According to Harvard Business Review, acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one. Considering that, it is a no-brainer to not use the marketing techniques of up-sell and cross-sell in your e-commerce business. Both upselling and cross-selling are oriented to retaining the current customer. Not only it is a great way to increase your revenue but also maintain the trust of your customers and improve their experience as users.
Temkin Group, the leading company that specializes in optimizing the customer experience, notes that 86% of buyers are willing to pay more for a better customer experience. That alone should eliminate all doubts you might have about investing your financial and human resources to improve customer experience. Most businesses, especially in the field of e-commerce, understand that well, as the study of Genesys reveal that the top three reasons businesses proactively invest their time and energy in customer experience are to improve customer retention, grow customer satisfaction, and increase the revenue generated by cross-selling and up-selling.
Digging deeper, a question might arise, what are the possibilities of applying upselling and cross-selling techniques in your business. Well, the best answer for that is the direct cases that apply the techniques in their business models. Some of the most successful cases for up-sell and cross-sell are Amazon, Apple, and McDonald's. It is estimated that these 3 giants generate half of their revenues either through upselling or cross-selling.
However, neither revenue nor customer experience concludes the list of benefits up-sell and cross-sell produce. There are more advantages to that for sure and we are here to list the top 5 of it.
Before we go… what is the meaning of up-sell & cross-sell?
Before heading further, we thought you might not fully understand the meaning and differences between these techniques, as they are misconceptualized quite often. For the reason being, we invite you to visit our article on the topic of differences between the up-sell & cross-sell. However, to make it simple and short right here and right now, up-sell and cross-sell can be explained in a single picture below:
Upselling is about offering a product that costs more and often is of a higher quality while cross-selling is oriented to making the customer buy additional products that are related in some way to the original one. The best part is that it’s adjustable and frequently used not only in B2C but B2B model as well. Upselling is usually more successful within the businesses of the service industry while cross-selling often works better in the field of e-commerce. Nevertheless, it all comes down to tasting different things, as what works for your competitors might not work for you and numerous examples have proven it’s the other way around.
Top 5 benefits of upselling & cross-selling
While there are many reasons to apply these marketing principles in your business, the top 5 would be the following:
1. It increases revenue.
As we have discussed before, the number one benefit of both upselling and cross-selling is that it boosts your business revenue. However, on average, it is estimated that up-sell is somewhere 15 to 20 times more profitable if compared to cross-sell. According to Sumo, the largest part of income (70-95%) comes from different upselling techniques while the rest (5-30%) are the initial sales. Here is an example of an up-sell from Apple:
When it comes to cross-sell, it’s a bit different. Even though various sources and cases report that cross-selling usually is not as profitable as upselling is and sometimes it even decreases user experience if the product targeting is not on point, some examples prove it wrong. Amazon stated many times that their profit margins of cross-selling are somewhere up to 35%, which is a decent part of revenue. Although it might be not as much as the value generated by upselling, it’s still worth applying the technique in your e-commerce store.
However, there are a few things you should know before doing that. The most important part of cross-selling is correct product targeting. To make your cross-selling game as effective as possible you should use such methods as product bundling, which in practice means that the additional items you offer as a cross-sell are only of natural bundling, i.e. memory cards are suggested with cameras, mousepads with mouses, screen protectors with phones, and so on. Another rule to know is keeping the margins at the right level, as when the additional items offered are more than half the price of the considered item, the attach rate goes down by a significant margin.
Here is an example of a cross-sell from Amazon:
2. It improves the user experience.
User experience is one of the most important metrics both in B2B and B2C sectors. There are numerous reasons for that, some of them being the following:
- it directly impacts the success of your sales;
- it’s a number one element that grows customer retention;
- your brand reputation highly depends on user experience.
