Customer Development

Cross-selling & Up-selling: Strategies for Customer Development

Graphics courtesy of Super OfficeOpens in new window Customer development is the process of growing the value of retained customers. Companies generally attempt to cross-sell and up-sell products into the customer base whilst still having regard for the satisfaction of the customer. Cross-selling, which aims to grow share-of-wallet, can be defined as follows:

Customers generally do not respond positively to persistent and repeated efforts to sell additional products and services that are not related to their, requirements. Indeed, there is an argument that companies should down-sell where appropriate. This means identifying and providing lower cost solutions to the customers’ problems, even if it means making a smaller margin.

Customers may regard up-selling as opportunistic and exploitative, thereby reducing the level of trust they have in the supplier, and putting the relationship at risk. However, multi-product ownership creates a structural bond that decreases the risk of relationship dissolution.

There are a number of CRM technologies that are useful for customer development purposes.

• Campaign management software is used to create up-sell and cross-sell customer development campaigns in single or multiple communication channels and track their effectiveness, particularly in terms of sales and incremental margin.

• Event-based marketing. Up-selling and cross-selling campaigns are often associated with events. For example, a bank will cross-sell an investment product to an existing customer if deposits in a savings account reach a trigger point.
• Data mining. Cross-sell and up-sell campaigns are often based on intelligent data mining. Transactional histories record what customers have already bought.
  
  
  Data mining can tell you the probability of a customer buying any other products (propensity-to-buy), based on their transactional history or profile. First Direct, an online and telephone bank, uses propensity to buy scores to run targeted, event driven cross sell campaigns through direct mail and call centres. They achieve high conversion rates by making follow-up out-bound telephone calls.
• Customization. Cross-sell and up-sell offers can be customized at segment or unique customer level, based upon the transactional history and profile of the target. Also personalized is the communication to the customer and the channel of communication — email, surface mail, social media, SMS or phone call, for example.

• Channel integration. Customer development activities can be integrated across channels. When different channels make different offers to the same customer at the same time, this creates bad customer experience.
  
  In retail, channel integration is observed when channels such as stores, Web and direct-to-consumer channels act in an integrated, customer-centric manner. For this to happen, customer information and customer development plans need to be shared across channels.
• Integrated customer communications. CRM practitioners generally prefer that the messages communicated to customers are consistent across all channels.
• Marketing optimization. Optimization software is available from CRM analytics organizations such as SAS.
  
  
  Optimization enables marketers to enjoy optimal returns from up-sell and cross-sell campaigns across multiple channels and customer segments, taking account of issues such as budget constraints, communication costs, contact policies (e.g. no more than two offers to be communicated to any customer in any quarter), and customer’s transactional histories and propensities-to-buy.

In professional services, the client audit is often the foundation for cross-selling and up-selling of clients. In B2B environments, sales reps need to be alert to opportunities for cross- and up-selling. This means understanding customers’ operations, and knowing their product/service innovation plans.

In mature markets, where customer acquisition is difficult or expensive, the development of retained customers is an important source of additional revenues.

For example, in the mature mobile telecoms market, the penetration of handsets is at a very high level. Winning new-to-market customers is regarded as too difficult, since these are the laggards, and expensive to convert. Mobile telecommunication service providers tend to focus on selling additional data services to their existing customers, diversifying beyond voice services.