Page 137 - DMGT308_CUSTOMER_RELATIONSHIP_MANAGEMENT

Customer Relationship Management

Notes definition imperfect substitutes. A perfect substitute is one that would be identical to the product
it replaced.
Successfully up selling a product results in an increase in revenue, and ideally an increase in
profits. It may also result in an increase in profit margin (but may not). Consider a customer
who intends to purchase a 200GB hard drive for US $100 (at a cost of US $45). This purchase would
yield US $100 is revenue, and US $55 dollars in profit at a 55% profit margin. If you successfully
uphold the customer to purchase a 500GB hard drive for US $200 (at a cost of US $100), the
purchase would yield US $200 in revenue and US $100 in profit at a 50% profit margin.
You have to understand if your strategy is prioritizing an increase in revenue, profits, or profit
margins. This will determine which up selling recommendations you want to make to customers.

Measuring Cross-selling and Up selling

In addition to measuring your sales you want to specifically measure the impact that cross-
selling and up selling have on your measurements. Those measurements are described above.
You may be breaking those measurements down by product category, product price levels,
market segments, or any other decomposition that helps guide future decisions. You also want
to measure the effectiveness of your cross-selling and up selling solutions. You do that by
measuring conversion – the percentage of customers that change their purchases in response to
your cross-sell and up sell marketing.
Get Elastic, the eCommerce blog, shares some 2009 survey data provided by the e-tailing group
on cross-sell and upsell conversion statistics. Two-thirds of retailers that measure cross-sell and
up sell conversion rates reported less than 5% conversion rates. At the same time, Get Elastic
reports that Amazon reported 35% of their 2006 revenue came from cross-sells.

If you’re adding cross-selling and up selling capabilities to your eCommerce website, you
should set your initial expectations of effectiveness low, and your aspirations high. You won’t
start out with results like Amazon’s – no more than 98% of retailers that measure conversion see
results far lower than Amazon’s. In fact, most of them see results an order of magnitude smaller.
The hugely competitive and ever evolving battle to win the hearts and minds of the mobile user
is bringing marketers within this sector new and escalating challenges, but also huge
opportunities. In addition to rapid churn rates and high customer acquisition costs, marketers
are now also faced with an economic downturn, during which it is likely they will see, if they
have not already, a reduction in consumption levels. Therefore it is essential now, more than
ever, that marketers use all the tools at their disposal to maintain customer loyalty and retention.
The key to building long-lasting relationships is to continuously present the consumer with
services, offers, merchandise and bundles, which meet their requirements at exactly the right
time. In this sense the key is to always think of ‘what’s next?’ for the customer. Instead of trying
to predict what users want, operators need to adopt a system which acknowledges a customers
response, or lack of response, immediately and keeps the dialogue open based on their decisions,
whilst executing the offers in real-time. It’s an essential part of the Customer Relationship
Management mix and will help to deliver optimum results yet it’s not something that can be
achieved through ‘traditional’ campaign management systems. This means operators cannot
maximise tried and tested techniques such as up-sell and cross-sell if they do not address the
customer, just at the right time, and based on his actual behaviour.
Gartner forecasts that within the next three to five years the techniques of up-sell, offering the
customer a higher priced or better version of the product they are purchasing; and cross-sell,
offering a related product, will soar. These are important techniques in optimising the lifetime
value of customer relationships, so how can marketers’ best implement them in order to ensure
maximum return on investment?

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