Upselling & cross-selling can whether uplift or downgrade your user experience. Like mostly everything in the field of marketing, the outcome can be either positive or negative, depending on what is done right or bad. If done right, up-sell & cross-sell most definitely will improve your user experience, which will also impact many other measurements that depend on customer experience.
The main risks and vulnerable spots of upselling & cross-selling when it comes to their impact on your user experience are the following:
- Personalization. Your AI-driven product recommendation tool has to be on point and behave on the individual actions of every customer. In other words, you have to know each customer really well. And by saying really well, we mean it.
- Distraction. One of the main downsides and risk factors of cross-selling is that your customers get distracted very easily. To prevent that, we suggest bundling the additional products with the main item just the same way Amazon does that.
Product bundling example @ Amazon
- Pressure. Your customers might feel emotional pressure with all these available options and the decisions they have to make in a matter of seconds, leading to a delayed or even a rejected sale. If you don’t want that to happen, make sure you don’t go hard on your customers by displaying 15 product bundling options or hundreds of upsell items.
- Value Proposal. The weak point of every upsell attempt is usually the value proposal not being convincing enough. You have to prove to your customers that buying a more expensive higher-quality item will result in more value than buying a cheaper version of it. This usually is not that easy to do. To make the task easier, make sure you follow the half-price rule, i.e. the item offered is not more than half the price of the product considered originally.
- Interface. E-commerce store owners often forget that shop interface is a key factor that decides your success for user experience. That’s why it is not only the correct targeting that matters but also the responsiveness and the design of your interface. We suggest making up-sell & cross-sell sections to look and operate in a simple and not an overloaded manner. Again, Amazon is a great example here, as their store sections of “Frequently bought together” or “Products related to this item” are very plain-looking and simply understandable.
3. It boosts Average Order Value (AOV).
Both up-sell & cross-sell are probably the best ways to boost your Average Order Value (AOV) and there are numerous reasons to do that. Some of the main benefits of increasing your AOV are the following:
- it boosts your overall sales revenue, meaning it brings more profit;
- not only more profit is brought but also it’s done in a shorter period of time;
- since the possibility of making a sale to an existing customer is higher by at least 60-70% than acquiring a new one, it is a no-brainer to prioritize new customers over the existing ones, as managing to boost your AOV recovers the cost of acquiring new customers.
Even though upselling & cross-selling are the perfect methods to increase your average order value, there are a few things to keep in mind. When upselling, the upgrades offered should be value-driven while cross-selling should be oriented to offering bundled or familiar products, as these approaches guarantee both short-term & long-term success. From the perspective of the short-term, your average order value will be increased, meaning more profit will be brought in a shorter amount of time. Meanwhile, the long-term viewpoint ensures a higher value of your customer base.
Here are some great examples of upselling & cross-selling in the service industry:
- Offering value-driven subscription options with different benefits as an upsell. An example of Revolut fits here the best.
A great up-sell example @ Revolut
- Recommending extra products, features, or services in addition to the main considered item or service the client is interested in. The travel agency eDreams nails it perfectly by offering accommodation services along with flight tickets.
A great cross-sell example @ eDreams
We hope you managed to get a primary understanding of how to increase your AOV through upselling & cross-selling as well as why it is worth it.
4. It develops customer retention.
Customer retention is another crucial aspect of every e-commerce store that you need to always have in mind. Selling to the existing customer base is many times easier than always seeking new potential clients, therefore, the higher your customer retention rate is, the less you need to spend on marketing purposes and the more revenue you gather in a shorter amount of time. To make it short, delivering conversions gets easier in numerous viewpoints – time, money, effort, human resources, etc.
Many brands forget that customer retention is not just a technical number determined by formal aspects only. It is way more than just the brand’s ability to turn customers into long-term buying clients and prevent them from switching to competitors by throwing off some cheap seasonal offerings. It is about the relationship between the company and its' customer base. This relationship is often determined by many different reasons, some of the most popular ones being the following:
- Problem-solving service or product. It would be great if the service or product you offer would solve some kind of a practical problem that’s not too important in daily life. This is often the case with services that customers need regularly, e.g. computer maintenance or office cleaning. The best part of this is that your service or product doesn’t even need to be a top-notch one, as the hassle of finding a more satisfactory provider is often too much to handle for your customer.
