Cross-selling is the practice of selling related or complementary products to a customer. It’s a highly effective marketing method, especially in industries like financial services. For example, an investor might be offered various types of investments, or a client seeking retirement planning might be offered tax preparation services. A bank client with a mortgage could be introduced to personal credit or a savings option, like a certificate of deposit (CD).
Key Points
- Cross-selling involves offering additional products to current customers and is commonly used in financial services.
- Financial advisors can earn extra income by offering more products and services to their existing clients.
- It’s important to use this approach carefully to avoid regulatory issues and ensure the customer’s best interests are prioritized. Advisors who make referrals solely for extra incentives risk customer complaints and possible disciplinary actions.
- Upselling promotes a better or more expensive version of a product or service.
- In 2013, Wells Fargo faced fines of over $185 million and returned more than $2.8 million to customers following a cross-selling scandal.
How Cross-Selling Works
Cross-selling to current clients is a key way to create new revenue for many businesses, such as financial advisors. This approach is often easier because the business already has a relationship with the customer and understands their needs. However, advisors must be careful. For example, suggesting a mutual fund in a new sector could be a good way to diversify a client’s portfolio. On the other hand, trying to sell a product the advisor is unfamiliar with could harm the client relationship.
If done properly, cross-selling can lead to significant profits for stockbrokers, insurance agents, and financial planners. Tax preparers, for instance, can offer investment and insurance products to their clients, which is often an easy sale. Effective cross-selling is a good business strategy and a smart financial planning tool.
Improving Cross-Selling Skills
Advisors must be well-versed in the products they offer when cross-selling. A stockbroker who typically deals in mutual funds would need extra training to start selling mortgages, for instance. Simply referring clients to another department that handles mortgages might result in unnecessary referrals since the advisor may not fully understand the client’s needs. Advisors should know how the additional product fits into their client’s financial plan to make effective referrals and stay compliant with regulations.
The Financial Industry Regulatory Authority (FINRA) may create new rules based on its investigations into cross-selling practices. Advisors must also understand all the products their company offers. For instance, a new employee might not be familiar with all the services a firm provides, which could hinder cross-selling opportunities.
Cross-Selling in Financial Services
Before the 1980s, financial services were simpler: banks offered savings accounts, brokerage firms handled stocks, and insurance companies sold life insurance. This changed when Prudential, the biggest insurance company, bought a stock brokerage firm, aiming to offer more services. Other mergers followed, like Wells Fargo with Wachovia Securities and Bank of America with Merrill Lynch.
Though the aim was to create synergy between banking and investment products, cross-selling didn’t always catch on. For example, Bank of America struggled to retain Merrill Lynch brokers, who resisted cross-selling bank products to investment clients. Wells Fargo, however, had more success because Wachovia had a similar company culture.
H&R Block, on the other hand, failed when it tried to offer investment services to tax clients after buying Olde Discount Broker. Eventually, they sold the division for far less than they had initially paid.
Cross-Selling vs. Upselling
Both cross-selling and upselling aim to convince customers to buy more, but they differ. Upselling encourages customers to buy a higher-end or more expensive version of a product or service, thereby increasing profits and improving the customer experience. It builds trust and increases customer lifetime value (CLV), which represents the total revenue a customer generates for a company.
Cross-selling, on the other hand, involves offering related or complementary products. Techniques like recommending items, offering discounts, or bundling products are common. Both tactics aim to make more money per customer and add value by meeting customer needs.
Advantages and Disadvantages of Cross-Selling
Advantages:
- Cross-selling can boost revenue and increase brand loyalty by exposing customers to a wider range of products.
- It can address all of a customer’s needs, preventing them from seeking competitors.
Disadvantages:
- Cross-selling can hurt customer relationships if it’s pushy or irrelevant.
- High service demands from some customers may lead to increased costs.
- Frequent returns or defaulted payments from certain customers may result in financial loss.
Cross-Selling Example
In 2013, Wells Fargo employees in Southern California opened unauthorized bank and credit card accounts to meet cross-selling quotas. This led to the termination of more than 30 employees. An independent review revealed that over two million accounts were fraudulently opened, costing Wells Fargo millions in fees. The company refunded over $2.8 million and fired more than 5,300 employees, leading to a $185 million fine.
Leave a Reply