What Is a Cross-Sell?

To cross-sell is to sell related or complementary products to a customer. Cross-selling is one of the most effective methods of marketing. In the financial services industry, examples of cross-selling include selling different types of investments or products to investors or tax preparation services to retirement planning clients. For instance, if a bank client has a mortgage, its sales team may try to cross-sell that client a personal line of credit or a savings product like a CD.

Key Takeaways

  • Cross-selling is the practice of marketing additional products to existing customers, often practiced in the financial services industry.
  • Financial advisors can often earn additional revenue by cross-selling additional products and services to their existing client base.
  • Care needs to be taken to do this correctly in order to stay clear of regulators and protect the client’s best interests. Advisors who simply make referrals in order to receive additional incentives may find themselves on the receiving end of customer complaints and disciplinary action.
  • Upselling is a sales tactic in which an upgrade or a high-end version of a product or service is promoted.
  • Wells Fargo was fined more than $185 million and refunded more than $2.8 million to customers for its cross-selling scandal.

How Cross-Selling Works

Cross-selling to existing clients is one of the primary methods of generating new revenue for many businesses, including financial advisors. This is perhaps one of the easiest ways to grow their business, as they have already established a relationship with the client and are familiar with their needs and objectives.

However, advisors need to be careful when they use this strategy—a money manager who cross-sells a mutual fund that invests in a different sector can be a good way for the client to diversify their portfolio. But an advisor who tries to sell a client a mortgage or other product that is outside the advisor’s scope of knowledge can lead to problems in many cases.

If done efficiently, cross-selling can translate into significant profits for stockbrokers, insurance agents, and financial planners. Licensed income tax preparers can offer insurance and investment products to their tax clients, and this is among the easiest of all sales to make. Effective cross-selling is a good business practice and is a useful financial planning strategy, as well. 

Not to be confused with cross-selling, upselling is the act of selling a more comprehensive or higher-end version of the current product.

Special Considerations

Advisors who cross-sell financial products or services need to be thoroughly familiar with the products that they are selling. A stockbroker who primarily sells mutual funds will need substantial additional training if they are assigned to start selling mortgages to clients.

A simple referral to another department that actually sells and processes the mortgage may lead to situations where referrals are made whether they are needed or not, as the broker may not understand when the client really needs this service but is only motivated to earn a referral fee.

Advisors need to know how and when the additional product or service fits into their client’s financial picture so that they can make a more effective referral and stay compliant with suitability standards. FINRA may use the information that it collects from its inquiry to develop and implement a new set of rules that govern how cross-selling can be done.

Cross-Selling in Financial Services

Until the 1980s, the financial services industry was easy to navigate, with banks offering savings accounts, brokerage firms selling stocks and bonds, credit card companies pitching credit cards, and life insurance companies selling life insurance. That changed when Prudential Insurance Company, the most prominent insurance company in the world at that time, acquired a medium-sized stock brokerage firm call Bache Group, Inc.

Prudential’s purpose was to create cross-selling opportunities for its life insurance agents and Bache’s stockbrokers. It was the first significant effort at creating broad service offerings for financial services. Subsequently, other big mergers followed, such as Sears Roebuck (credit cards) with Dean Witter (stocks, bonds, and money market funds), and American Express Company (credit cards) with Shearson Loeb Rhoades (stocks and bonds).

The mergers of Wells Fargo & Co. with Wachovia Securities and Bank of America with Merrill Lynch & Co., both in 2008, occurred at a time of declining profits for both banks—and of financial crisis for the brokerages. Both banks placed a heavy emphasis on cross-selling as a strategy to regain profitability. To a large extent, they were aiming to expand their retail distribution arms by buying large and established distribution channels of the brokerages, hoping for synergy between banking and investment products and services.

With few exceptions, cross-selling failed to catch on within many of the merged companies. Conflicting sales cultures and resentment among sales representatives, forced to sell outside their area of expertise, have been challenging obstacles to overcome. As an example, Bank of America lost Merrill Lynch brokers through the insistence that the brokers cross-sell bank products to their investment clients. Wells Fargo has been more effective in instituting cross-selling because its merger with Wachovia brought a relatively similar culture into the fold.

It can be difficult for large firms to effectively integrate the use and sale of different types of financial products to the same client so that their needs are properly met in each area. H&R Block Inc. failed in this proposition when it acquired Olde Discount Broker in a push to offer investment services to its tax customers. The addition of a mortgage branch complicated things even further, and the company ultimately decided to jettison both these brokerage and mortgage enterprises and focus solely on taxes once again.

Cross-Selling vs. Upselling

Cross-selling and upselling are sales tactics used to convince customers to purchase more. However, there are differences to consider.

Upselling, also known as suggestive selling, is the practice of persuading customers to purchase an upgraded or more expensive version of a product or service. The goal is to maximize profits and create a better experience for the customer. That experience can translate into an increase in the customer's perceived value and an increased Customer Lifetime Value (CLV)—the total contribution a customer makes to a company.

Companies are 60-70% more likely to sell to an existing customer, whereas the likelihood of selling to a new customer is 5-20%.

