Friday, May 04, 2012

Bursting the Bubble of Cross-Buying

Is cross-buying profitable?

We all dream of effect cross-selling opportunities to deepen the relationship with our customers and typically think that because of no acquisition costs and the likelihood of better response, certainly compared to cold prospecting, cross-selling is a profitable endeavor.  And on average, it is.   But as we know, "average is the most dangerous word in marketing."

So are there customers to whom we should NOT be cross selling?

In a recent article in the Journal of Marketing the question was put to the test.  It turns out there are bad customers and they are habitually bad.  In fact, across the five industries reviewed between 1 in 10 and 1 in 3 customers are unprofitable buyers and that they account for a whopping 40-90% of the cumulative total loss from customers.

The research suggests staying away from customers who exhibit one or more of the following bad habits:
  1. Don't spend more in total as they buy more categories
  2. Rely heavily on customer service
  3. Cause revenue reversal (cancellation or product returns)
  4. Deal hop and make disproportionate purchases of promotional items
The use of these four metrics led to identifying nearly 90% of the unprofitable customers that should be filtered from any outbound cross-sell program. 

So, we have a new tool in our arsenal.

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