September 29, 2021

The following is republished with the permission of the Association of National Advertisers. Find this and similar articles on ANA Newsstand.

By Emma Phipps

In the 1930s J. Wellington Wimpy, a character from the Popeye comic strip, became famous for the catchphrase, "I'll gladly pay you Tuesday for a hamburger today." Although the phrase was a tactic to get free hamburgers — Mr. Wimpy conveniently disappears on Tuesdays — the concept of buying now and paying later is fully realized and surging in popularity with a cohort that's most likely unfamiliar with the exploits of Popeye.

A major boost in online shopping — combined with stagnant wages and a shaky economy — has made "buy now, pay later" (BNPL) a favored option among gen Z, according to a recent study released by eMarketer.

More than 45 million buyers over the age of 13 are predicted to use BNPL services this year, an increase of 81 percent year-over-year, the study says. What's more, the report forecasts that BNPL will grow in popularity with older consumers throughout the next several years.

BNPL services, which offer greater financial flexibility for buyers than a traditional credit card, enable younger people to finance items such as electronics, clothing and fashion, and furniture and appliances, according to eMarketer.

But while younger crowds enjoy the benefits of BNPL, gen Xers and baby boomers have been cool to the market. Even as legacy brands like Macy's and Target start to offer BNPL options, older generations seem resistant to the offer compared to traditional financing options.

Indeed, 20 percent of respondents don't understand BNPL services at all, according to a survey by Ascent of 2,000 Americans aged 18 and older. The setup process alone, as eMarketer points out, may discourage those older users from joining the fold.

Despite the limitations, both the Ascent and eMarketer surveys predict a steady rise in BNPL adoption rates across the demographic board. As digital literacy grows and millennials and gen Zers gain more purchasing power, brands need to master the subtleties of BNPL and how to market it as an alternative and effective financing option.

Creating Loyalty with Younger Generations

Building lifetime value with customers is a growing concern among both B2C and B2B brands. By courting younger buyers early, retailers can ensure the lifetime value of these relationships and stay on top of the habits and preferences that will shape commerce in the future.

"Brands that embrace the shift toward alternative payment solutions will cultivate loyalty with these next-gen shoppers," says Megan Gokey, head of U.S. marketing at Klarna, a retail bank, payments, and shopping service whose clients include Macy's, Etsy, and Bed Bath & Beyond. "Retailers will need to invest in establishing a seamless omnichannel experience, next-level customer service, and unique rewards programs for these audiences."

Gokey cites Klarna's rewards program, called Vibe, as an example of the kind of service these discerning, digitally savvy buyers expect. Vibe offers unique rewards and deals that complement the rewards programs of its partner brands, driving affinity for both.

Accelerated digital transformation means marketers have to stay ahead of trends like buy online, pick up in-store (BOPIS) and BNPL, leveraging both to create seamless experiences both online and at brick-and-mortar outlets.

Findings from a recent Klarna survey suggest that BOPIS and contactless payments are crucial in elevating the shopping experience for these young buyers, and BNPL isn't far behind. "Implementing customer experience and marketing strategies that consider the blending of both digital and physical worlds and customizing messaging across the customer journey is crucial for not only driving conversion but also building repeat purchase and loyalty," Gokey says.

Cultivating Trust

A critical part of establishing loyalty among these younger generations is building trust. For instance, 61 percent of BNPL customers would rather use a BNPL service offered directly from the retailer they're buying from than going through a third party, but only 30 percent trust BNPL providers more than a traditional credit card, according to the Ascent study.

People who entered the job market during and after the Great Recession may trust banks less because of its long-ranging impact on their financial health, which provides an opportunity for marketers to cultivate trust in BNPL services.

"Gen Z and millennial consumers are increasingly money conscious, with many avoiding credit cards completely, so offering pay-over-time solutions at checkout helps merchants engage with and appeal to these consumers while providing them with affordability, predictability, and transparency," says Greg Fisher, CMO at Affirm, a payment network.

For customers leery of traditional financing options, the promise of no-hidden fees can be very appealing. At Affirm, the buyer, prior to purchasing, is told what will be owed and the amount is never increased after checkout.

Rex Hamilton, VP of finance and corporate operations at Serial 1, a retail partner of Affirm, echoes this sentiment. Serial 1 markets BNPL to its customers using three main principles: transparency, optionality, and affordability.

Being transparent with potential buyers ensures they will be able to make informed purchase decisions, while providing multiple BNPL financing options enables consumers to tailor their purchase to their specific budget. Using Affirm, Serial 1 customers can see their monthly payment amounts without ever having to enter any personal information.

"Affordability is something that resonates with all customers, regardless of age," Hamilton says. "Our current offering is akin to Goldilocks and the Three Bears: Some customers might view an APR as low as 0 percent as 'free money' and elect to pay off the eBicycle in 12 months, others might be attending school and view this as an investment in themselves and their education, so the 24- or 36-month option might be more desirable."

Being able to choose between three payment terms means that customers are fully informed ahead of their purchase decision, and able to select financing that offers more flexibility than a traditional card, with no hidden or late fees.

Buyers will remember these factors the next time they contemplate a purchase of any size from a brand that offers BNPL options. "Offering pay-over-time solutions at checkout enables brands to cultivate loyal and repeat customers because consumers are able to choose the payment schedule that works best with the way they budget," Fisher says.

Courting Gen X and Baby Boomers

The barriers to converting older generations to BNPL are not insurmountable. Klarna's "2021 Reopening Insights Report" found that shoppers — regardless of age — have become conditioned to the convenience, safety, and time-saving that the upswing in e-commerce offers. In fact, younger customers were more likely to miss the in-store shopping experience, the report says.

Older generations embracing e-commerce are also on the hunt for flexible payment options, and can be reached via an unexpected channel: livestream shopping.

"Though you might expect digitally savvy gen Z and millennials to be livestream shopping enthusiasts, it's actually baby boomers and gen Xers who are more likely to have participated in these events," Gokey says, citing Klarna research. "Tailoring marketing strategies to these shifts, while also creating seamless omnichannel experiences, will be key to engaging not only younger audiences but also older ones."

Providing BNPL options is yet another aspect of an omnichannel marketing strategy designed to enlarge the proverbial tent. For retailers, digital transformation should mean blending both online and in-store experiences seamlessly.

"Marketers have significant opportunities to raise awareness about pay-over-time solutions among consumers," Affirm's Fisher says. He cites comarketing with merchant partners as a key investment, with channels ranging from email to social media to in-store signage.

Adds Klarna's Gokey: "Retailers that treat the in-store checkout experience the same as a seamless online experience will win."


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