For companies, it is easier to upsell to their existing customer base than it is to upsell to a new customer. Existing customers trust the brand and find value in the products and/or services. This trust drives the success of upselling. For instance, if a customer trusts a brand, they will generally trust the brand when it presents a seemingly better option.

Alternatively, cross-selling is the sales tactic whereby customers are enticed to buy items related or complementary to what they plan to purchase. Cross-selling techniques include recommending, offering discounts on, and bundling related products. Like upselling, the company seeks to earn more money per customer and increase perceived value by addressing and satisfying consumer needs.

Advantages and Disadvantages of Cross-Selling

Companies employ different sales tactics to increase revenues, and one of the most effective is cross-selling. Cross-selling is not just offering customers other products to purchase; it requires skill. The business must understand consumer behaviors and needs and how complementary products fulfill those needs and add value.

Customers purchase from brands they trust and have had positive experiences with. Therefore, it becomes easier to sell to an existing customer than to a new one. Existing customers are more likely to purchase products that relate to or complement what they already plan to purchase. As consumers begin to use more of a brand's products, they become increasingly loyal.

On the other hand, cross-selling can have adverse effects on customer loyalty. If done incorrectly, it can appear as a pushy, self-seeking sales tactic. This is evident when a salesperson aggressively tries to sell a related product or attempts to sell without understanding the customer's need for it. Not only does this affect the sale, but it also negatively affects the brand's reputation.

Additionally, cross-selling to the wrong type of customer could be counterproductive. Some customers have high service demands, and the more products they buy, the more service they command. As their service demands increase, so do the costs associated with providing those services.

Lastly, some customers habitually return or exchange products. When cross-selling to this segment, profits are not realized. Initially, their purchases generate substantial revenues; however, they often return or default of payments, costing the company more than what the customer generated in revenues.

Pros
  • Increased revenues

  • Increased brand loyalty

  • Fulfilled customer needs

Cons
  • Increased service-related costs

  • Pushy and aggressive perception

  • Diminished reputation

Real-World Example of Cross-Selling

In 2013, a group of Southern California Wells Fargo employees opened, without consent, new bank and credit card accounts for unsuspecting customers. The motivation: to meet cross-selling quotas. After an internal investigation, more than 30 employees were terminated.

To identify how widespread the issue was, Wells Fargo hired an independent consulting firm to review new accounts opened since 2011. They also created new procedures for validating new accounts, as well as implemented new training programs and security protocols.

The consulting firm found that over 2 million accounts (In 2017, the number increased to 3.5 million accounts) were fraudulently opened within a 5-year period, and 115,000 of those accounts incurred fees. Wells Fargo returned more than $2.8 million to affected customers, and more than 5,300 people were terminated. Without notice and an explanation, then CEO John Stumpf resigned.

In 2016, Wells Fargo was hit with a $185 million fine for this scandal. As a result, FINRA, the independent regulatory body for U.S. securities firms, launched an investigation of cross-selling practices at 14 broker-dealers, with a spokeswoman recently stating that: “In light of recent issues related to cross-selling, FINRA is focused on the nature and scope of broker-dealers’ cross-selling activities and whether they are adequately supervising these activities by their registered employees to protect investors.”

Cross-Selling FAQs

How Can You Increase Your Cross-Selling Effectiveness?

There are several strategies you can employ to make cross-selling effective. First, don't immediately cross-sell. Consider using an email drip campaign to periodically introduce complementary products and services, and keep consumers engaged.

Second, wait until you have developed a relationship and have proven success with the customer. Once trust is established, the customer is more likely to continue purchasing your products and is primed to purchase different ones.

Lastly, make sure your products and services are aligned to the needs and goals of the customer. Offering something that serves no purpose is counterproductive and can detract from customer satisfaction.

What Are the Do's and Don'ts of Cross-Selling?

Here are some tips for effective cross-selling. Sell to new and old customers. Old customers are your loyal customer base and are more likely to purchase again.

Build campaigns focusing on satisfied customers and promote additional products to them. Train associates to recognize satisfied customers and assess their needs. This is critical to understanding how to properly align them to other products.

Don't assume that customers are aware of your other offerings. Educate them, and help them understand how those products can deliver value. When speaking to a customer, do so in a personable manner; otherwise, it comes across as a sales pitch.

Lastly, avoid unhappy customers as it can further the divide between them and your brand.

What Is Cross-Selling on eBay?

eBay features a Cross-Promotion Connections program whereby eBay sellers can connect with each other. When a buyer wins a bid, they are able to see the seller's other listings, as well as their connections listings.

Previously, eBay featured a no-cost Cross-selling tool that allowed sellers to promote related products. Sellers could choose to either promote related items or promote discounts for larger orders. This feature was discontinued and is only allowed for select users at certain times.

The Bottom Line

Cross-selling is a sales tactic that, if done well, can increase a company's bottom line and customer loyalty. If done poorly, it can erode profits, create dissatisfied customers, and damage a company's reputation. It is not a one-size-fits-all approach, and companies should explore what cross-selling approach is suitable for their business model. Do not forsake existing customers for they are more likely to purchase additional products. Equally as important, do not be afraid to walk away from disgruntled customers. Despite how you cross-sell, it can be an effective tool to increase revenues and care for a customer's unmet needs.