“Buy me those chocolates.”
The kid said sternly, pointing his stubby finger at a big jar of sweets on the shop counter as they waited to check out.
The counter guy grinned. I smiled. The mother winced.
She just got cross-selled.
In 2006, Amazon reported that cross-selling and upselling contributed as much as 35% of their revenue.
Product recommendations are responsible for an average of 10-30% of eCommerce site revenues according to Forrester Research analyst Sucharita Mulpuru.
There’s no reason why upselling and cross selling shouldn’t work for you. In this post we look at:
- What is Upselling and Cross Selling?
- Why are they important?
- Should you upsell or cross-sell?
- What and how should you upsell/cross-sell?
- Why does upsell/cross-sell work so well? (personal favorite)
- When’s it too much?
What is Upselling and Cross-selling?
Upselling and cross-selling are cousins of well, selling.
Buy a cow from me and I’ll offer you a better one for 50 bucks more: the better cow is an upsell.
Buy a cow from me and I’ll throw in a haystack for 5 bucks: the haystack is a cross sell.
Upselling is a strategy to sell a superior, more expensive version of a product that the customer already owns (or is buying). A superior version is:
- a higher, better model of the product or
- same product with value-add features that raises the perceived value of the offering
Upselling is the reason why we have a 54” television instead of the 48” we planned for; the reason why we go for 7 day European Sojourns instead of 5 day simple French Affairs. It’s also the reason why we have unused annual contracts thinning away under silverfish attacks.
Cross-selling is a strategy to sell related products to the one a customer already owns (or is buying). Such products generally belong to different product categories, but will be complementary in nature. Like the hay-stack for the cow, or batteries for a wall-clock.
Cross-selling is a battle ready strategy. Here’s how McD does it: McDonald’s keep their apple pie dispensers right behind the cashier, in full view of customers. A year ago, the head of the U.S. division for McDonald’s Corp., Jeff Stratton, said in an interview that he felt moving the dispensers to the back kitchen area would probably cut apple pie orders by half.
There is one more popular selling technique known as bundling. Bundling is the offspring of cross sell and upsell. You bundle together the main product and other auxiliary products for a higher price than what the single product is sold for.
What is Bundling in eCommerce?
By bundling together the camera and two very related (even essential) products, Flipkart makes a compelling offer. Notice how there are multiple combos available.
Bundling is also quite often used along with a discount to increase the perceived value of the offering. Here’s more on the benefits of bundling.
Pure Bundle or Mixed Bundle?
Pure Bundling is when products are made available only in bundles and cannot be bought individually. Mixed bundling is when both options (individual buy and bundle buy) are made available.
Vineet Kumar from HBS and Timothy Derdenger at Carnegie Mellon University teamed up together and studied bundling as used by Nintendo in their video game market. Revenues fell almost 20% when Nintendo switched from mixed bundling to pure bundling. In the gaming market, prices fall each day, so customers looking to buy just that one thing will choose to wait until it becomes available, likely at a cheaper price.
Similarly, a study on the effect of bundling in consumer goods market, revealed that bundling is a great way to entice high value customers of competitors to switch over. But it does not significantly help category sales; and in some ways even discourages it because different category products are bundled together.
So should you use pure bundling or mixed bundling?
But why settle for safe when you can A/B test it?
Here’s a way you can use bundling: Specify a minimum order amount to qualify for free shipping. Customers who are looking to buy only one item are likely to switch to the bundle in order to raise order value and qualify for free shipping.
Amazon does all of this brilliantly.
Why Is Upsell and Cross-Sell Important for eCommerce?
Upselling and cross-selling is often (and mistakenly) seen as unethical practices to squeeze more out of the customer.
They’d say, ‘the wincing mother in your opening paragraph is proof that customers hate being cross-sold to’.
I disagree, as will any white-hat marketer.
The Mother Who Winced (way better than ‘the wincing mother’) wasn’t the target customer there. The kid was. The kid found value, and he demanded it. The mother didn’t (add dental insurance to the mix), and she winced.
This dilemma of whether upselling/cross-selling is ethical or not, has its roots in the means and ends discussion. The end goal of any business is more profit. It is the means that make all the difference.
