The 5th ‘P’ of Marketing

Historically, marketers have relied on the 4 Ps — Product, Price, Place and Promotion — to inform their marketing strategies. These foundational components help companies satisfy the dynamic wants and needs of the consumer, while also meeting the demands of the business. However, rapid advances in technology, magnified by the pandemic, have fundamentally changed consumer behavior, particularly the way they shop.

In the 2022 Commerce and Payments Trends Report, Joel Henckel, senior vice president of U.S. market acceptance at Mastercard, noted: “In March 2020, there was a shift in how consumers paid. For the first time ever, card-not-present transaction volume surpassed card-present, and the shift has not reverted back to pre-pandemic levels.”

Today, more than 50 percent of consumers consider themselves more digital than ever before, with 39 percent shopping from a smartphone daily or weekly, and 23 percent saying that they shop online at least daily. And the options for how to pay for online purchases keep growing: 53 percent of merchants plan to expand payment methods in 2022, with 60 percent planning to add digital wallets, 60 percent planning to take QR-code payments, and 51 percent to begin accepting digital invoicing.

It took a while (and a pandemic) for it happen, but it’s here: shopping is digital.

Given this shift, the actual transaction and payment methods used by consumers deserve more attention. We believe this trend — the proliferation and consumer adoption of new payment modalities — provides a significant opportunity for marketers to better understand their customers. Payments is the fifth P.

An Overview of the Payment Options Available to Consumers

Until quite recently, consumers in the U.S. had only a few ways to buy something: credit or debit card, cash, or possibly a legacy layaway program. In early 2020, however, with COVID causing the shutdown of brick-and-mortar stores, e-commerce exploded, creating opportunities for new digital payment options to grow in awareness, trial and adoption. There are many types of payments, and the list keeps growing. Here’s a quick snapshot of some of the retail payment options available to consumers today:

Why Marketers Should Think About Payments With a Capital ‘P’ in Their Strategic Planning

Payment preferences and usage provide rich first-party data to marketers. While payment data at a consumer level isn’t new, the diversity of payment options certainly is. This wide range of choices can give you a deeper understanding of your customer and prospect profiles. For example, a robust learning agenda can be developed to answer key questions such as:

  • What’s the preferred or most common payment method for a particular segment?
  • How are payment method preferences trending over time? Are certain payment options declining while others are expanding? What does this tell us about those customers?
  • Is there any relationship between products or product categories and the payment method used? Any geographic or demographic concentrations?

Given today’s inflationary environment, which dents consumers’ purchasing power, we must recognize that this poses risks for consumer spending, especially discretionary spending. While people likely won’t stop shopping, they will face more difficult choices on what to buy, when to buy, how much to spend and what method of payment to use. With this reality in mind, there’s a growing opportunity to personalize offerings with a focus on flexibility.

Ensure payment options are available in all channels and that your customers are aware of them. In the U.S., 43 percent of consumers who have used buy now pay later (BNPL) did so because it offered convenience. This is likely to accelerate as funds are stretched. Gen Z adults and millennials continue to be the most prominent users of BNPL services, but there’s steady interest among Gen X, too. Make sure these segments are aware of your new, flexible payment options.

As retail marketers are focused on elevating the customer experience, expanding payment options is an essential step forward. Yet it doesn’t stop with new offerings — there must be awareness and a clear explanation of the value exchange, which may provide unique opportunities for different audiences. For example, enhancing segmentation based on payment modality. This may include a new series of churn-prevention communications to drive awareness of new payment options, abandoned cart or abandoned browse communications to encourage conversion, or other communications to inform loyal customers about ways their shopping experience could get even easier to promote advocacy.

While there’s much talk about potential regulation, we believe payments will continue to evolve and see more innovation; consumers will continue to have more choices. As we’re already seeing today, what originated to fill a need for online purchasing is now expanding to physical retail and even virtual. Consumers will demand transactions that are easy and expect retailers to provide them. In all respects, it will boil down to balancing the value exchange and delivering the right customer experience.

As you begin your next marketing planning cycle, consider Payments as a key factor in your strategy. Try introducing new payment options through a test or pilot program; analyze your customers’ payments choices to understand current preferences; and personalize offers and messages with the customer’s preferred payment method.

Lisa Katz is senior vice president of customer strategy at Merkle, a customer experience transformation business partner to the Fortune 1000. Matt Regan is vice president, Insurance, Wealth and Banking vertical lead at Merkle.

The 5th ‘P’ of Marketing