By Mary Wagner
It takes nothing more than lunchtime at McDonald’s
to understand the power of cross-selling and up-selling. The fast-food giant
has for years successfully increased order size by offering a complementary
product—fries—or an upgrade at the point of purchase (“Can I supersize that
drink for you?”).
Translating those concepts to the web,
though, is a bit more complicated. When no human sales associate is on hand,
technology must take on the task of presenting complementary products and upgrades.
Much of that technology has only recently emerged, but retailers are already
on board. More retailers than ever are implementing cross-selling and up-selling
features on their web sites—62% and 46%, respectively, of 100 top retailers
recently surveyed by the Direct Marketing Association and e-retail consultants
The E-tailing Group Inc. in Chicago.
By category, online retailers of computers,
books and music, consumer electronics and pet supplies are out in front in cross
merchandising. 100% of the surveyed sites in those categories had implemented
cross-selling features, while department store web sites followed close behind
at 86%, along with online retailers of toys and games at 75%. E-retailers of
sporting goods lagged far behind; only 25% had cross-selling features.
Significant
increase
Up-selling, less established across the board as an
online merchandising tool, nevertheless is a feature on 100% of book and music
sites, 80% of computer sites, and 75% of sporting goods sites surveyed. Though
there’s little aggregate data on exactly to what extent cross-selling and up-selling
online boosts retail sales, it makes intuitive sense, says Lauren Freedman,
president of The E-tailing Group. “Almost any merchant will tell you that when
they merchandise their cross-sells and up-sells, they sell more product and
increase their order size significantly,” she says.
As generally defined, cross-selling presents another
product to the shopper either at the point of purchase or while an item is still
under consideration. The second product is selected for presentation because
there’s some affinity between the two products or between the person making
the purchase and the product. Up-selling offers another product as well, but
with a twist: it’s an enhancement to the product being considered or in the
shopping cart. The goal of either practice is to sell more product, and though
the strategies differ, relevancy in some dimension, whether between products
or between shopper and product, is key to both.
To a large extent, determining relevancy is still the
domain of human merchandising expertise on most web sites and it’s an art. “It
take a lot of hard work to put up relevant cross-sells and up-sells,” Freedman
says. “It’s time consuming to take every product and figure out what’s going
to sell with it.” But the flip side is that without relevancy, consumers don’t
even look at the other offers, much less buy.
The systems used to come up with alternative product
recommendations online range from plain old common-sense merchandising to rules-based
programs or analytic software, or a combination of the three. Home and garden
retailer Smith & Hawken, for instance, wanted to boost its online sales
performance and give its online customers more personalized service. In a three-month
head-to-head test just ahead of garden season, the company compared online shopping
transactions that offered up-sell and cross-sell product recommendations generated
by Net Perceptions Inc.’s analytic software versus those that did not. The Net
Perceptions software-driven product recommendations resulted in orders that
were on average 16.5% larger; they also increased the number of items in each
order by an average of 60%. E-commerce sales at another Net Perceptions client,
MusicianFriend.com, the online subsidiary of music gear retailer The Guitar
Center, rose 170% after MusicianFriend.com used the analytic software to recommend
additional products based on customer tastes and preferences.
Rules-based vs. analytics
The technology underlying Net Perceptions software solutions
for cross-selling and up-selling incorporates both ruled-based and analytically-driven
personalization, a combination still not widely used among retailers. Rules-based
recommendations are the more common approach among online retailers today, according
to Kevin Scott, customer applications research analyst at AMR Research Inc.
“Rules-based recommendations say, if I buy tan chinos, show me the red sweater.
Analytics-based recommendations say, based on what I know about this customer
and his resemblance to other customer groups, what product offer is he most
likely to accept?” Scott says. “Retail today is still more rules-based. It’s
a cheaper scenario and you don’t have to have a Ph.D. in statistics to know
whether your models are working.”
Rules-based
recommendations may be cheaper than technology, but the pay-off may be that
retailers miss opportunities that their merchandisers may not be aware of. “Though
a rules-based approach can be effective, it’s still limited to what the marketer
can think of,” says Greg Girard, vice-president of retail applications strategies
at AMR Research. “You can only write rules you can imagine. Analytics can find
links you might not think of.”
Net Perceptions estimates that a smaller retailer can
get in the door starting at about $300,000 for analytics software and services
to generate cross-sell and up-sell product recommendations. And though that’s
a small tab compared to the $2 million and up typically paid by larger retailers
with heavier traffic and more volume, it’s still not in the budget at a retailer
like eBags. The luggage and travel gear merchant has a policy of doing everything
as cheaply as possible on the back end without scrimping on the customer experience.
And that goes for online merchandising as well; eBags wrote its own rules-based
cross-selling and up-selling applications in-house.
Stepping up
EBags shoppers looking for a particular product also
see four other recommendations. “The first two might be an up-sell —you’re looking
at the 22-inch suiter, and we show you that it also comes in a 26-inch version,”
says eBags vice president of marketing and co-founder Peter Cobb. “The other
two recommendations are products merchandisers can choose.” The recommendations
are rules-based, says Cobb: if a product under consideration is in a brand family,
the top two recommendations generally show the best and second-best-selling
products in the family, while the last two show the first and second best-sellers
in the product category.
“Intuitively, we know this is the way to go, although
I can’t tell you that it’s lifted sales by a specific percentage,” Cobb says.
“We just added this feature about six months ago and we’ll do more of this on
the site in the future.”
Similarly, 28-year-old audio system retailer Crutchfield
uses home-grown merchandising to cross-sell and up-sell on its 5-year-old web
site. Customers considering a product can click on a tab dubbed “other products
you may need,” in which appropriate allied products, such as disc cleaners when
the shopper is considering a CD player, are offered. The cross-sell recommendations
are determined by in-house product experts.
Two months ago, Crutchfield.com added a new up-selling
feature, Step Up. For example, shoppers who click on a Sony disc changer for
more product detail get the detail, but above the product specs, they also see
a “Step Up” box offering an enhanced version of the model. The box contains
a brief description of the product, zeroing in on the features that distinguish
it from the lower-priced model. One other key element to Step Up: a software
program calculates the spread between the two prices. The result: shoppers see
exactly what extra features are in the enhanced model and how much more they’d
have to pay to get them.
“We keep Step Up recommendations within the same brand,
and limit them to the next model up in the line, so the difference is never
more than about $50,” says Cruthchfield’s vice president of marketing Alan Rimm-Kaufman.
He says the tool is working so well the company plans to expand its use.
Most analysts say that increasingly personalized product
recommendations will be used to cross-sell and up-sell online in the future,
and that requires sophisticated analytics.
But the experience of Crutchfield, eBags and others
shows that traditional merchandising, supported by technology to present relevant
cross- and up-sell opportunities in real time, is getting the job done online
for now. “When executed right, you can ensure that cross-selling and up-selling
will sell more product,” Freedman says. “I haven’t worked on any cross-selling
or up-selling program that hasn’t worked.”
mary@verticalwebmedia.com
