Regret Insurance at Sears

With Debt Forgiveness Offer, Sears Reduces Fear of Regret

Sears this week announced a new incentive program to convince consumers that it's safe to buy a major appliance, even if they're worried about losing their job. Wharton marketing professor Stephen J. Hoch, who directs Wharton's Jay H. Baker Retailing Initiative, says the offer is a variation of an age-old sales strategy that aims to assure people that they won't regret their decision.

The retailer says customers who use their store credit cards to buy at least $399 worth of appliances and related merchandise will be able to suspend their payments and keep the product if they become unemployed. Sears will credit one-twelfth of the purchase price to the customer's account for every month they’re out of work; those who are jobless for more than a year will have the full debt forgiven. Doug Moore, president of Sears' home-appliance unit, told Bloomberg News, “We thought this would be a way to get folks to jump in where they’d been a little reluctant.” 

In a similar marketing approach, automakers, led by Hyundai (see: How Hyundai Sells More When Everyone Else Is Selling Less),  has offered to let customers suspend payments and return their cars. Such offers, while currently wrapped in the fear created by the recession, are nothing new, says Hoch.

In his classes, Hoch uses another example from the Sears playbook: In its Chicago area stores, the retailer once offered to pay rebates to customers who bought snow blowers and were later disappointed because there was less snow than usual. If snowfall was less than 50% of the official average, customers would get a 50% rebate. If the snowfall was less than 20% of the average, Sears paid buyers a 100% rebate and let them keep the machine.

With such offers, Sears is making "an actuarial bet," says Hoch. The company determines how many of its customers are likely to lose their jobs, then accounts for those losses against the revenue from the additional sales. "People aren't going to try to get fired just to get a free appliance."

Hoch says the offer targets one of three specific groups of customers. Citing the snow blower model, he described these groups as "people who are going to buy a snow blower no matter what, people who are not going to buy a snow blower no matter what, and people who ask themselves every year if they should buy a snow blower — but worry that they'll regret the decision if it doesn't snow very much." This offer speaks to the last group. "It's an insurance policy against feeling stupid after you make a big purchase."

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