Month: November 2020

Cross-Selling

Cross-selling is the action or practice of selling an additional product or service to an existing customer. In practice, businesses define cross-selling in many different ways. Elements that might influence the definition might include the size of the business, the industry sector it operates within and the financial motivations of those required to define the term.

The objective of cross-selling can be either to increase the income derived from the client or to protect the relationship with the client or clients. The approach to the process of cross-selling can be varied.

Cross-selling products and services to existing clients is one of the primary methods of generating new revenue for many businesses, including financial advisors. This is perhaps one of the easiest ways to grow their business, as they have already established a relationship with the client and are familiar with their needs and objectives.

However, advisors need to be careful when they use this strategy a money manager who cross-sells a mutual fund that invests in a different sector can be a good way for the client to diversify their portfolio. But an advisor who tries to sell a client a mortgage or other product that is outside the advisor’s scope of knowledge can lead to problems in many cases.

Unlike the acquiring of new business, cross-selling involves an element of risk that existing relationships with the client could be disrupted. For that reason, it is important to ensure that the additional product or service being sold to the client or clients enhances the value the client or clients get from the organization.

In practice, large businesses usually combine cross-selling and up-selling techniques to increase revenue.

Though there are some ethical issues with most cross-selling, in some cases they can be huge. Arthur Andersen’s dealings with Enron provide a highly visible example. It is commonly felt that the firm’s objectivity, being an auditor, was compromised by selling internal audit services and massive amounts of consulting work to the account.

Though most companies want more cross-selling, there can be substantial barriers:

• A customer policy requiring the use of multiple vendors.
• Different purchasing points within an account, which reduce the ability to treat the customer like a single account.
• The fear of the incumbent business unit that its colleagues would botch their work at the client, resulting with the loss of the account for all units of the firm.

Examples

• A Life Insurance company suggesting its customer sign up for car or health insurance.
• A wholesale mobile retailer suggesting a customer choose a network or carrier after one purchase a mobile.
• A television brand suggesting its customers go for a home theater of its brand.
• A laptop seller offering a customer a mouse, pen-drive, and/or accessories.
• A hospitality brand offering tours and experiences to guests after booking the accommodation

Up–Selling

Upselling is the practice of encouraging customers to purchase a comparable higher-end product than the one in question, while cross-selling invites customers to buy related or complementary items. Though often used interchangeably, both offer distinct benefits and can be effective in tandem. Upselling and cross-selling are mutually beneficial when done properly, providing maximum value to customers and increasing revenue without the recurring cost of many marketing channels.

Upselling often employs comparison charts to market higher-end products to customers. Showing visitors that other versions or models may better fulfill their needs can increase AOV and help users walk away more satisfied with their purchase. Companies that excel at upselling are effective at helping customers visualize the value they will get by ordering a higher-priced item.

Upselling is a sales technique where a seller invites the customer to purchase more expensive items, upgrades, or other add-ons to generate more revenue. While it usually involves marketing more profitable services or products,[1] it can be simply exposing the customer to other options that were perhaps not considered (A different technique is cross-selling in which a seller tries to sell something else). In practice, large businesses usually combine upselling and cross-selling to maximize revenue.

Examples

• Selling an extended service contract for an appliance
• Suggesting that a customer opt for higher specifications in a new computer
• Selling luxury options on a vehicle, such as leather upholstery
• Suggesting that a customer purchase a more extensive car wash package
• Asking the customer to choose a larger meal size at a fast-food restaurant

Cross-selling and upselling are similar in that they both focus on providing additional value to customers, instead of limiting them to already-encountered products. In both cases, the business objective is to increase order value inform customers about additional product options they may not already know about. The key to success in both is to truly understand what your customers value and then responding with products and corresponding features that truly meet those needs.

Techniques

Many companies teach their employees to upsell products and services and offer incentives and bonuses to the most successful personnel.

A common technique for successful upsellers is becoming aware of a customer’s background, budget and other budgets, allowing the upsellers to understand better what that particular purchaser values, or may come to value.

Another way of upselling is by creating fear over the durability of the purchase, particularly effective on expensive items such as electronics, where an extended warranty can offer peace of mind.

