MARK 7397
Spring 2007
Customer Relationship Management:
A Database Approach
Class 8
James D. Hess
C.T. Bauer Professor of Marketing Science
375H Melcher Hall
jhess@uh.edu
713 743-4175
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 supersize 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?
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.
Complementary 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.
Rules for Up-Selling
1. Offer the alternate before the customer has added the item to his shopping cart.
2. Use text that's brief but makes it clear exactly what features the upsell item has that are lacking in the main item.
3. List more expensive items with the same brand name, or higher quality but similar items in other brands.
4. The upsell item should always be more expensive than the main item.
5. Decide whether you'll offer sale items when upselling. If so, select items whose sale price is higher than the main
item.
6. Use the opportunity to offer new releases or new inventory. Clearly label the photograph of the upsell item with
"Just released!" or "New Item."
Rules for Cross-Selling
1.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.
2.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.
3.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.
4.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.
5.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.
6.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.
7.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.
8.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.
Predicting Success in Cross-Selling
Logit Model: bought j after buying k
Bundle Pricing
Customer
Ike
Jack
Kate
Lisa
Fax
100
600
700
300
Willingness-to-Pay
Computer
Bundle Fax/Computer
800
900
300
900
800
1500
500
800
Independent Pricing
Fax:
Price Total Revenue
700
1*700=700
600
2*600=1200<-- Profit Max
300
3*300=900
100
4*100=400
Computer:
Price
Total Revenue
800
2*800=1600<-- Profit Max
500
3*500=1500
300
4*300=1200
pF + pC = $2800
Bundle Pricing (Continued)
Pure Bundle Pricing
Bundle: Price
1500
900
800
Total Revenue
1*1500=1500
3*900=2700
4*800=3200<-- Profit Max
pB = $3200 > pF + pC = $2800
Mixed Bundling
the bundle is sold, but so are some of the components.
Customer
Ike
Jack
Kate
Lisa
Mike
Fax
100
600
700
300
625
Computer
800
300
800
500
0
Fax/Computer
900
900
1500
800
625
pF = 1800, pC = 1600, pB = 3200.
Suppose that PB=$800 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.
Bundle Pricing via Linear Programming
b=
i=
A
B
C
b=
Cost
1
{1}
400
350
200
2
{2}
450
200
500
3
{3}
350
375
200
4
{12}
850
550
700
5
{13}
750
725
400
6
{23}
800
575
700
7
{123}
1200
925
900
1
{1}
100
2
{2}
100
3
{3}
100
4
{12}
200
5
{13}
200
6
{23}
200
7
{123}
300
Objective: Maximize profits defined by
SCi=A S7b=l Ni(Pib-CbTib)
Constraints:
Consumer don't build their own bundles.
P(b,b) < P(b)+P(b),
Anticipating Consumers' Behavior
Si  S7b=1 (RibTib-Pib) Consumer Surplus
Si  Rib-Pb Maximize Consumer Surplus
RibTib-Pib  0. Non-negative Consumer Surplus
Buy one bundle: Tib integer and
S7b=1 Tib  1.
Consumers pay the same price
Pb - 1200(1-Tib)  Pib  Pb
Switch to LINDO/EXCEL for solution
Bundle Pricing Computer Software*
Internal $ 0
External
Cost Structure
Royalty PackingSupportTotal
$35
$30
$175
$35
$55
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
$ 65
$265
Segment
Market
Research
Brand
Manager
Market
Expert
Data
Clerk
Academic
Source
Demand Structure
B
A
G
De
Db
Basic Adv. Graph- Data Data- Segment
Stats. Stats. ics
Entry Base Size
400 450 350 125 225 30%
350
200
375
75
295
18
350
400
275
50
200
10
375
100
300
350
220
17
200 500 200 100 175 25
Intern. Inter. Extern. Intern. Exten.
Problem:customers 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
1007
1007
Increm. Cost 195
395
595
Contribution
(percentage)
$812
(81%)
$612
(61%)
$412
(41%)
Demand Under Current Pricing System
Items Price Package Per Person Segment
Segment
Bought Paid Cost
Contri
Contribu.
Market Research BAG 1007 395
612
$18,360
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
Total $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%.
New Bundle Pricing System
$395/module (no volume discount)
Bundle 1: Basic+Advanced 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
660 (+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
(Up 45%)