- Value-driven business model. A sense of customer loyalty is often inspired by idealistic reasons as well, as sharing the same perception on moral principles and values portrays the feeling of being understood. That’s why so many business owners more and more often start supporting different movements and turn their business models accordingly. Finding what makes your customers base loyal to your business and incorporating that into marketing purposes might be a great way to grow your customer retention rate.
- Good customer service. Lately, more and more buyers state that high-quality customer service is an important reason for them to keep returning. Showing some quality attention to your customer might require additional efforts and resources but that is definitely worth it, as emotional attachment plays a significant role when it comes to customer retention.
- High-quality product or service. The most obvious reason customers return is that they’re happy with the product or service they purchase. High general quality, appealing design, gluten-free, no palm oil, having low carbon footprint, and other characteristics of a product often are the determinants that decide the tone of customer happiness.
When it comes to e-commerce or specifically up-sell & cross-sell, it is no different. If the customers purchase up-sell/cross-sell items and they are happy with it, then your customer loyalty will most definitely skyrocket, resulting in a growing customer retention rate. They will feel as the brand truly knows and understands them, creating a reciprocal emotional attachment.
Oh, and here are some other great & easy techniques on how to grow your customer retention rate:
5. It reduces the bounce rate.
Bounce rate is a frequent term used in marketing or specifically in web traffic analysis. It represents the percentage of website visitors that leave the site just after entering it and without proceeding anywhere further on the same site. According to the latest data of Contentsquare, an average bounce rate within the industry of e-commerce is just under 50% (47% to be exact), meaning that 1 out of 2 e-shop visitors tends to leave the site without proceeding further. Take a look at more detailed statistics for the year 2020 showing the bounce rate between different industries:
There might be many different reasons why your e-com store has an above-average bounce rate, some of them being the following:
- Your marketing is not on point and attracts the wrong traffic.
- Your e-commerce store is poorly designed, resulting in a low user experience.
- Your website loads in more than 3 seconds.
- The on-site content, including such areas as product suggestions, is irrelevant.
- Your call-to-actions are not performing well enough.
These are the most common factors that decide your average bounce rate. Up-sell & cross-sell can be partially responsible for the bounce rate as well, as the relevance of the content, including product suggestions, is one of the deciding factors.
According to numerous researches, nearly half (45% to be exact) of e-com users are more likely to purchase a product from a website that recommends personalized offers while 56% are more likely to return to the same website. And it all seems very rational here. Not only promotions and sales but also product recommendations in the sections of “Frequently bought together” or “You might also be interested in” work the best when generated on an individual level by the personal search or buying history of every single user.
Imagine yourself a situation: a potential customer enters any product page of your e-shop through some kind of a search engine, such as Google or Yahoo, searching for a sweater; however, he finds the sweater to not fit his needs and hovers down on the same page to see if there are any other sweater recommendations on your website; unfortunately, your product recommendations aren’t personalized and not driven by an engine of artificial intelligence, so the user finds himself being suggested completely unrelated products, let’s say shorts and sneakers; obviously, the potential customer will leave your website in a matter of seconds after witnessing irrelevant content he doesn’t care about; that is just one of many other possible situations on how the bounce rate of your website rises and that is why your shop needs a personalized and AI-driven upsell & cross-sell product recommendation tool.
Our AI-driven e-commerce sales-boosting tool Similar Products is a perfect choice if you want personalized product recommendations in your store. Not only will it reduce the bounce rate but also boost your revenue, user experience, conversion rate, and average order value – all the metrics that are important to every e-commerce business owner. Take a look at an example of how our Similar Products SaaS operates: