One of every five beauty purchases online is made via the Amazon marketplace, according to a new report.
Premium blender brand Vitamix attributes double-digit sales growth to an installment payment feature.
Vita-Mix Corp. is mixing up its payment offerings.
The premium blender brand was looking to increase its conversion rate on its most expensive products, which are blenders costing more than $500, says Holly Hacker, director of sales and customer experience at Vitamix.
The brand manufacturer and online retailer launched its own financing tool on Vitamix.com in 2015 that allowed customers to pay for products in three or five installments. Beyond increasing conversions on high-end products, Vitamix hoped offering the installment payment option would broaden its customer base to include more mid-market customers. While this solution did increase average order value, it didn’t help Vitamix broaden its customer base, Hacker says.
“We weren’t necessarily tapping into the younger, millennial audience,” she says. “It wasn’t growing as much as we thought it could.”
Vitamix looked into adding a vendor-supplied installment payment service to the mix, and chose PayPal Inc.’s Credit and Easy Payments integration and discontinued its own financing feature. PayPal Credit allows shoppers to apply for a line of credit with no interest for purchases of more than $99 that are paid back in full in six months; if it takes longer to pay off the purchase, consumers incur an annual percentage rate of 19.99%. PayPal Credit is offered as an option to shoppers within the traditional PayPal checkout button and retailers do not need a separate technology integration to offer it.
PayPal Credit’s Easy Payments option allows shoppers to break up a purchase into installments over six, 12, 18 or 24 months, depending on the price of the product and what the retailer chooses to offer. Easy Payments requires additional integration work. PayPal charges shoppers a 12.99% APR for using Easy Payments, although a merchant can elect to absorb that charge.
Vitamix promotes PayPal Easy Payments at the top of product detail pages for blenders $300 an up, so consumers know financing is an option while they are browsing.
At checkout, a consumer can pay with a credit card, PayPal or select PayPal Credit. When a shopper clicks on PayPal Credit, she is taken to a page that shows her several financing options, including the six-month, pay-when-you-want PayPal Credit plan, or between two and three (depending on the cost of the blender) Easy Payments plans that allow her to pay in installments over time.
Once she selects a payment plan she creates a PayPal Credit account and enters her name, date of birth and Social Security number, and she then agrees to the terms and conditions. (PayPal users who have never applied for credit have to create a separate PayPal Credit account.) She learns within seconds if she is approved and can continue with checkout. Once a shopper applies with PayPal Credit, that account is linked to her regular PayPal account and she will see it as an option every time she checks out with PayPal. PayPal Credit was formerly known as Bill Me Later.
Vitamix.com launched the PayPal Credit feature at the end of March and experienced a 40% increase in its conversion rate in the first three months compared with the previous three months when Vitamix was using its own payment installment feature, Hacker says. While the spring season—which includes Mother’s Day—is a high sales period for the retailer, Vitamix’s year-over-year conversion rate remained higher in the following months, Hacker says. In 2016 the average sales increase was about 20% compared with 2015, she says.
PayPal checkout options are gaining traction with Vitamix shoppers. In 2016, consumers paid for 17% of transactions with PayPal’s traditional checkout method and 13% of transactions via PayPal Credit, Hacker says.
Vitamix also expanded its customer base with the credit installment tool. The retailer has 5% more shoppers under the age of 35 using PayPal Credit than its typical customer, Hacker says. Plus, 18% of Vitamix consumers using PayPal Credit are in households with incomes of less than $75,000, which is 6 percentage points higher than its 12% average, she says.
Now that Vitamix has a better idea of who is using the credit option—younger consumers and lower-income consumers—it will use that information to execute tailored marketing programs, Hacker says.
Vitamix subsidizes the cost for customers who elect to pay with PayPal Credit by absorbing the interest charges and advertises the credit option on product pages as charging no interest. Of the 20-plus retailers that have PayPal’s Easy Payments, most of them shoulder the cost, a PayPal spokesman says. Between the transaction fee PayPal charges, which is comparable to a credit card processing fee, and fronting the interest cost, Hacker estimates that, on average, PayPal Credit and traditional PayPal transactions cost Vitamix 5% of the transaction.
“I have room in my margin to offer a 5% cut for each transaction in order to gain the kind of sales I’m gaining,” Hacker says.
Choosing PayPal over other alternative payment vendors that offer similar services or keeping its own solution was the right decision, Hacker says. First, PayPal is a known brand, so that helps ease shoppers’ minds, Hacker says. Plus, Hacker is particularly excited about the 24-month installment feature PayPal Credit offers because it allows consumers to pay for a premium blender for less than $20 a month, which makes the product financially accessible to more people.