Cross-selling and upselling can be used unethically, in a pushy sort of way, to try and make the customer shell out more. But such tactics don’t last long and is often to the peril of such businesses. More on this under the heading “The Fine Line Between A Friend and A Creep”
As a strategy, however, upselling and cross-selling should be used to ‘help customers win’ as illustrated beautifully in this video by Jeffrey Gittomer. Looked at it that way, upselling and cross-selling become more of friendly suggestions and a helping hand to make the ‘right’ purchase.
Remind Bob to buy some batteries along with his new wall-clock
Jack might be looking for something more powerful than an i5 processor, show him the i7, too.
So how does upselling help you?
#1 Increases Customer Retention
If you leave aside impulse buys, customers buy products/services to solve a problem. They are aware of the problem, but might not be aware of the best solution to the problem.
I don’t belong to the Steve Jobs bandwagon, but he got it right when he said ‘people don’t know what they want until you show it to them.’ Upselling or cross-selling done right helps the customer find more value than he was expecting. You become his best friend.
Best friends return and drive 43% of your revenues.
#2 Increases Average Order Value and Life-time Value
- Cross-sell/upsell increases your average order value (caveat: only if you don’t upsell like this)
- A Marketing Metric study reports that the probability of selling to an existing customer is 60 – 70%. The probability of selling to a new prospect is 5-20%. Upsell to existing customers to boost LTV.
Should You Upsell or Cross-Sell in eCommerce?
Despite the many ways upsell and cross-sell are similar, there’s a clear winner in terms of numbers.
According to Predictive Intent, upsell can work upto 20 times better than cross-sell.
A little over 4% of all customers who were faced with an upsell bought it while less than 0.5% of customers took bait when shown a cross-sell.
But when it comes to the checkout page, cross-sell kills it with 3% conversions.
PRWD head of usability, Paul Rouke explains why cross-sell works best on checkout pages
What and How Should You UpSell?
The data from Predictive Intent’s study show that a mere 4% of customers convert on average through upselling. It’s not much, you might think.
They aren’t looking for ‘just enough’. They will not shy away from going the extra mile to make sure the product (solution to a problem) is just right.
One of the commonest ways to upsell is to suggest the next higher model. But when it’s just 4% that you are targeting, the margin for error is as thick as the edge of a blade.
To make the most of these unicorns, here are some suggestions on how to upsell:
- Promote your most reviewed or most sold products
- Give more prominent space for the upsell, display testimonials for the upsell
- Make sure the upsells are not more than 25% costlier than the original product
- Make add-on features like insurance pre-selected and ask customers to deselect if not required
- If you have customer personas in place, use those to make relevant suggestions
- Make suggestions relevant by giving context: why should I buy that instead of this?
What do I mean by that?
Don’t just shove a front-loader washing machine in my face when I’m looking at a top-loader; tell me why it’s meant for me: I’m the discerning heavy user, who likes taking extra care of clothes and saving more on electricity.
And always, always, make sure you suggest products from the same category. Don’t ask me to buy a 17 inch laptop when I’m shopping for a macbook air. They don’t satisfy the same needs.
Let’s not forget cross-sell either.
Use cross-sell techniques more on the check-out page to tap into impulse buying:
- Cross-sell products should be at least 60% cheaper than the product added to cart
- Go for products that are easily forgotten: filters for lenses, earphones for mobile phones, Lighter for a gas stove and of course, scrub for cows.. the possibilities are endless
Here’s how removing cross-sell options from the product page increased order by 5.6%.
If you are manually pushing upsell/cross-sell suggestions, it would be worthwhile to automate the system. Products should be categorized and related products should be tagged so as to enable automation.
Now comes the interesting part.
Why Does Upsell/Cross-Sell Work and How Can You Ace It?
Upsell and cross-sell works when you are able to ease the decision making process of a customer.
In 2006, a study by Bain showed that reducing complexity and narrowing choices can boost revenues by 5-40% and cut costs by 10-35%.
Upsell Smart By Narrowing Choices
Too many choices can be paralyzing. Professor Iyengar and her research assistants conducted a study on the effect of choices in the California Gourmet market. They set up booths of Wilkin and Sons Jams — one offered an assortment of 24 jams while the other had on display 6 jam varieties.
60% of the visitors stopped by the larger booth while only 40% flocked to the one with lower number of choices.
But 30% of visitors that sampled at the small booth made a buy while only 3% of the 60% visitors to the larger booth went on to make a purchase.