Customer Profitability

Customer profitability refers to the net profit a company earns from an individual customer after deducting all costs associated with serving that customer. These costs include marketing expenses, order processing, customer service, delivery, and after-sales support. Not all customers generate equal profits. Some customers buy frequently and require less service, while others demand more attention but contribute little revenue. By identifying profitable and unprofitable customers, organizations can develop different strategies for each group and improve overall financial performance.

Purpose of Customer Profitability

• Identify Valuable Customers

The main purpose of customer profitability analysis is to identify which customers generate the highest profit for the organization. Not all customers contribute equally; some purchase regularly and require minimal service, while others demand high support but produce low revenue. By evaluating profitability, companies can recognize high-value customers and give them priority service, personalized attention, and loyalty benefits, thereby strengthening long-term relationships and ensuring consistent income.

• Improve Resource Allocation

Organizations have limited resources such as time, manpower, and money. Customer profitability helps businesses allocate these resources effectively. High-profit customers receive more attention, better service, and customized communication, while routine services are used for less profitable customers. This ensures efficient utilization of company resources and prevents unnecessary expenditure on customers who provide low returns.

• Support Marketing Strategy

Customer profitability guides marketing planning and promotional decisions. Companies can focus marketing campaigns on profitable segments rather than the entire market. Targeted promotions, loyalty programs, and special offers are designed for customers who provide maximum revenue. This improves marketing effectiveness and increases return on investment.

• Enhance Customer Retention

By knowing profitable customers, businesses can develop special retention strategies for them. Personalized services, priority support, and rewards encourage customers to remain loyal. Retaining profitable customers ensures stable revenue and reduces acquisition costs. Therefore, profitability analysis directly supports long-term relationship building.

• Control Service and Operational Costs

Some customers generate high service costs due to frequent complaints, returns, or support requests. Customer profitability analysis helps identify such cases. Companies can streamline service processes, introduce self-service options, or modify service levels to control expenses. Managing service costs improves overall organizational efficiency.

• Pricing and Product Decisions

Customer profitability helps firms set appropriate pricing policies. Businesses may introduce premium services for profitable customers or adjust prices for costly customer segments. It also helps in deciding which products to promote, improve, or discontinue based on customer contribution. This ensures better product planning and financial performance.

• Increase Customer Lifetime Value

The analysis helps companies develop strategies to increase long-term value from customers. Businesses encourage repeat purchases, cross-selling, and up-selling to profitable customers. Over time, customers generate more revenue and become long-term assets for the company. This increases the overall customer lifetime value and strengthens profitability.

• Improve Decision Making

Managers use profitability data to make informed decisions regarding marketing, service, and investment. Instead of relying on assumptions, they depend on actual customer contribution. Data-based decisions reduce risk and improve operational planning. Thus, customer profitability analysis supports effective managerial decision-making.

• Strengthen Competitive Advantage

Focusing on profitable customers helps organizations maintain strong relationships and high service standards. Satisfied customers remain loyal and resist competitors’ offers. This creates a competitive advantage and improves brand reputation in the market.

• Ensure Long-Term Business Sustainability

The ultimate purpose of customer profitability analysis is to ensure sustainable business growth. By concentrating on valuable customers, controlling costs, and improving service, organizations maintain steady revenue and financial stability. Profit-oriented customer management helps businesses survive in competitive markets and achieve long-term success.

Measuring Customer Profitability

Customer profitability measurement refers to the process of determining how much profit a business earns from an individual customer or customer group. It compares the revenue generated by customers with the total cost incurred in serving them. These costs include marketing, order processing, delivery, service support, and complaint handling. The objective is to understand which customers contribute positively to company earnings and which customers create more expense than value.

• Identifying Customer Revenue

The first step in measuring profitability is calculating the revenue generated by each customer. Companies analyze purchase value, purchase frequency, subscription fees, and service usage charges. Customers who purchase regularly and spend more contribute higher revenue. CRM databases and billing records help organizations track all transactions accurately. This step helps firms understand the financial contribution of each customer over a specific period.

