Channel Conflict

Channel Conflict

More than anything, cultural issues at companies are the prime hindrance to a successful cross-selling effort. Creating an incentive program for salespeople that gives them a piece of the commission, whether they actually complete the transaction with customers or just refer them through a cross-selling program, is critical. But to do this often requires a radical rewriting of the way most organizations operate.

Consider the persistent conflict between the Internet, store and catalog sales channels at many companies. Too often, these are separate business units, so they tend to market to customers independently—in effect, competing with each other. So it's not unusual for a company to have healthy annual Web sales growth of 25 percent or more, even on an established site, while sales increases for the total business remains stuck in the single digits. But if these separate sales units are forced to cooperate by using a cross-selling system as both an analytical tool and the foundation of a marketing campaign, it's possible to figure out how to drive customers from one channel to another without diminishing overall sales.

Home furnishings retailer Restoration Hardware Inc. was an entirely store-based operation until 1998, when it produced its first catalog. A year later, the company debuted its Web site. Sales quadrupled between 1998 and 2002, but so did costs: The company posted a record loss of $34 million in 2002. Concerned that high marketing costs, especially on the catalogs, were washing out revenue growth, management decided to investigate the impact of the catalog on the Web and retail sales channels—an analysis that, surprisingly, relatively few companies undertake. Working with consultants from Abacus, a provider of retail transactional data and other customer information, the company matched each of its Web, retail and catalog purchases to specific mailings. The results were extremely valuable and somewhat surprising: More than 40 percent of online purchases were linked to the catalog, and these customers spent 30 percent more than other Restoration Hardware Web shoppers. Also, consumers who received the company's catalog spent 25 percent more in its stores than those who didn't.

Based on these findings, Restoration Hardware increased its cross-selling effort significantly by doubling its catalog run last year and mailing 80 percent of these catalogs to existing customers, who were chosen on the strength of their past purchasing behavior and their potential as repeat customers. With the goal of raising the dollar value of purchases in each sales channel by at least 20 percent, the catalog was redesigned with higher-priced, higher-margin products—items such as Moonpies and funny glassware were replaced with textiles, rugs, top-quality sheets and draperies.

"This analysis had an incredible impact in helping us make marketing decisions," says Christine Parish, the former director of catalog marketing and now a consultant to the Corte Madera, Calif.-based company. "And now that we can see how each channel's sales are impacted by catalog mailings, we have a methodology for calculating and charging each channel its fair share of the costs."

According to marketing experts, a successful cross-selling system demands three essential technological and cultural requirements: a comprehensive database detailing the purchasing activities of each customer; company-wide dedication to cross-selling led by senior executives and demonstrated by incentives to encourage employees to share data and the discipline to measure results in real time; and a computerized delivery system to generate and distribute sales leads throughout the company.

A system drawn from those criteria, MarketSoft's Kozub says, would view "sales opportunities as assets"—valuable company property and the building blocks for revenue and earnings growth. "They should be treated the same way raw materials are assets on a factory floor," says Kozub.

That message has taken on some urgency recently as companies find it more and more difficult and expensive to generate new customers, while many have failed to develop deep and long-lasting relationships with existing customers. Ballooning sales in the 1990s led many companies to take their customers lightly, thinking there were plenty more where they came from. The increasing popularity and drive to finally make cross-selling work at more and more companies puts the lie to that attitude.

"In industry after industry, handling an account for the long haul wasn't a priority," says Inforte's Vaskelis. "There was too much money floating around and too many customers willing to spend it. So a company would install a CRM system and think that's enough spent on keeping customers happy. It wasn't. Now companies have to learn again how to manage customer relationships."

This article was originally published on 07-01-2003
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