Customer Relationship Management: A Database Approach

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Customer Relationship ManagementA Database
Approach
MARK 7397 Spring 2007
Class 8
James D. Hess C.T. Bauer Professor of Marketing
Science 375H Melcher Hall jhess_at_uh.edu 713
743-4175
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Up-Sell and Cross-Sell
An upsell is simply convincing the buyer that he
or she should purchase a more expensive (and
higher quality or more versatile) product than
the one under consideration. Do you want to
super-size that? A cross-sell is an effort to
encourage the committed buyer to add auxiliary
items to the purchase, such as accessories or
related items. Do you want fries with that?
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Product Classes
Competing products. These are products the user
could purchase instead of the current product.
For instance, if the user is looking at a Sony
DVD player, a list of competing products might
include the models above and below the current
product in Sony's complete DVD line or comparable
DVD players from another manufacturer. Complemen
tary products. These products are intended to be
sold with the current product and can be used
together. They don't compete with each other.
Rather, they can be used in tandem to solve a
problem or make the product more robust. A
complementary product to the DVD player might be
a receiver/speaker system, a hi-definition TV, or
another component that would be part of a home
theater system. These products are not
necessarily from the same manufacturer. Family
products. These products are from the same
manufacturer and part of the same line (in the
same "family") as the current product. A pair of
shoes in a specific color might be sold alongside
a belt that exactly matches the color and texture
of the shoes. These products are in the
manufacturer's same family and meant to be bought
as a set. Another example would be a furniture
set (chairs, coffee table, couch, loveseat,
ottoman, end table) that are all the same style
but sold separately. Accessory products. These
products can't really be used on their own to any
great extent. They're accessories to the main
product but sold separately. Sometimes they're
required to operate the product, and sometimes
they're optional. If a watch takes a certain kind
of battery that isn't included, the battery is an
accessory. Similarly, a pump that blows up a
water raft is an accessory. A warrantee for the
product is also part of this category.
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Rules for Up-Selling

• Offer the alternate before the customer has added
  the item to his shopping cart.
• Use text that's brief but makes it clear exactly
  what features the upsell item has that are
  lacking in the main item.
• List more expensive items with the same brand
  name, or higher quality but similar items in
  other brands.
• The upsell item should always be more expensive
  than the main item.
• Decide whether you'll offer sale items when
  upselling. If so, select items whose sale price
  is higher than the main item.
• Use the opportunity to offer new releases or new
  inventory. Clearly label the photograph of the
  upsell item with "Just released!" or "New Item."

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Rules for Cross-Selling

• Let nature take its course. Many cross selling
  opportunities arise naturally. If you are selling
  tennis racquets, for example, you can also offer
  a bag, balls, lessons and accessories. To gain
  the extra sale, you might simply have to mention
  the other products or services are available.
• Stay relevant. If you overload customers with too
  many unrelated cross-selling suggestions, you may
  blow it. Offering socks with shoes is certainly a
  good fit. But if your attempts to cross sell are
  not closely related to the original purchase they
  are far less likely to succeed.
• Train employees in cross-selling techniques. The
  approach must be built around serving the
  customer, not just selling more stuff. For
  example, you might describe how the additional
  products or services would complement the
  original purchase and further solve the
  customer's problem.
• Timing is important. Cross-selling and up-selling
  can occur at different times, depending on the
  products and services you are selling. In some
  cases, the best time is while a customer is
  trying something out. If they are looking at a
  low priced digital camera, for example, but seem
  disappointed in a lack of features or
  performance, they may really want a higher priced
  model. Or you could suggest a belt to go with a
  pair of pants while the customer is trying them
  on. Other items are more appropriately offered
  once the initial buying decision has been made,
  such as an extended warranty.
• Leverage the cross-selling potential of your Web
  site. Position cross-sell and up-sell items
  throughout your site in places where they can
  help educate shoppers on the depth and variety of
  what your business offers. Try mixing and
  matching different items to see what works best.
• Offer a range of prices. If you suggest three
  items to complement a product, try to offer a mix
  of price points. The lowest cost items are most
  likely to be picked up as impulse buys. But other
  items that meet the customer's need can also sell
  at higher levels.
• Post expert recommendations. One way to
  facilitate cross-selling and up-selling success
  is to state specific recommendations from
  professionals, experts or other customers. This
  could be a chef's recommendation on a menu, a
  doctor's recommendation on mailer or lists of
  related items that other customers have purchased
  on a Web site. When you buy a book at Amazon.com,
  for example, the site automatically lists other
  books purchased by people who bought the same
  book you just ordered.
• Try product or service bundles. Bundling has long
  been used as a way to entice shoppers to buy not
  just a single item, but an entire group of items
  that go together. Offering a price break on
  package deals will help close the sale.

