Giving credit where credit is... making people nervous

Credit has fueled much of the consumption-driven economy over the past several years. But since we’ve entered an age where credit is seen differently—compared to, say, three or four years ago—it might be time to evaluate the types and timing of your credit offer.

I’m thinking about a popular department store that my wife and I visit, occasion. When you first walk in the door, you are greeted by someone whose job is to offer you a credit line: “Welcome to [store]! Would you like to save 15% on today’s purchase by offering a [store] charge card!?” (I’ve actually seen people cowl, slightly, in response to the sometimes aggressive way the greeter approaches.)

Then, if you find something you’d like to buy from the retailer, you get the same offer from the cashier. “Would you like to save 15% on your purchase today… by opening a [store] charge card?” The way the question is asked, one might feel a little stupid for declining the discount (whether you already have a card, or because you don’t want one).

At various Elm Street Economics workshops around the country, I’ve told the story of a little old lady who we saw offered a store charge card… who replied by nearly lecturing the poor clerk behind the counter. Wagging her finger, she said, “I don’t see a lot of customers in your store shopping today. Why don’t you give me a discount because I’m shopping and giving you my money!?”

Whether because of the sub-prime mortgage meltdown, an aggregate credit card balance that currently tops $900+ billion, or because of all the press given in favor of responsible consumption (or against abusive use of credit), the U.S. consumer could be said to have (at least) a mild aversion to credit right now.

Implications: I don’t mean to suggest that credit should not be offered. But I would submit that the current climate of “credit aversion” should at least affect the way financing is offered, and perhaps encourage companies to offer alternatives to credit.

For retailers who offer credit, is it wise to be as aggressive as the (anonymous) retailer I’ve mentioned above? Should “charge card” really be the first and last impression a customer has of your store? I might be more inclined to under-state the offer, knowing that people who really want to finance the purchase will inquire or find the information on their own (would conspicuous point-of-purchase signage be sufficient?).

When credit is offered, I would avoid the “indulge now, pay later” attitude at all costs. It is fashionable to be frugal right now; by extension, it is unstylish to be a spendthrift. Instead, perhaps an offer of financing could empathize with the consumer: “We know you have a lot to accomplish surrounding the holidays, and our [store] credit card can help you make those expenses a little easier to manage.”

It might also be smart to respect that much coverage has been given to the fact that fewer consumers will qualify for financing. With that in mind, does the consumer really want to apply for instant credit, right there at the check-out stand, with a half-dozen shoppers in line behind her, looking on? Retailers would be smart to consider a more discreet area for the customer to apply for credit, where the outcome is learned in a place of relative privacy.

Next, maybe that little old lady had a point: Should you offer an incentive to have people pay in cash? (It’s my job to not overlook the obvious.)

Another possibility: Should you offer alternatives to credit? Last week, Kids “R” Us announced that they were bringing back layaway for big-ticket purchases, according to this story from AOL Money & Finance. I wonder if people would also respond to “Pay now, enjoy later” offers similar to the Christmas Club Accounts that became popular during The Great Depression (see the Wiki-Pedia entry on the topic).

The first credit card was introduced less than 60 years ago (the Diners Club card, 1950). Now, many consumers are learning how to live on less—or without—credit. If your target consumer is among that group, it is critical to make sure you’re doing business the way they want it done.

Mike Anderson