Haggling on price for massage chairs is not something we haven’t seen before. We often have sale prices in our showrooms and on our website, but we still get folks who want a better deal. Of course, there are times we can accommodate and times when we can’t. However, the rub is when the haggling is done, some customers then want to finance their chair with Synchrony Bank for 36 or 48 months on top of the price savings. If you have asked for that and were rebuffed, I’m going to explain why in this article.
Running A Business 101
Most retail businesses run off of a profit margin model. The owner purchases a product for $X and then sells it for $Y. The difference between $X and $Y is called the profit margin and if it is a negative number (meaning the profit is less than $0), the business owner loses money. If that persists, the owner will have to shut down their business.
The profit margin is what the business owner uses to pay the expenses of his business, i.e. rent, payroll, utilities, marketing & advertising, deliveries, repairs, cleaning, lease payments, etc, etc, etc. I would even include retirement in that list, since business owner’s very often don’t have the luxury of a 401K or some other retirement program, besides savings. Believe me when I say that I wish we didn’t have all these expenses, but we do and for some businesses, those expenses are a lot higher than others.
Some massage chair retailers are strictly online businesses and have significantly lower expenses to cover. For example, when I began in this business, I ran our website from my home computer. However, I believed in having stores for customers to try out our massage chairs, so I began to open up brick-and-mortar stores. This strategy also helped lend credibility to my business as someone with staying power and trustworthiness. But, with that business strategy, my expenses jumped significantly so I had to be even more careful with the pricing of a massage chair when I sold it.
With that little business tutorial, you can better understand that we, as business owners, have to be very careful how we price our massage chairs in order to maintain a profit margin sufficient enough to cover our expenses and make a living.
Merchant Processing Fees and Massage Chairs
This is where the massage chair financing dilemma comes in. Synchrony Bank is the company we primarily use for financing our massage chairs for customers who want 0{6b2fa08d5993bc7e76ffaca7a3a295e96a3274ffb0576a302ceddffe26335ebd} financing. Did you know that when you use a credit card to buy your massage chair, the merchant is charged anywhere between 3{6b2fa08d5993bc7e76ffaca7a3a295e96a3274ffb0576a302ceddffe26335ebd} and 4.5{6b2fa08d5993bc7e76ffaca7a3a295e96a3274ffb0576a302ceddffe26335ebd}, depending on which credit card the customer uses? That is called the merchant processing fee. That is the fee we, as merchants, pay for the privilege of accepting credit cards as payment options in our business. That is why some stores charge you an extra 3{6b2fa08d5993bc7e76ffaca7a3a295e96a3274ffb0576a302ceddffe26335ebd} or more on top of the listed product or service price when you use a credit card for payment. That is a fee we cover for our customers.
Financing companies also charge a merchant processing fee for their financing plans. However, that processing fee charged to the merchant by the financing company varies depending on which financing plan you choose. For example, here is a list of 0{6b2fa08d5993bc7e76ffaca7a3a295e96a3274ffb0576a302ceddffe26335ebd} interest financing plans offered by Synchrony Bank and the merchant processing fees charged to the merchant for each plan:
6 months – 1.46{6b2fa08d5993bc7e76ffaca7a3a295e96a3274ffb0576a302ceddffe26335ebd}
12 months – 4.10{6b2fa08d5993bc7e76ffaca7a3a295e96a3274ffb0576a302ceddffe26335ebd}
18 months – 8.92{6b2fa08d5993bc7e76ffaca7a3a295e96a3274ffb0576a302ceddffe26335ebd}
24 months – 9.91{6b2fa08d5993bc7e76ffaca7a3a295e96a3274ffb0576a302ceddffe26335ebd}
36 months – 12.91{6b2fa08d5993bc7e76ffaca7a3a295e96a3274ffb0576a302ceddffe26335ebd}
48 months – 15.74{6b2fa08d5993bc7e76ffaca7a3a295e96a3274ffb0576a302ceddffe26335ebd}
60 months – 19.31{6b2fa08d5993bc7e76ffaca7a3a295e96a3274ffb0576a302ceddffe26335ebd}
Massage Chair Pricing & Cost Example
Now, how does this play out for both the customer and the merchant? Let’s use an example of a chair that has a 30{6b2fa08d5993bc7e76ffaca7a3a295e96a3274ffb0576a302ceddffe26335ebd} profit margin that is priced at $5000 (the profit margin would be $1500 and the cost of the chair to the merchant would be $3500). Let’s say that the customer is asking for 15{6b2fa08d5993bc7e76ffaca7a3a295e96a3274ffb0576a302ceddffe26335ebd} discount, which would be a $750 price discount for our example. Now, let’s say that the merchant (Massage Chair Relief) agrees to the discount, but then, after the price is established, the customer tells the merchant that they want to finance the chair for a term of 48 months with 0{6b2fa08d5993bc7e76ffaca7a3a295e96a3274ffb0576a302ceddffe26335ebd} interest. It makes perfect sense to the customer to want to save as much money on the price of the chair as possible and then spread out the payments for as long as possible to keep the monthly expense to a minimum. The only problem is that it doesn’t make perfect sense to the merchant! Here’s why, going back to our example above:
The cost of the chair to buy the chair from the distributor is $3500. The customer is already getting 15{6b2fa08d5993bc7e76ffaca7a3a295e96a3274ffb0576a302ceddffe26335ebd} off of the price of the $5000 chair ($750), which brings the discounted price of the chair paid by the customer down to $4250. If you consider that the merchant processing fee for 48 months of financing is 15.74{6b2fa08d5993bc7e76ffaca7a3a295e96a3274ffb0576a302ceddffe26335ebd}, the cost to the merchant would be 15.74{6b2fa08d5993bc7e76ffaca7a3a295e96a3274ffb0576a302ceddffe26335ebd} of the discounted chair price of $4250, which is $668.95. The bottom line is that the profit margin is NOT decreased just by the $750 in savings given to the customer by the merchant, but it is also decreased by another $668.95 to pay for the merchant processing fees charged by Synchrony Bank. Let’s lay out these numbers:
$5000 list price of chair
$3500 cost of chair to merchant
$1500 pre-sale profit margin
$750 customer discount
$668.95 merchant processing fees
$1418.95 total cost to merchant
$81.05 post-sale profit margin
The Bottom Line – Massage Chair Cost
So, for a $5000 massage chair, the merchant would make a whopping $81.05!! I’m not sure how many expenses could be paid with that small of a profit margin, but it won’t be much.
How can the merchant save more of the profit margin in this situation? By not financing the chair for the customer for more than 12 months of 0{6b2fa08d5993bc7e76ffaca7a3a295e96a3274ffb0576a302ceddffe26335ebd} interest. That would save the merchant 11.64{6b2fa08d5993bc7e76ffaca7a3a295e96a3274ffb0576a302ceddffe26335ebd} in processing fees, which translates to $494.70 in profit margin. That profit margin better allows the merchant to cover more of their expenses.
So, that is why it is very difficult for a massage char merchant to offer deep discounts, while also giving long financing terms to a petitioning customer. You may have already experienced this in your quest for a massage chair at the best price. We have had many customers ask for both and we have had to explain why it is so difficult for us to provide both options to a customer. I have gotten out my calculator many-a-time to try to figure out the best combination of both a price discount and a 0{6b2fa08d5993bc7e76ffaca7a3a295e96a3274ffb0576a302ceddffe26335ebd} financing term for a customer. We certainly do our best and I’m sure my fellow retailers do the same. It is a juggling act that we all have to deal with, but maybe now you understand more fully why it is a challenge for the merchant to give you everything you ask for.
Dr. Alan Weidner
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