• Calculating Customer–Related Costs

After identifying revenue, organizations calculate the costs associated with serving each customer. These costs include marketing expenses, sales visits, delivery charges, customer service operations, product returns, and technical support. Some customers require more attention and therefore create higher service costs. Accurate cost calculation is important because high revenue does not always mean high profit if service expenses are excessive.

• Profitability Analysis Formula

Customer profitability is calculated using a simple formula:

Customer Profitability = Revenue from Customer − Cost of Serving Customer

If revenue is higher than the cost, the customer is profitable. If service cost exceeds revenue, the customer becomes unprofitable. This analysis helps companies categorize customers into profitable, less profitable, and loss-making segments for better decision-making.

• Activity-Based Costing (ABC) Method

Activity-Based Costing is a widely used technique to measure customer profitability. It assigns costs based on activities performed for each customer, such as order handling, complaint resolution, or technical support. Customers who use more company resources are assigned higher costs. ABC provides accurate profitability information and prevents incorrect assumptions about customer value.

• Customer Lifetime Value (CLV) Approach

Customer Lifetime Value estimates the total profit expected from a customer throughout the entire relationship. Instead of focusing on short-term profit, CLV measures long-term contribution. A customer may not be profitable today but may become valuable in the future through repeat purchases and loyalty. CLV therefore helps businesses invest wisely in customer retention.

• Customer Segmentation Based on Profitability

After measurement, companies classify customers into groups such as high-value, medium-value, and low-value customers. High-value customers receive personalized service and loyalty rewards. Medium-value customers are encouraged to increase purchases, while low-value customers are served through automated systems. Segmentation helps businesses focus on profitable relationships and reduce unnecessary expenses.

• Role of CRM Technology

Modern CRM software helps organizations track transactions, service activities, and customer interactions automatically. Data analytics tools process large volumes of data and generate profitability reports. Technology improves accuracy and allows real-time monitoring of customer value. It also helps companies identify trends and take corrective actions quickly.

• Managerial Decisions Based on Profitability

Customer profitability information supports managerial decisions such as pricing strategies, service levels, and marketing investments. Businesses may offer premium services to profitable customers and reduce costly services for low-profit customers. Companies can also design special loyalty programs to retain valuable customers. Thus, profitability measurement guides strategic planning.

Customer Value Modeling

Customer Value Modeling is a CRM technique used to estimate the economic value a customer brings to an organization over a period of time. It evaluates how beneficial it is for a company to acquire, serve, and retain a customer. The model considers purchasing behavior, service usage, and relationship duration. Instead of focusing only on single transactions, it studies the long-term relationship. This helps companies understand which customers are worth investing in and how to manage relationships effectively.

Purpose of Customer Value Modeling

• Identify High-Value Customers

Customer value modeling helps organizations recognize customers who contribute the most to long-term profit. By analyzing purchase frequency, spending patterns, and loyalty, companies can identify high-value customers. These customers are treated as strategic assets and receive personalized service, exclusive offers, and priority support. Identifying valuable customers ensures that the organization protects its most important relationships and strengthens customer satisfaction and retention.

• Improve Resource Allocation

Businesses have limited resources such as time, manpower, and marketing budget. Customer value modeling helps companies allocate these resources wisely. High-value customers receive more attention, better service, and customized communication, while standard procedures are used for low-value customers. This prevents unnecessary expenditure and improves operational efficiency. Proper allocation of resources increases productivity and ensures better use of organizational efforts.

• Enhance Customer Retention Strategies

The model helps companies design effective retention strategies. When businesses know which customers are valuable, they can provide loyalty programs, personalized offers, and after-sales support to maintain relationships. Retaining valuable customers ensures stable revenue and reduces the need for costly acquisition efforts. Thus, customer value modeling strengthens long-term customer relationships.

• Support Marketing Decision Making

Customer value modeling guides marketing planning and promotional activities. Instead of mass marketing, companies can target specific customer segments. Promotional campaigns are directed toward customers who are likely to generate higher returns. This increases the success rate of marketing activities and improves return on investment. Marketing becomes more focused and efficient.

• Increase Customer Lifetime Value

The model encourages businesses to improve the long-term value generated from customers. Companies introduce cross-selling, up-selling, and relationship-building activities to increase repeat purchases. As customers continue to interact with the brand, their lifetime value increases. This leads to higher profitability and stable income for the organization.

