Unprofitable Cross-Buying: Evidence from Consumer and Business Markets

Abstract

Conventional wisdom, marketing literature, and cross-selling practices to date are based on the notion that customer cross-buying is positively associated with customer profitability. However, this study finds that when certain customers with persistent adverse behavioral traits (e.g., limited spending, excessive revenue reversals, excessive service requests, promotion purchase behavior) engage in cross-buying, they exhibit a downward spiral of unprofitable relationship, with the losses increasing with higher levels of cross-buy. The authors analyze the customer databases of five firms and find that 10%-35% of the firms' customers who cross-buy are unprofitable and account for a significant proportion (39%-88%) of the firms' total loss from its customers. Consequently, the authors present a two-stage framework to enable managers to discern customers who are likely to engage in profitable versus unprofitable cross-buying. Overall, the findings refine the basic understanding of the cross-buy phenomenon and motivate managers to rethink their marketing practices and policies, which are typically designed to maximize cross-buy opportunities for every customer.

Not All Repeat Customers Are the Same: Designing Effective Cross-Selling Promotion on the Basis of Attitudinal Loyalty and Habit

“…More specifically related to cross-selling, recent research suggests that not all cross-buying is profitable and that initially unprofitable consumers can carry over their nonprofitable behavior even when they buy from more areas (Shah et al 2012). It is therefore wise not to make cross-selling offers to all consumers.…”

Contingent cross-selling and up-selling relationships with performance and job satisfaction: an MOA-theoretic examination

“…The findings illustrate an order of acquisition model that improves the ability to target market and identify cross-sell leads with customers more likely to be receptive to a firm's product offering(s) Cross-buying and up-buying Shah et al (2012) JM…”

Selective demarketing

“…Berger et al, 2002). Ascertaining the value of an individual customer to a firm has been investigated from a number of angles, such as customer lifetime value (CLV) (Venkatesan and Kumar, 2004), share of wallet (Cooil et al, 2007), assumptions about cross-buying (Shah et al, 2012) and size of wallet (Kumar and Reinartz, 2006). Whatever the precise measure of value alignment the firm uses, a metric is produced, which quantifies the costs of serving a customer against the value, which that customer brings to the firm (Kumar and Reinartz, 2006).…”

“…The firm can then identify those customers who do not generate a desired level of return and may encourage these customers to spend more or reduce the quantity of sales communications (Shah et al, 2012). This type of response to the unprofitable customer corresponds to a form of customer abandonment (Alajoutsijärvi et al, 2000; Haenlein and Kaplan, 2009), which has been described as indirect.…”