One key principle is ensuring that all customers are treated fairly and that no one is placed at a disadvantage without clear, justifiable differentiation. This means avoiding scenarios where two customers purchasing the same item on the same day are offered different credit terms without a valid reason. So, how can you structure your credit offerings compliantly while still appealing to a broad customer base? I've always used the three Ps (and a D): Price Point, Product, Promotion, and Deposit. Let's delve into each of these strategies, explore how they can be applied, and highlight some do's and don'ts along the way.
1. Price Point
Using Spend Thresholds to Vary Credit Terms
Example: Offer 24 months interest-free credit (IFC) for all purchases, but extend it to 36 months IFC for customers who spend over say £5,000.
Why It Works
By tying credit terms to the amount spent, you're providing clear and objective criteria for different credit options. This approach is compliant because it doesn't discriminate between customers; anyone who meets the spend threshold qualifies for the extended terms. Do's
- Do clearly communicate the spend thresholds in all marketing materials.
- Do ensure that thresholds are applied consistently to all customers.
- Do keep records to demonstrate compliance in case of audits.
Don'ts
- Don't alter the spend thresholds on a case-by-case basis.
- Don't offer extended terms selectively to close a particular sale.
2. Product
Offering Credit Based on Specific Products or Bundles
Example: Provide IFC on the newest model but not on older models. Alternatively, offer special finance options when customers purchase a bundle of products.
Why It Works
Linking credit options to specific products or bundles creates a transparent criterion that's easy for customers to understand. It encourages the purchase of certain items without unfairly disadvantaging others. Do's
- Do specify which products are eligible for special credit terms.
- Do make eligibility information readily available in-store and online.
- Do apply the same terms to all customers purchasing the eligible products.
Don'ts
- Don't offer special credit terms on a product to some customers but not others.
- Don't make last-minute changes to product eligibility without updating all promotional materials.
3. Promotion
Time-Limited Credit Offers
Example: Offer 24 months IFC during the month of October as part of an autumn sale.
Why It Works
Time-bound promotions create urgency and can boost sales within a specific period. As long as the promotion is available to all customers during the specified time frame, it remains compliant. Do's
- Do clearly state the promotion's start and end dates.
- Do ensure all staff are aware of the promotion details.
- Do honour the promotional terms for any purchases made within the period.
Don'ts
- Don't extend the promotional terms to select customers after the promotion has ended.
- Don't fail to advertise the promotion adequately, leading to customer confusion.
4. Deposit
Varying Credit Terms Based on Deposit Amounts
Example: Offer 1 year IFC with a 10% deposit, 2 years IFC with a 20% deposit, and 3 years IFC with a 30% deposit.
Why It Works
This strategy provides customers with options based on how much they can pay upfront. It's a fair system that applies equally to everyone, giving customers control over their credit terms through their deposit amount. Do's
- Do explain how different deposit levels affect credit terms.
- Do provide calculators or examples to help customers understand their options.
- Do maintain consistency in applying these terms to all customers.
Don'ts
- Don't adjust deposit requirements arbitrarily for individual customers.
- Don't hide the details of how deposits influence credit terms.
Final Thoughts
Structuring a credit strategy that is both attractive to customers and compliant with regulations requires careful planning and transparency. By utilising the 3 Ps (and a D) - Price Point, Product, Promotion, and Deposit - you can create compelling credit offers that stand up to scrutiny. Always remember that fairness and consistency are paramount. By adhering to these principles, you not only build trust with your customers but also strengthen your reputation in the marketplace.
Final Checklist
- Are credit terms linked to clear and transparent criteria?
- Is all promotional material up-to-date and accurate?
- Are staff fully informed about current credit offerings?
- Are credit assessments conducted fairly and consistently?
- Is there documentation to support compliance efforts?
By following these guidelines, you can navigate the complexities of credit offerings while maintaining a competitive edge and staying on the right side of the FCA.