Feb 18, 2010

Steps for a successful cross sell effort

Introducing Cross Selling

It is a well-known fact that cross-selling – selling an additional product or service to an existing customer – is an old and valuable technique used by salespeople in order to transform single-product buyers into multi-product ones. More recently, cross-selling has evolved into a strategy for customer relationship management.

- Today, with increasing competition, companies have come to realize that it is easier to maximize profit by cross-selling services to existing customers than to attract and gain new customers

- Thus, would it not be great if you would know which customers are likely to buy your product – which products they are most likely to buy next? There is an article called “Which customers are worth keeping and which ones aren’t? Managerial Uses of CLV” posted by Wharton which focuses on the following idea:

“For many companies, their whole business revolves around trying to understand which customers are worth keeping and which aren’t… The goal is not only to identify customers, but to reach out to them through cross-selling, up-selling, multi-channel marketing and other tactics – all of which are tied to metrics on attrition, retention, churn and a set of statistics known as RFM – recency, frequency and monetary value.”


Steps for a Successful Cross Sell Effort

  1. Put yourself in your customer's shoes - Would you like to be pushed by more and more products and services rather than your needs?

- If your answer is no, then the key for a successful cross-selling is to focus your efforts on meeting the customer’s needs. Thus, this is the first step you can start by

  1. Do your employees know the real technique behind their cross sell effort?

- Employees’ approach must be developed around serving the customer, not just selling more. Make sure that, your employees are aware of and they are able to implement how the additional products or services would complement the original purchase and further solve the customer’s problem

  1. “Would you like fries with that?"

- This fast food phrase is a widespread spoken example of cross sell. The answers can be wide but they are related. Hence, in order to cross sell, you simply have to mention that the other related products or services are available and you will see that cross-selling opportunities will occur naturally

  1. Bundling products or services?

- Offering a price break on package deals has always facilitated sales. And thus, customers are confronted with not just a single item, but an entire group of items that go together. Thus, customer will be aware of the next product or service and moreover will have the chance to experience it

  1. Next offer means additional price for the customer

- Try to offer a mix of price levels. The lowest cost products or services are most likely to be selected as impulse buys, however other items that meet the customer’s needs can also sell at higher levels

  1. Can you leverage your customer data for an efficient cross sell effort?

- Successful cross-selling mainly depends on the detailed data you have about your customers. When you have it, you need to analyze and create models for each product or offering. These models then will create best next offers for each customer by the scores each customer get. An article called “Using Predictive Analytics to Determine the Best Next Offer” by DM Review underlies the importance of customer analytics and praises the following;

“Successful cross selling/up selling requires more than having an array of attractive products. The successful cross seller needs to know what specific products it should offer to whom and how predictive the outcome will be…..”


Success Stories

Cross-selling can either be one of the most profitable and least risky endeavors a company can undertake; “Using Web Analytics to Cross-Sell” published on ClickZ implicitly refers to a success story of amazon.com’s cross sell efforts. If not properly administered and monitored, your company can easily face the risk of losing customers and creating conflict within your sales team

Aug 31, 2009

Customer Retention 101

Introducing Customer Retention

· Do you know who your core customers are? More importantly can you identify the ones that shop around, taking advantage of every possible switching offer?

· C-level executives are more focused on tracking customer metrics in the recent times and a key measure is Customer Retention (CR) which is the “probability of a customer being ‘alive’ or repeat buying from a firm.”

As winning new customers gets harder, companies are turning to their knowledge of existing customers to encourage their loyalty. “Stick with who you know” (published at New Media Age) cites the following reasons to treat your long term customers right:

- Long term customers tend to be less likely to switch and also tend to be less price sensitive and may initiate free word of mouth promotions and referrals.

- Long term customers are more likely to purchase ancillary products and high margin supplemental products.

- Moreover, long term customers tend to be satisfied with their relationship with the company and are less likely to switch to competitors thus they have power to make market entry or competitors' market share gains difficult.

Value of Customer Retention in an Economic Downturn / Financial Crisis

· Current economic environment once again puts customer satisfaction under the spotlight and CR is a quantifiable way to track it.

“Focus on the customer and win in the downturn” published on Financial Times praises optimizing efforts on customer facing activities:

“Businesses currently have the opportunity to become more strategic – and more profitable – by applying their resources in a more efficient and focused manner. Serving and developing the right kind of customer relationships and experiences instead of arbitrarily cutting spending on customer-facing activities is the key…”

Customer Retention Modeling

· What are the next steps after you decide to hold on to your core customers?

Another Financial Times article, “Customer management: it’s still about the data”, suggests customer data is the place to start:

“Data management is a continuous process and requires constant attention. But it doesn’t have to happen overnight. Start today...” Immediate actions that different organizations try to take are:

- Identify and understand key groups of your costumers,

- Know what to do with your data and integrate the sources effectively

- Turn your findings into actions

- Reach your customers with the right message at the right time

For Further Reading

Anjali Cordeiro (2009, June 23). “In Tough Times, Companies Coddle Their Regulars.” Wall Street Journal (Eastern Edition), p. B.4

Gwendolyn Bounds (2009, May 11). Insight Exchange: “Top entrepreneurs talk about how to keep your customers, and find opportunities, in tough economic times.” Wall Street Journal (Eastern Edition), p. R.2

Janet Adamy (2008, December 5). Corporate News: “Starbucks Moves to Cut Costs, Retain Customers.” Wall Street Journal (Eastern Edition), p. B.3

Aug 18, 2008

Customer Lifetime Value Analysis

Introduction
Among SnA's many analytical projects, Customer Lifetime Value (CLV) analysis is a crucial deliverable for many clients. A general definition for CLV is the "present value of the future cash flows attributed to the customer relationship". Organizations that utilize CLV as a key business metric tend to place greater emphasis on the long-term customer relationship, rather than maximizing short-term sales.

Typical Customer Lifetime Value Calculations
Harvard Business School has published two great examples on how the calculation may be performed. The first example is an Ms Excel spreadsheet (published in 2000) with two scenarios (Basic and Complex) and calculations for each. The second example is a -fancier- Adobe Flash tool (published in 2007) and -similar to the spreadsheet- has input fields for the calculation. A snapshot is below:


It's important to note:
  • Both tools approach the CLV calculation at an aggregate level. This is the common approach in many database marketing resources including Jim Novo's Drilling Down.
  • In this approach, a typical CLV formula will try to integrate all -or some- of the metrics below:
    • Analysis Period: The unit of time into which a customer relationship is divided for analysis. A year is the most commonly used period. Customer lifetime value is a multi-period calculation, usually stretching 2 to 5 years into the future.
    • Churn Rate: The percentage of customers who end their relationship with the company in a given period. [Churn Rate = 1 - Retention Rate]
    • Discount Rate: The cost of capital used to discount future revenue from a customer. This calculation is typically more complex than the standard interest rate.
    • Retention Cost: The amount of money a company has to spend in a given period to retain an existing customer. Retention costs usually include customer support, billing, promotional incentives, etc.
    • Periodic Revenue: The amount of revenue collected from a customer in the period.
    • Profit Margin: Profit as a percentage of revenue.

  • See table below for a typical CLV calcuation (source):

Jun 19, 2008

Official Sna Blog!

We have started blogging on June 19th, 2008. Current ideas for posts include:
  • Articles
  • Market updates
  • Case studies
  • Application examples
  • Software reviews