• Improve Product and Service Planning

Customer value modeling provides insight into customer preferences and expectations. Companies can design products and services according to the needs of valuable customers. It reduces the risk of product failure and enhances acceptance in the market. Organizations can also discontinue products that do not contribute to profitability.

• Control Service Costs

Some customers require excessive service support, increasing operational cost. Customer value modeling helps businesses identify such cases and adjust service levels accordingly. Companies may introduce self-service options or standardized service processes. Controlling service cost improves profitability without harming customer relationships.

• Strengthen Customer Relationships

By understanding customer importance, companies can maintain better communication and personalized interaction. Regular contact, feedback collection, and customized services build trust and emotional connection. Strong relationships lead to loyalty and long-term association. Customer value modeling therefore improves relationship quality.

• Gain Competitive Advantage

Organizations that understand customer value perform better than competitors. They serve important customers effectively and respond quickly to market changes. Loyal customers resist competitor offers and continue purchasing. This strengthens the company’s market position and brand reputation.

• Ensure Long-Term Business Growth

The ultimate purpose of customer value modeling is sustainable business growth. By focusing on profitable relationships, improving retention, and controlling costs, companies maintain steady revenue. A stable customer base allows businesses to expand confidently and achieve long-term success.

Components of Customer Value

• Functional Value

Functional value refers to the practical usefulness and performance of a product or service. Customers evaluate whether the product solves their problem effectively and performs as expected. Quality, durability, reliability, and efficiency are major elements of functional value. If a product works properly and fulfills its purpose, customers feel satisfied and continue purchasing. Strong functional value builds trust and encourages repeat buying behavior.

• Economic (Price) Value

Economic value relates to the price customers pay in comparison to the benefits received. Customers always compare cost with utility. If they feel that the product offers good benefits at a reasonable price, they perceive high value. Discounts, affordability, and cost savings increase economic value. Businesses must balance price and quality to ensure customers believe they are getting value for money.

• Emotional Value

Emotional value refers to the feelings and psychological satisfaction customers experience while using a product or interacting with a brand. A positive experience such as comfort, happiness, confidence, or pride increases emotional attachment. Brands that create pleasant experiences develop loyal customers. Emotional value often influences purchasing decisions more strongly than price or functional benefits.

• Social Value

Social value arises when a product enhances a customer’s social status or acceptance in society. Some products provide prestige, recognition, or image improvement. Branded clothing, premium gadgets, and luxury items are examples. Customers purchase such products not only for utility but also for social identity. Companies use branding and positioning strategies to strengthen social value.

• Relationship Value

Relationship value is created through long-term interaction between the company and the customer. Friendly communication, personalized service, and after-sales support build trust and commitment. Customers feel comfortable dealing with a familiar company and prefer continuing the relationship. Strong relationship value increases customer loyalty and reduces switching behavior

• Service Value

Service value refers to the support customers receive before, during, and after the purchase. Quick delivery, installation assistance, customer support, and complaint handling increase satisfaction. Efficient service reduces customer effort and enhances convenience. High service value often differentiates a company from competitors and encourages repeat purchases.

• Convenience Value

Convenience value represents the ease with which customers can purchase and use a product or service. Availability, easy payment options, online ordering, and fast delivery improve convenience. Customers prefer companies that save time and effort. Greater convenience leads to higher satisfaction and retention.

• Personalization Value

Personalization value occurs when companies tailor products and communication according to individual customer preferences. Customized offers, recommendations, and personalized messages make customers feel important. CRM technology helps businesses understand individual needs and deliver relevant solutions. Personalization strengthens emotional connection and loyalty.

• Experiential Value

Experiential value is derived from the overall experience customers have with the brand. Store atmosphere, website design, customer interaction, and product usage experience contribute to this value. A pleasant experience creates positive memories and encourages repeat visits. Businesses focus on improving customer experience to increase satisfaction and engagement.

• Trust and Assurance Value

Trust value develops when customers feel secure and confident in the company. Reliable products, honest communication, and consistent service build trust. Warranty policies, return guarantees, and transparent information also contribute to assurance. When customers trust a company, they continue purchasing and recommend it to others.

