Have you been cross-sold?

Published in The Hindu - