Give Yourself Some Credit

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Hello and thanks for calling HotSpring spas, home of the number one selling spa in America. Hurry in now for our 2005 inventory reduction sale with no interest till 2007, on approved credit. Don't delay, start relaxing today . . . "

That's the message that greets all who call Agri-Bolt HotSpring Spas in Des Moines, Iowa, and it's indicative of just how important consumer financing has become in the hot tub industry. With all the options out there β€” branded credit cards; installment loans; no-pay, deferred-interest; manufacturer-sponsored deals; national finance companies; local lenders β€” consumer financing can be overwhelming. But with a little research and a sharp pencil, dealers can craft a line up of consumer finance tools that will suit both their business styles and their customers' needs.

Shop Around

Just as customers shop around for the best price, quality and service, so should dealers.

"Having a low rate is one thing, but the back end, from our perspective, is the most important," says Alice Cunningham, owner of Olympic Hot Tubs in Seattle. "The back end means, do they go out of their way to approve people. How easy are they to work with. And do they fund promptly. I suggest dealers shop around and meet eyeball to eyeball with these people and figure out, are they going to be reliable, and handle the back end."

Jacque Stauffer, vice president of Funwater Hot Tubs in Norfolk, Neb., agrees. "You have to shop constantly for rates," she says. "That's the biggest thing. If you get yourself set up with a finance company, know that it's not permanent. Go in with the thought that this might last one year."

Cunningham advises: "Add up everything that you financed last year and have a wake-up call. Then go to your lender and say 'What can you do for me?' Pit them against each other."

Stauffer tracks her company's financing contracts on an ongoing basis. "It just becomes part of our bookkeeping and we keep a spread sheet on financing," she says. "So when [lenders] call and say, 'The prime rate just went up, your rate is going up,' I just print that out and say, 'OK, how much of this business do you want to keep?'"

While Watkins Manufacturing provides a comprehensive consumer finance program for its dealers, Susan Strible, marketing programs director, says it's smart to have a variety of tools at your disposal. "We do recommend that dealers strike up a relationship with their local banks because banks tend to be pretty competitive. So it's just another tool in their arsenal that we recommend."

What's Hot

Consumer finance is not just a way to help customers afford a hot tub, it's also a marketing tool. The no-pay, deferred-interest promotion seems to be the most popular program with dealers and consumers alike. Just about every lender offers this type of deal, although terms vary depending on many factors.

GE Consumer Finance offers promotions through its private-label credit programs. GE offers the AquaVantage industry card to dealers and also facilitates promotions through specific manufacturers. "The two that seem to be the biggest in the industry right now are the six-month, no-pay, deferred interest and the 12month, no-pay, deferred interest," says GE's Greg Lowe.

Finance companies don't just offer these extended pay programs because they want to promote hot tub ownership. There is, of course, a fee to be paid by the dealer, just like VISA and MasterCard charge a merchant's fee whenever customers use their products. Generally speaking, the longer the no-pay period, the higher the rate the dealers must pay.

"Typically we try to keep some of the lower-term credit promotions like the six- and three-month comparable to the bank card discount," says Lowe, with the caveat that bankcard rates can vary widely.

Wells Fargo Financial Retail Services also offers financing and promotions through its SplashCard program. Says Alan Peters, inside sales manager for the national finance company, "In many cases, the cost to the retailer of using these promotions is less than it would be if a customer used their bank card."

Olympic Hot Tubs uses local lenders almost exclusively, but still has a variety of financial tools to offer customers. "If the customer doesn't do the six-month or 12-month financing, we have another lender who gives us about a 7.2 percent fixed rate if it's a super-A customer," says Cunningham.

A Helping Brand

Manufacturers have been quick to recognize the importance of consumer finance for building brand loyalty with both their dealers and the end users. Watkins Manufacturing began working with American General finance company about two years ago to offer special promotions to its network of dealers. "They have access to some special rates through American General, because they are Watkins dealers," says Strible. "It's their choice, but we encourage them to because from time to time, we will run special promotions sponsored by us, the manufacturer."

"If you're not financing, you're not selling," says Stauffer. "That's just reality." For Stauffer, financing isn't just a way to help customers afford a big-ticket item, it's part of the marketing mix. Stauffer uses a variety of programs to get customers excited about a hot tub deal, always supported by vigorous advertising. "We always advertise huge when we do [a 48month, no-interest financing promotion] and people will come back in two months and ask for that 48month deal, but it's gone." So she always has other options for shoppers.

"We'll offer them other things. We can offer 12-months, or we can offer 9.9 percent financing. That sounds like a lot, but you can't get an unsecured loan for less than that, anywhere," Stauffer says. She says the 12month promotion is a standard, but because of its popularity with the furniture industry, it's not as effective a marketing tool as it used to be, as customers have come to expect it. Funwater has still other creative options for customers.

"We work some things out with our local bank, one is a home equity loan. We'll market it as 'Any spa in the showroom for $99 a month.' There's usually a balloon payment after five years. That's been very effective."

Another way for the dealer to get value from a consumer finance program is to continue to cultivate those customers once they are qualified with a hot tub purchase. Says Stauffer, "We get an open-to-buy list from our local branch and then we'll send them an accessories brochure, and we'll offer β€” for repeat customers only β€” a special promotion."

In affluent communities where price isn't an obstacle, consumer financing can be almost entirely a marketing tool. Jim and Michelle Treece of Cape Cod Aquatics in Harwich Center, Mass., were surprised to find that customers who could pay cash for a spa chose to finance. "We're in a pretty affluent area in Cape Cod, and most people who come in to buy a hot tub pay cash or just put it on a credit card," says Jim Treece. "You just assume that people who apply for credit to buy a hot tub can't afford to pay cash. But that's just wrongβ€”you can't think that way." Treece says being able to offer financing has caught the attention of more than a few potential buyers.

But all industry insiders agree that it's important to know exactly what you can and can't advertise in your state. "We give general recommendations," says Strible, "but as far as advertising the promotions, there are a lot of laws and regulations that govern advertising." As with any type of advertising, dealers need to be vigilant about the federal and local regulations that apply in their areas.

Easy Money

Although the options for financing may seem overwhelming, once the customer has made a choice the credit application is easy and fast. Technology has streamlined the application process and many lenders offer online application. Watkins dealers who use the American General finance program can place a preapplication form on their Web sites. "The consumer can click on that and send the application directly to the finance company and they would review it and get back to the consumer and the dealer via e-mail," says Jacquie Matzat of Watkins. "Everyone we work with is all electronic now, so the credit applications are done online," says Stauffer. "Once we sell the product, we punch in a number and the money is funded instantly."

Even off-line transactions are almost instantaneous. "The dealer would phone or fax the application to us," says GE's Lowe. "Within minutes, they get the decision. If the customer is accepted, they're given the credit line, the account number, and they can process the sale right there.

You can sell them the unit, get them approved for the financing, schedule the delivery β€” there are no open issues."

Credit Challenges

Of course, not every customer qualifies for instant financing, but creditchallenged customers are not as much of an issue in the hot tub industry as on the general market. "Truth is, at least in our market, we usually have a very qualified buyer shopping for hot tubs," says Stauffer. "Most of them are homeowners, and that takes you a long way. We have a very low turndown rate."

Both Stauffer and Cunningham say that maintaining good relationships with their local lenders helps borderline customers get approved. "We do so much business with them and on the whole, we're sending them A-credit people," says Cunningham. "They have already gotten so many A leads from us that they can bend over and do some Bs and almost Cs."

Still, dealers may want to have options for customers without sterling credit. GE has just launched a program to address that. "We've realized that not everybody is going to fit, so we've added an option to forward dealers to a secondary lending source," says Lowe.

"We call it Second Look," he says. "If a customer doesn't meet our credit guidelines, the dealer and the customer are given the option of going to a secondary provider. We'll transfer them to the secondary provider who will make a decision based on their criteria. They can do different things: it's an installment loan as opposed to revolving, and there may be discounts involved, based on the consumer's credit. Because of the credit situation, they don't offer the types of promotions that we do, but they specialize in credit-challenged consumers."

Stauffer says that although she can get almost anyone approved for credit, it's not always worth it. "If you have someone who you can't get approved, they are probably going to be a headache for you somewhere down the road," she says. "There's a lot more to it than just the initial sale. We have found it's usually better to skip that sale."

Whether customers need help affording a spa, or just need a great deal to help them decide to buy, consumer finance is an important retail sales tool. As with any aspect of the retail business, it pays to be selective and choose the tools that are right for your business and your customers. "It's here to stay," says Cunningham. "If you want to sell to people, you have to have ways to help them buy. It just has to be as advantageous for you as it is for the customer."

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