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?

Page Counts When Bifurcation Hurts All Other Customers

Yesterday we talked about the fact that best catalog customers (a minority of your file) deserve MANY catalogs that are merchandised with...