16 February 2022

Don’t let responsible rejection drive customers away

Written by Dr. Heather Kappes, Associate Professorial Lecturer in the Department of Management at the London School of Economics and Political Science, studies consumer behaviour and marketing.

Probably like you, I have several different kinds of important relationships. These include long-term committed partnerships, casual friendships, and rebounds prompted by the desire to move away from a prior partner.

To be clear: I’m talking about relationships with brands, not people!

I trust the shoe company I’ve been coming back to for years; I feel comforted indulging in the pasta I remember from childhood; I’m angry at the travel company that made it so hard to get a refund. An important piece of research published in 1998 described these sorts of relationships that people form with brands, which often look very similar to the ways we relate to other people. More recent research has explored the dynamics that govern changes to the relationships between brands and customers.

I was reminded of that research as I looked at results of a recent YouGov survey. A representative sample of UK respondents was asked to imagine that they’d applied for credit from an online retailer like John Lewis or Apple, and had been rejected. More than half of respondents said they would feel upset, or even so upset it would affect their mental health. (You might think they’re exaggerating, but responses were more extreme among those who had previously experienced this rejection: one in six of them said they’d be upset enough to affect their mental health.)

Upsetting customers has consequences. Almost 25% of those surveyed said they would never go back to the retailer who rejected their credit application, while another 37% would go back but with a more negative attitude toward the retailer. In a world where people view brands as relationship partners, companies can’t afford to drive customers into competitors’ arms.

Of course, responsible companies can’t afford to freely grant every application for financing, either. That’s why I was interested to learn about the approach taken by etika, a “fair finance” company that partners with retailers. They give customers a borrowing budget before they shop, instead of a flat yes-or-no at checkout. Knowledge of what they can finance, and on which terms, empowers customers to tailor their shopping decisions accordingly.

I suspect that working with a company like etika is one way that retailers can maintain and strengthen relationships with their customers. The same YouGov survey found that 62% of those surveyed would be likely to go to a competitor retailer if rejected for credit by their first choice. Preventing flat rejections should make these defections less likely.

On the other hand, about 18% of respondents said they’d be unlikely to go to a competitor, and another 20% said they “didn’t know” what they’d do. Those responses were somewhat more likely among 18-to-34-year-olds than among those 35 and older.

These stats make me wonder whether many shoppers, particularly younger ones, interpret credit rejection as a sign they shouldn’t be spending. There is research suggesting that people who have a credit application denied are most concerned with the potential for embarrassment (e.g. if denied in-store). Keeping credit decisions private may also help retailers to build loyalty.

In an age of easy credit, there can be tension between making customers happy and being responsible. There is clear value for retailers in partnering with a financing company that helps them walk this fine line. These partnerships can contribute to customer-retailer relationships that become long-term commitments rather than flings.

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