Actionable Tip: Don’t bombard your customers with many choices. If they’ve already said no to an upsell product do not push for it. Think of upsell as a gentle suggestion, not an aggressive sales tactic.
Bundle To Reduce Decision Complexity
Every action the user has to take makes the decision making more complex. Think of ways to reduce the number of actions in a buying decision. We’ve a limited amount of energy to be spent on decision making.
Bundling brings together related products that are of relevance to a customer. Buying them individually involves more decision making, and more steps. Whereas through bundling, in one a customer is able to buy multiple products together.
It’s also important to understand how we make decisions. How rational are we at decision making?
Turns out, not so much.
Customers Make Irrational Decisions
Dan Ariely does a brilliant break down of the irrationality of decision making and explains how we are not always in control of the decisions we make.
Let’s talk organ donations. Bear with me, thank Dan later.
The graph below shows the percentage of people of different countries that agreed for organ donation.
It seems the people represented in Gold don’t seem to care about others all that much, while the ones in blue care infinitely. Is that a cultural difference at play here?
But these guys are neighbours: Sweden and Denmark , Netherlands and Belgium, Germany and France. So what’s happening here.
They were presented two widely different consent forms.
In the countries on the left, people were presented with an ‘opt-in’ form. People had to check the box to opt-in for the organ donation program.
In the countries on the right, people were presented with an ‘opt-out’ form, which meant unless they unchecked the box, they would be opted-in by default.
Surprisingly, people everywhere behaved the same way. They did not take any action and let the default choice be.
Dan Ariely explains our behavior was based on the complexity of the decision.
- We don’t have complete information on the subject
- We can’t differentiate sufficiently between the two options
- We can’t decide
- We do nothing
Buridan’s Ass: An ass that is equally hungry and thirsty is placed precisely midway between a stack of hay and a pail of water. It will die of both hunger and thirst since it cannot make any rational decision to choose one over the other.
Actionable Tip: So in your purchase funnel, make those little extra features checked by default, and give customers the option to deselect. Make it clearly visible, and never attempt to do it on the sly.
Use Price Anchoring: The Surprising Power of Dummy Choices
A few years back The Economist ran an ad that looked like this
You get a web-only subscription for $59, a print-only subscription for $125 or both, again, for $125! Needless to say, the print-only option is a dummy choice. Who in their right minds would ever choose an inferior option when the price is the same?
Dan took the ad and took it to a 100 MIT students to see what they would choose.
An overwhelming majority chose what seemed the ‘best’ option – both print and web subscription at $125. 16% chose the web-only subscription. Nobody chose the print-only subscription at $125.
Dan then took off the middle choice — the print-only one. And ran the test again on 100 people. This is how the opt-in rates looked now.
Surprisingly, the majority (68%) people chose the cheaper option when the dummy choice was removed. The print and web subscription that saw 84% subscription in the presence of the dummy choice now got a significantly low 32% subscription rate.
An inferior choice makes a similar but superior choice look better even when other options are cheaper.
Actionable Tip: consider a customer looking at a top-tier entry level DSLR. Show him a mid-level DSLR without add-ons for a marginally higher price and the same mid-level DSLR with add-ons at the same higher price.
Upsell it with the proper communication — how does the mid-level DSLR help the customer win? — and you have a good probability of making the upsell.
The Fine Line Between Being A Friend and A Creep
In 2009, Graham Charlton at eConsultancy tore apart VistaPrint’s and GoDaddy’s checkout process in this post. GoDaddy’s process at the time contained almost 10 steps from selecting a domain name to finally completing the order – most of which were forced cross-sell attempts.
VistaPrint seems to have taken the critique well, and in a post published 5 years later, eConsultancy looks at how VistaPrint revamped their checkout process, making it much more pleasant and much less in-your-face in the process.
Here’s what you shouldn’t do:
- Suggest upsells and cross-sells before a customer picks a product
- Bombard customers with many cross-sell and upsell products
- Sly tactics like hiding pre-selected add-ons in the hope customers don’t notice it
If there’s one thing that is your takeaway from this post, it has to be this:
Upsell and cross-sell techniques should be used as strategies to help customers make better decisions, faster.
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The post Upsell and Cross-sell: Strategies To Boost eCommerce Revenue appeared first on VWO Blog.