Personalization Marketing

Personalized marketing, also known as one-to-one marketing or individual marketing, is a marketing strategy by which companies leverage data analysis and digital technology to deliver individualized messages and product offerings to current or prospective customers. Advancements in data collection methods, analytics, digital electronics, and digital economics, have enabled marketers to deploy more effective real-time and prolonged customer experience personalization tactics.

Beginning in the early 1990s, web developers began tracking HTML calls that their websites were receiving from online visitors. In 2012, the Web Analytics Association (WAA) officially changed its name to the Digital Analytics Association (DAA) in order to accommodate new and developing data streams that exist in addition to the web.

Technology

Personalized marketing is dependent on many different types of technology for data collection, data classification, data analysis, data transfer, and data scalability. Technology enables marketing professionals to collect first-party data such as gender, age group, location, and income and connect them with third-party data like click-through rates of online banner ads and social media participation.

Data Management Platforms: A data management platform (DMP) is a centralized computing system for collecting, integrating and managing large sets of structured and unstructured data from disparate sources. Personalized marketing enabled by DMPs, is sold to advertisers with the goal of having consumers receive relevant, timely, engaging, and personalized messaging and advertisements that resonate with their unique needs and wants. Growing number of DMP software options are available including Adobe Systems Audience Manager and Core Audience (Marketing Cloud) to Oracle-acquired BlueKai, Sitecore Experience Platform and X+1

Customer Relationship Management Platforms: Customer relationship management (CRM) is used by companies to manage and analyze customer interactions and data throughout the customer lifecycle to improve business relationships with customers, assist in customer retention and drive sales growth. CRM systems are designed to compile information on customers across different channels (points of contact between the customer and the company) which could include the company’s website, live support, direct mail, marketing materials and social media. CRM systems can also give customer-facing staff detailed information on customers’ personal information, purchase history, buying preferences and concerns. Most popular enterprise CRM applications are Salesforce.com, Microsoft Dynamics CRM, NetSuite, and Oracle Eloqua.

Beacon Technology: Beacon technology works on Bluetooth low energy (BLE) which is used by a low frequency chip that is found in devices like mobile phones. These chips communicate with multiple Beacon devices to form a network and are used by marketers to better personalize the messaging and mobile ads based on the customer’s proximity to their retail outlet.

Strategies

One-to-one marketing refers to marketing strategies applied directly to a specific consumer. Having knowledge of the consumer’s preferences, enables suggesting specific products and promotions to each consumer. One-to-one marketing is based on four main steps in order to fulfill its goals: identify, differentiate, interact, and customize.

• Identify: In this stage, the major concern is to get to know the customers of a company, to collect reliable data about their preferences and how their needs can best be satisfied.
• Differentiate: To distinguish the customers in terms of their lifetime value to the company, to know them by their priorities in terms of their needs, and segment them into more restricted groups.
• Interact: In this phase, one needs to know by which communication channel and by what means, contact with the client is best made. It is necessary to get the customer’s attention by engaging with him/her in ways that are known as being the ones that he/she enjoys the most.
• Customize: One needs to personalize the product or service to the customer individually. The knowledge that a company has about a customer, needs to be put into practice and the information held has to be taken into account in order to be able to give the client exactly what he/she wants.

Costs and Benefits

Personalized marketing is used by businesses to engage in personalized pricing which is a form of price discrimination. Personalized marketing is being adopted in one form or another by many different companies because of the benefits it brings for both the businesses and their customers.

Businesses

Before the Internet, it was difficult for businesses to measure the success of their marketing campaigns. A campaign would be launched, and even if there was a change in revenue, it was nearly impossible to determine what impact the campaign had on the change. Personalized marketing allows businesses to learn more about customers based on demographic, contextual, and behavioral data. This behavioral data, as well as being able to track consumers’ habits, allows firms to better determine what advertising campaigns and marketing efforts are bringing customers in and what demographics they are influencing. This allows firms to drop efforts that are ineffective, as well as put more money into the techniques that are bringing in customers.

