Divide and Conquer
The New Reality for Customer Engagement
Date: 5/31/2018 @ 1 p.m. ET
Divide and Conquer
It's called cross-selling, or up-selling: a data-driven technique companies use to increase revenue by targeting existing customers with fresh products and services that will most likely match their preferences. As a concept, cross-selling isn't new. For the past decade or so, companies have been touting the benefits of tapping old customers for new revenue, primarily because it makes good strategic sense. In a 2001 study, Harvard Business School professors Robert S. Kaplan and V.G. Narayanan examined the marketing adage that 20 percent of customers provide 80 percent of sales. Their conclusion: Not only is that ratio on the mark, but 20 percent of customers also account for well over 100 percent of profits. Combine those numbers with the fact that it costs companies five times less to cross-sell an existing client than to acquire a new one, and it's hard to deny that cross-selling is a profitable approach, particularly when a tough economic environment is making consumers finicky.
The problem is, as much as cross-selling has been a desirable goal, few companies do it well. According to MarketSoft Corp., a provider of cross-selling technology, nearly three-quarters of all businesses say they have cross-selling programs, but as many as 70 percent of such efforts fail to increase revenue in any significant way, according to Gartner Inc. One prominent reason: Lots of corporations spent the 1990s bulking up through acquisitions, but integrating the companies and divisions involved in these deals and finding the vaunted synergies that might lead to cross-selling has been tough. Instead of cooperation and data-sharing among business units, information silos have emerged. And in the process, individual business units have grown in influence. They're held to specific performance yardsticks and control their own sales-generation techniques and costs, including technology expenditures. What is typically viewed as cross-selling by many companies is little more than internal referrals within highly segregated divisions. Sometimes that results in incremental sales, but nothing substantial, because essentially the same products are being offered to the same customers over and over again.
"It's like a soccer game. If everybody plays as individuals, the team loses," says Mike Kozub, vice president and chief marketing officer of MarketSoft Corp., a cross-selling technology provider. "For instance, Citicorp has dozens of independent business units that all have insights into the same customers. If they shared what they know, Citicorp would be much more formidable. But not many business units in any company are able to communicate across lines of business very well."
Despite its stutter-start, the full promise of cross-selling is finally being put to the test by many companies, especially those in the financial-services, telecommunications, high-tech and services industries. As the economy has shrunk, the value of existing customers has increased; they're one of the few avenues for revenue growth companies have. Consequently, many senior executives are increasingly determined that no customers slip through the cracks without every appropriate business unit getting a chance to see what else they might buy. At the same time, it's almost impossible for a consumer to stay anonymous anymore. Shopping on the Web, call centers and third-party firms that collect virtually every transaction from hundreds of companies have vastly increased the amount of information available about individual customer activities and preferences (see "Connecting the Dots"). Put all that together and a tipping point for new and more ambitious attempts at cross-selling has been reached.
"Companies have amassed a tremendous amount of data about their own customers, mostly through the implementation of new technologies to gather this information," says Darius Vaskelis, a vice president at strategy consultants Inforte Corp. "Now, executives are demanding that better use is made of this data and that their companies focus on selling a broader portfolio to their customers."
Cross-selling's inroads have come in the wake of increasing disenchantment with customer relationship management (CRM) systems. By automating record-keeping and access to data, these expensive systems were supposed to drive the handling of interactions with customers and maintained account information to a new level of efficiency. While CRM by and large has succeeded at making it easier to provide services to customers through data-rich call centers and account records readily available on desktops throughout the company, it has generally added very little to the top or bottom line. In a 2002 survey of 23 users of CRM software from Siebel Systems by analysts at Nucleus Research Inc., 61 percent said they had not yet achieved a positive return on investment after at least two years with the technology.
"Typically, CRM systems just look at data from a historical perspective," says Heidi Lanford, senior vice president of analytics at KnowledgeBase Marketing Inc., CRM and cross-selling consultants and a subsidiary of advertising agency Young and Rubicam. "It's hard to measure a return on investment from that."
By contrast, cross-selling at its best depends on a forward-looking, even predictive technology. Drawing upon the vast amount of poorly used data captured by most companies in their CRM systems, cross-selling's biggest advantage comes when it is used as an übersystem, gathering information from each business unit to produce a broad, company-wide assessment of customer purchasing behavior and propensity. Based on this, cross-selling can attempt to forecast which customers are most likely to buy which additional products.
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