Research Makes Cross-Selling More Profitable
Conventional wisdom is that your current customers are your best customers. Indeed, when marketers focus on cross-selling as a strategy, they typically see substantial increases in revenue and profit. Not only that, but when you look only at customers who cross-buy a lot, the profit from these customers is huge compared to customers who do not cross-buy or who cross-buy just a little.
But it turns out that hidden within these cross-buying customers are segments that are actually a significant drain on profits. A study just published in the Journal of Marketing found that up to one-third of cross-buying customers are not profitable at all, and in fact, may account for the bulk of a company’s losses attributable to customers.
Who are these customers? They are the ones who:
- Consistently ask for and use customer services
- Return products, or default on loans
- Change their “old” spending so there is little net gain in the cross-sell
- Consistently focus on discounts and promotions
The study is based on data from both B2B and B2C firms, and from a range of industries, including financial services, IT, and retail.
So instead of just combing your data and developing algorithms for identifying which customers are most likely to buy which products and at what time, the smart marketer first identifies two segments of customers based on key behavioral traits. As the authors summarize:
“It is not prudent to cross-sell a product to every customer who is likely to buy an additional product. This is a significant shift from conventional marketing practices that emphasize cross-selling to all customers.”
Just a little bit of segmentation and research know-how can significantly boost the effectiveness and profitability of your cross-sell marketing strategy. If you need help thinking about how to apply these findings to your own efforts, feel free to give us a call at (312) 780-0245. We are happy to advise.
—Joe Hopper, Ph.D.