotion without damaging the brand.
What would typically be a payment of $200, for instance, can be presented to shoppers as four $50 instalments.
Why it works: This is good behavioural design, made available by a range of new payment platforms like Afterpay, Viabill, Sezzle, and of course Klarna, and whose product is helping sales activation without damaging the wider perceptions of the brand.
As WARC briefing on behavioural design advises, discounts can be problematic for various reasons, the key being that similar effects can be found without hitting profit margins.
One notable example of this mistake includes the US retailer Gap, which came to rely heavily on promotions in order to clear out inventory, which has weighed on profits and growth by diminishing the value of the brand and increasing price sensitivity.
How it works: All of this comes at a cost, though with companies like Klarna charging more than typical credit card providers, because of the risk of collecting payments assumed by them upfront.
However, part of the benefit of Klarna, in particular, is that when the firm takes on a new client, one of the first orders of business will be a joint marketing campaign through traditional media buys, but also through its 70 million strong US email mailing list.
Late fees are an important though controversial revenue stream for such companies, which have drawn criticism for encouraging irresponsible spending and then profiteering from an inability to pay. According to Vogue Business, one such company, Afterpay, made around a fifth of its revenue from late fees.
Sourced from Vogue Business, WARC