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Predicting Success in Cross-Selling
Logit Model bought j after buying k
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Bundle Pricing Willingness-to-Pay Customer F
ax Computer Bundle Fax/Computer Ike 100
800 900 Jack 600 300 900 Kate 700
800 1500 Lisa 300 500 800 Independent
Pricing Fax Price Total Revenue 700 1700700
600 26001200100 4100400
Computer Price Total Revenue 800 28001600-- Profit Max 500 35001500 300 43001200
pF pC 2800
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Bundle Pricing (Continued) Pure
Bundle Pricing Bundle Price Total
Revenue 1500 115001500 900 39002700 80
0 48003200 pF
pC 2800
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Mixed Bundling the bundle is sold, but so are
some of the components.
Customer Fax Computer Fax/Computer Ike 100
800 900 Jack 600 300 900 Kate 700
800 1500 Lisa 300 500 800 Mike 625
0 625 pF 1800, pC 1600, pB 3200.
Suppose that PB800 and fax is also sold at PF
625. Mike who was the only non-buyer of the
bundle, will buy the fax at 625. pMB
3825 Notice that the computer ought not to be
unbundled.
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Bundle Pricing via Linear Programming
b 1 2 3 4 5 6 7 i 1 2 3 12 13 23
123 A 400 450 350 850 750 800 1200 B 350 200 37
5 550 725 575 925 C 200 500 200 700 400 700 900
b 1 2 3 4 5 6 7 1 2 3 12 13 23 12
3 Cost 100 100 100 200 200 200 300
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Objective Maximize profits defined by SCiA
S7bl Ni(Pib-CbTib) Constraints Consumer don't
build their own bundles. P(b,b) Anticipating Consumers' Behavior Si º S7b1
(RibTib-Pib) Consumer Surplus Si ³ Rib-Pb
Maximize Consumer Surplus RibTib-Pib ³ 0.
Non-negative Consumer Surplus Buy one bundle
Tib integer and S7b1 Tib 1. Consumers pay the
same price Pb - 1200(1-Tib) Pib Pb
Switch to LINDO/EXCEL for solution
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Bundle Pricing Computer Software Cost
Structure Royalty Packing Support Total Internal
0 35 30 65 External 175 35 55 265
Current Pricing System 395/module 15 off
for more than 1,000.
Eppen, Gary, Ward Hanson, and Kipp Martin,
"Bundling - New Products, New Markets, Low Risk,"
Sloan Management Review, Summer 1991, 7-14
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Demand Structure B A G De
Db Basic Adv. Graph- Data Data-
Segment Segment Stats. Stats. ics
Entry Base Size Market 400 450 350 125 225 30
Research Brand 350 200 375 75 295 18
Manager Market 350 400 275 50 200 10
Expert Data 375 100 300 350 220 17
Clerk Academic 200 500 200 100 175 25 Source Inter
n. Inter. Extern. Intern. Exten.
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Problemcustomers who pay the same price
contribute dramatically different amounts to
profits 3 Internal 2 Internal 1
Internal No External 1 External 2
External Modules Modules Modules List
Price 1185 1185 1185 After Discount 1007 100
7 1007 Increm. Cost 195 395 595 Contributio
n 812 612 412 (percentage) (81) (61) (4
1)
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Demand Under Current Pricing
System Items Price Package Per Person
Segment Segment Bought Paid Cost Contri Contr
ibu. Market Research BAG 1007 395 612 18,36
0 Brand Manager BGDB 1007 595 412
7,416 Market Expert BAG 1007 395 612
6,120 Data Clerk BGDE 1007 395 612 10,404
Academic --- --- --- 0 0 Tot
al 42,300/hundred Notice "academics" are the
second largest segment, and they are frozen out
of the market by the current pricing system.
Even among buyers, the contribution/person
varies almost 50.
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New Bundle Pricing System 395/module (no
volume discount) Bundle 1 BasicAdvanced Stat.
for 745 320/additional module Bundle 2 Basic
Adv. Stat. Data Entry for 800 320/
Demand Under New Pricing System Items Price
Packg Per Person Segment Segment Bought Paid Cost
Contribu. Contribu. Market Res. BADEG 1120 460 66
0 (48) 19,800 Brand Manager BADeDb 1220 660 560
(148) 10,080 Market Expert BA 745 130 615
(3) 6,150 Data Clerk BADE 800 195 605
(-7) 10,285 Academic BADE 800 195 605
(605) 15,125 Total 61,440/hundred (U
p 45)