October 14, 2009

OMS: Cross-Selling and Up-Selling

Please send me an e-mail message if you'd like to follow along with your own copy of a sample OMS spreadsheet, or if you're looking to work with me on an OMS project.

We read a lot about cross-selling and up-selling merchandise, and for good reason. There's nothing more fun, from the standpoint of a merchant, than adding another item to an order, generating an additional $20 of profit for almost no additional work.

Now, let me ask you a question: Does customer value increase if a customer adds a cross-sell or up-sell item to their order?

Go into the OMS spreadsheet, and type the value "1.05" into cell C7. Look at the demand values for the next five years:
  • Year 1 = $79.7 million.
  • Year 2 = $70.5 million.
  • Year 3 = $66.7 million.
  • Year 4 = $64.4 million.
  • Year 5 = $62.9 million.

Next, type "1.00" into cell C7. Next, type the number "1.05" into cells C5 and C6. Look at the demand values for the next five years:

  • Year 1 = $79.7 million.
  • Year 2 = $72.3 million.
  • Year 3 = $68.1 million.
  • Year 4 = $65.3 million.
  • Year 5 = $63.6 million.

Do you notice the difference?

Getting customers to spend 5% more in one year has the potential to benefit one year.

Increasing customer response by 5% pays us downstream benefits ... in this case, an additional $4.8 million over the next four years.

Carefully analyze the customers who purchase cross-sell and up-sell items, comparing them against customers who have identical characteristics but have not been swayed by cross-sell and up-sell items. Measure the long-term benefit your programs deliver ... are you fundamentally changing customer behavior, or are you enjoying the benefits of short-term profit generation?

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