Cross-selling does not attempt to optimise or maximise price through a single transaction, but rather enticse customers into a relationship with a view to maximising the revenue per customer, not necessarily the revenue per transaction or product.
The price of the headline (or most attractive) product is often used as bait in a sales technique that dates back to the beginning of bartering. No self-respecting article on cross-selling can avoid the example of Gillette razors, sell the razor at a minimum price and make a fortune from the blades for the life of the customer – what a relationship!
This is the classic split solution of cross-selling, followed into modern life by Nespresso coffee machines and Amazon’s low-price Kindle devices.
Business buyers are supposed to be more sophisticated though. But in reality, nuanced derivations of the same tactics work: photocopiers leased on a pay-per-copy basis aim at the tendency of the buyer to forecast low and use high.
Broad-based cross-selling is based around a popular product at low cost, creating a relationship during which the convenient next action for the customer is to buy high-margin products. Accountants leading with an audit and then moving on to tax advice is a time-honoured and well-understood approach, as is consultants offering low-cost evaluation with expensive implementation.
The third element, and certainly the most complex cross-selling technique, is that of bundling. Bundling is a pricing science all of its own. The ‘sell’ is fundamentally different and focuses on the benefit to the customer of buying a basket of goods rather than individual products. The object of this tactic is to raise revenue, and in practice the tactics used often confuse the seller as much as the buyer – and always confuse the seller’s CFO!
The understanding of what drives a successful bundling cross-sell is further complicated by the effect of customer segmentation. Different aspects of any given bundle can appeal in different ways to varying cohorts of customers meaning that understanding your customer segmentation is crucial. The common feature of all cross-selling techniques (be it split products, broad-based, bundling – or B2B or B2C) is to build a relationship based on a hook.
Pricing gem:
Utilising Cross-selling as a hook is not the same as fishing. The purpose is to understand, feed and nurture the catch, not eat it!
