Cross Selling: Definition, Pros and Cons, vs.

Upselling

What Is a Cross-Sell?
To cross-sell is to sell related or complementary products to a customer. Cross-selling is one
of the most effective methods of marketing. In the financial services industry, examples
of cross-selling include selling different types of investments or products to investors or
tax preparation services to retirement planning clients. For instance, if a bank client has a
mortgage, its sales team may try to cross-sell that client a personal line of credit or a
savings product like a CD.

KEY TAKEAWAYS

 Cross-selling is the practice of marketing additional products to existing customers,

often practiced in the financial services industry.
 Financial advisors can often earn additional revenue by cross-selling additional
products and services to their existing client base.
 Care needs to be taken to do this correctly to stay clear of regulators and protect
the client’s best interests. Advisors who simply make referrals in order to receive
additional incentives may find themselves on the receiving end of customer
complaints and disciplinary action.
  Upselling is a sales tactic in which an upgrade or a high-end version of a product or
service is promoted.
 Wells Fargo was fined more than $185 million and refunded more than $2.8 million
to customers for its cross-selling scandal in 2013.

How Cross-Selling Works

Cross-selling to existing clients is one of the primary methods of generating new revenue
for many businesses, including financial advisors. This is perhaps one of the easiest ways
to grow their business, as they have already established a relationship with the client and
are familiar with their needs and objectives.

However, advisors need to be careful when they use this strategy. A money manager who
cross-sells a mutual fund that invests in a different sector can be a good way for the
client to diversify their portfolio.

However, an advisor who tries to sell a client a mortgage or other product that is outside
the advisor’s scope of knowledge can be a disservice to a customer and damage the
business relationship.

When done efficiently, cross-selling can translate into significant profits for stockbrokers,
insurance agents, and financial planners. Licensed income tax preparers can offer insurance
and investment products to their tax clients, and this is among the easiest of all sales to
make. Effective cross-selling is a good business practice and is a useful financial planning
strategy, as well.

Becoming Proficient at Cross-Selling

Advisors who cross-sell financial products or services need to be thoroughly familiar with
the products that they are selling. A stockbroker who primarily sells mutual funds will
need substantial additional training if they are assigned to start selling mortgages to
clients.

A simple referral to another department that actually sells and processes

the mortgage may lead to situations where referrals are made whether they are needed
or not, as the broker may not understand when the client really needs this service but is
only motivated to earn a referral fee.

Advisors need to know how and when the additional product or service fits into their
client’s financial picture so that they can make a more effective referral and stay
compliant with suitability standards.

FINRA may use the information that it collects from its inquiry to develop and implement
a new set of rules that govern how cross-selling can be done.

In addition to understanding financial products, advisors need to understand the

assortment of products their company can provide.
Imagine a new staff member joining a firm, interacting with clients but not knowing the
full extent of advisory services the company is capable of. In this example, the new hire
needs to become familiar with the company to become more proficient at recognizing
opportunities to cross-sell.

Cross-Selling in Financial Services

Until the 1980s, the financial services industry was easy to navigate, with banks offering
savings accounts, brokerage firms selling stocks and bonds, credit card companies pitching
credit cards, and life insurance companies selling life insurance.

That changed when Prudential Insurance Company, the most prominent insurance company
in the world at that time, acquired a medium-sized stock brokerage firm called Bache
Group, Inc. in an effort to offer broader services.

The mergers of Wells Fargo & Co. with Wachovia Securities and Bank of America with
Merrill Lynch & Co., both in 2008, occurred at a time of declining profits for both banks—
and of financial crisis for the brokerages.12

To a large extent, they were aiming to expand their retail distribution arms by buying
large and established distribution channels of the brokerages, hoping for synergy between
banking and investment products and services.

With few exceptions, cross-selling failed to catch on within many of the merged companies.
As an example, Bank of America lost Merrill Lynch brokers through the insistence that
the brokers cross-sell bank products to their investment clients. Wells Fargo has been
more effective in instituting cross-selling because its merger with Wachovia brought a
relatively similar culture into the fold.

It can be difficult for large firms to effectively integrate different types of products.
H&R Block Inc. failed in this proposition when it acquired Olde Discount Broker in a push
to offer investment services to its tax customers.3

The company ultimately decided to jettison the brokerage enterprises and focus solely on
taxes. After acquiring Olde for $850 million in 1999, H&R Block sold that division of its
operations for $315 million less than 10 years later.34

Cross-Selling vs. Upselling

Cross-selling and upselling are sales tactics used to convince customers to purchase more.
However, there are differences to consider.

Upselling, also known as suggestive selling, is the practice of persuading customers to

purchase an upgraded or more expensive version of a product or service.

The goal is to maximize profits and create a better experience for the customer. That
experience can translate into an increase in the customer's perceived value and an
increased Customer Lifetime Value (CLV)—the total contribution a customer makes to a
company.

Companies are 60% to 70% more likely to sell to an existing customer, whereas the
likelihood of selling to a new customer is 5% to 20%.
For companies, it is easier to upsell to their existing customer base than it is to upsell to a
new customer. Existing customers trust the brand and find value in the products and/or
services.