Some personalized marketing can also be automated, increasing the efficiency of a business’s marketing strategy. For example, an automated email could be sent to a user shortly after an order is placed, giving suggestions for similar items or accessories that may help the customer better use the product he or she ordered, or a mobile app could send a notification about relevant deals to a customer when he or she is close to a store.

Customers

Consumers face an overwhelming variety and volume of products and services available to purchase. A single retail website can offer thousands of different products, and few have the time or are willing to make the effort to browse through everything retailers have to offer. At the same time, customers expect ease and convenience in their shopping experience. In a recent survey, 74% of consumers said they get frustrated when websites have content, offers, ads, and promotions that have nothing to do with them. Many even expressed that they would leave a site if the marketing on the site was the opposite of their tastes, such as prompts to donate to a political party they dislike, or ads for a dating service when the visitor to the site is married. In addition, the top two reasons customers unsubscribe from marketing emailing lists are 1) they receive too many emails and 2) the content of the emails is not relevant to them.

Personalized marketing helps to bridge the gap between the vastness of what is available and the needs of customers for streamlined shopping experience. By providing a customized experience for customers, frustrations of purchase choices may be avoided. Customers may more quickly find what they are looking for and avoid wasting time scrolling through irrelevant content and products. Consumers have come to expect this sort of user experience that caters to their interests, and companies that have created ultra-customized digital experiences, such as Amazon and Netflix.

Future of Personalized Marketing

Personalized marketing is gaining headway and has become a point of popular interest with the emergence of relevant and supportive technologies like DMP, geotargeting, and various forms of social media. Now, many people believe it is the inevitable baseline for the future of marketing strategy and for future business success in competitive markets.

Adapt to technology: For personalized marketing to work the way advocates say it will, companies are going to have to adapt to relevant technologies. They will have to get in touch with the new and popular forms of social media, data-gathering platforms, and other technologies that not all current employees and businesses may be familiar with or can afford.

Restructuring current business models: Adopting a new marketing system tailored to the most relevant technologies will take time and resources to implement. Organized planning, communication and restructuring within businesses will be required to successfully implement personalized marketing. Some companies will have to accept that their current business and marketing models will change radically, and probably often. They will have to reconsider the ways customer data and information circulate within the company and possibly beyond. Company databases will be flooded with expansive personal information individual’s geographic location, potential buyers’ past purchases, etc., and there may be complications regarding how that information is gathered, circulated internally and externally, and used to increase profits.

Legal liabilities: To address concerns about sensitive information being gathered and utilized without obvious consumer consent, liabilities and legalities have to be set and enforced. Privacy is always an issue, in some countries more than others, so companies have to manage any legal hurdles before personalized marketing can be adopted.

Event-Based Marketing

Event-based marketing has become a hot topic among marketers in recent years. It refers to prospect nurturing, sales and communication activities that change based on the customer or prospect’s situational needs. Rather than approaching your marketing with a “one-size-fits-all” mentality, for instance, you alter your approach based on the customer or prospect, and the impending changes in their businesses.

Defining an “Event”

Some people misunderstand the meaning of event-based marketing, believing it refers to specific dates. The “event,” however, refers to the activity or change in the customer or prospect.  

An event can be any action, activity or change with a customer or prospect that could triggger new buying decisions. Some events are more noticeable, but others are more discreet. Here’s a few trigger events that typically cause significant disruption, thus change within an organization.

• Funding announcements
• Mergers and aquisitions
• Facility expansion, relocation, capital improvements
• Executive leadership changes
• Financial performance
• Hiring Announcements
• Layoffs
• New product or service announcements
• Legal or regulatory issues

Following an event or a new announcement, a salesperson could customize his or her approach based on the impending organizational change. 

If you plan on using event-based marketing, though, you’ll need to take a proactive approach towards these business opportunity leads and  the customers throughout their lifecycle. Without identifying “events,” you won’t be able to customize your approach based on the customer or prospect’s needs.

Benefits of Event-Based Marketing

Why should you use event-based marketing? According to an article published by Eventricity, it’s not uncommon for businesses to achieve 30% or higher customer response rates when using event-based marketing. The website cites a case study involving the National Australia Bank and ABM Amro Antonveneta, which experienced a 34% average customer response rate when using event-based marketing. This is just an average, and your business may experience even higher response rates.