Cross-Selling Part 1, the Human and Organizational Challenges

One of the most consistent themes that run through customer data, regardless of industry, is that the loyal customers buy across multiple product lines. 

To flip that around, one of the strongest correlates for retention is how widely a customer buys across the product range.

There seem to be two major impediments to successful cross-selling.  It appears both human nature and technology conspire against it.

This blog discusses the human nature side, the next blog discusses challenges specific to data and technology.

Human nature hands us two challenges, the first human and the second organizational. 

The human challenge: Marketers tend to think of “loyalty” as retention.  Do customers return, how often, and how long between visits?  But should marketers think of loyalty that way?

Think of a grocery customer who buys fresh produce twice a week and nothing else.  They buy meat, dairy, canned and frozen goods elsewhere. They are “regular”, but are they “loyal”? 

If marketers instead defined “loyalty” as “Share-of-Wallet”, our example produce-only shopper no longer seems loyal.  On the other hand, the customer that buys everything they can from you is loyal, regardless of visit frequency or even overall spending.  Almost by definition, the most effective way to boost loyalty is often to cross-sell. 

A grocery shopper is a good example in another way, because a typical household shops 2, 3, or more stores regularly.  You might be the same, thinking of one store as a place to buy meat and fresh produce, but too expensive for canned goods and stock-up items.  A grocer can tell your share-of-wallet by looking at the quantity and frequency of items you buy, and the items you do not buy.

An additive factor also comes into play.  As a grocer cross-sells another item – thus increasing the number and range of items per sale – customer frequency goes UP not down.  Selling the extra item may cancel the need for a visit to a competitor and shift sales over to the successful cross-seller. In other words, higher average sales per visit mean more visits, not fewer.

Changing our ideas about loyalty so it is both retention and share-of-wallet pays dividends. 

The organizational challenge: The management structure of many organizations is designed in a way that prevents cross-selling. 

One reason is many product, brand, or department managers view each other as competition.  As a result, they will not develop packages, bundles, and offers across product lines even if that would most appeal to the consumer.  This is especially true when management structure and reporting is designed for managers to be judged based on comparison to one another. 

In other words, managers are judged based on sales compared against other departments, and not judged on sales in conjunction with other departments.

Another reason is products are often classified by source, department, or some engineering criteria that may be irrelevant to the consumer. A steel wheel and an aluminum wheel are very different to an engineer or in a manufacturing process, but they may be interchangeable to a consumer.  By the same token, a tire and a wheel are completely different to the manufacturer, but the consumer cannot use one without the other.  Tires and wheels are an example of complementary items – items that are used together – that make a natural package or bundle for consumers, but they may not be viewed as a package by the company.

The road to success runs through Taco Seasoning: Taco seasoning mix is a perfect example of an item that is part of cross-selling success.  A low-price, low-margin item, it tends to be purchased by more valuable customers, in larger average sales, than most any item in the grocery store.  Why is this so?

Because if someone buys taco seasoning mix, they will also buy multiple items across the store.  In produce, tomatoes, lettuce and onions.  Ground beef in the meat department.  Taco sauce in canned goods.  Taco shells in the bread area.  Taco seasoning mix is so inexpensive; people don’t think much about where they buy it.  But only loyal customers – customer who buy across multiple departments - are likely to pick it up, because they will also be buying all the other taco ingredients.

The idea of competition is a fallacy: Part of the thinking behind an organizational structure that sets managers to compete with one another is that managers have to fight to keep the other managers from taking sales from them.  But with cross-selling this is often a false threat.

As customers buy across additional categories, they tend to be more loyal and spend more not only overall but also in their original category.  A veterinarian that buys vaccines and then starts buying antibiotics is likely to spend more on vaccines than before.  A manufacturer that buys bolts and then starts buying washers is likely to buy more bolts than before.

In most cases, product managers couldn't steal from each other if they tried. If a product manager encourages customers to buy in other departments, they will see their own sales go up from those very same people. Not to mention sales sent to them by other departments, if other managers do the same.

Which takes us back to where we started.  Loyal customers -the best customers - buy across the product range.  

In the next blog, we’ll discuss how to look at data in cross-selling.  We’ll describe how to not only uncover hidden cross-selling opportunities, but to provide the database support management needs to make cross-selling work.