This trust drives the success of upselling. For instance, if a customer trusts a brand, they
will generally trust the brand when it presents a seemingly better option.

Alternatively, cross-selling is the sales tactic whereby customers are enticed to buy items
related or complementary to what they plan to purchase.

Cross-selling techniques include recommending, offering discounts on, and bundling related
products. Like upselling, the company seeks to earn more money per customer and increase
perceived value by addressing and satisfying consumer needs.

Advantages and Disadvantages of Cross-Selling

Advantages

Companies employ different sales tactics to increase revenues, and one of the most
effective is cross-selling. Cross-selling is not just offering customers other products to
purchase; it requires skill. The business must understand consumer behaviors and needs
and how complementary products fulfill those needs and add value.

Customers purchase from brands they trust and have had positive experiences with.
Therefore, it becomes easier to sell to an existing customer than to a new one.

Existing customers are more likely to purchase products that relate to or complement
what they already plan to purchase. As consumers begin to use more of a company's
products, they become increasingly loyal to the brand.

Disadvantages

On the other hand, cross-selling can have adverse effects on customer loyalty. If done
incorrectly, it can appear as a pushy, self-seeking sales tactic.

This is evident when a salesperson aggressively tries to sell a related product or

attempts to sell without understanding the customer's need for it. Not only does this
affect the sale, but it also negatively affects the brand's reputation.

Additionally, cross-selling to the wrong type of customer could be counterproductive. Some

customers have high service demands, and the more products they buy, the more service
they command. As their service demands increase, so do the costs associated with
providing those services.

Lastly, some customers habitually return or exchange products. When cross-selling to this
segment, profits are not realized. Initially, their purchases generate substantial revenues;
however, they often return or default on payments, costing the company more than what
the customer generated in revenues.

Pros


May potentially increase revenue by increasing sales quantities, especially in less

popular goods




May increase brand loyalty as customers are further exposed to an assortment of

one company's products




May fulfill all of a customer's needs, preventing them from approaching a competitor
for other requirements

Cons


May result in increased service-related costs as it may be more expensive to cross-

sell compared to other strategies




May negatively impact relationships if the cross-selling technique is found to be

pushy




May result in a negative public perception of requiring or demanding multiple

products be paired together

Cross-Selling Example
In 2013, a group of Southern California Wells Fargo employees opened, without consent,
new bank and credit card accounts for unsuspecting customers. The motivation: to meet
cross-selling quotas. After an internal investigation, more than 30 employees were
terminated.56

To identify how widespread the issue was, Wells Fargo hired an independent consulting
firm to review new accounts opened since 2011. They also created new procedures for
validating new accounts, as well as implemented new training programs and security
protocols.5

The consulting firm found that over two million accounts were fraudulently opened within a
five-year period and 115,000 of those accounts incurred fees. Eventually, over 3.5 million
fraudulent accounts were discovered.5

Wells Fargo returned more than $2.8 million to affected customers, and more than 5,300
people were terminated. Without notice and an explanation, then CEO John Stumpf
resigned. In 2016, Wells Fargo was hit with a $185 million fine for this scandal.5

How Can You Increase Your Cross-Selling Effectiveness?

There are several strategies you can employ to make cross-selling effective. Consider using
an email drip campaign to periodically introduce complementary products and services. Wait
until you have developed a relationship and have proven success with the customer.

Make sure your products and services are aligned with the needs and goals of the
customer. Offering something that serves no purpose is counterproductive and can
detract from customer satisfaction.

What Are the Do's and Don'ts of Cross-Selling?

When cross-selling, consider your loyal customers who are more likely to purchase again.
Build campaigns focusing on satisfied customers and promote additional products to them.
Train associates to recognize satisfied customers and assess their needs.

On the other hand, don't assume that customers are aware of your other offerings.
Educate them, and help them understand how those products can deliver value. When
speaking to a customer, do so in a personable manner; otherwise, it comes across as a sales
pitch. Lastly, avoid unhappy customers as it can further the divide between them and
your brand.

Is Cross-Selling Ethical?
Cross-selling is a valid and ethical business practice to bring in more business. Cross-selling
isn't meant to trick a customer; it is meant to inform them of alternative goods that may
fit a different need. It's simply good business practice to discuss winter coat sales with a
sporting enthusiast who is out shopping for new skis.
What Is Cross-Selling on eBay?
eBay features a Cross-Promotion Connections program whereby eBay sellers can connect.
When a buyer wins a bid, they can see the seller's other listings, as well as their
connections listings.7

Previously, eBay featured a no-cost Cross-selling tool that allowed sellers to promote
related products. Sellers could choose to either promote related items or promote discounts
for larger orders. This feature was discontinued and is only allowed for select users at
certain times.

The Bottom Line

Cross-selling is a sales tactic that, if done well, can increase a company's bottom line and
customer loyalty. If done poorly, it can erode profits, create dissatisfied customers, and
damage a company's reputation. Regardless of how you cross-sell, it can be an effective
tool to increase revenues and care for a customer's unmet needs.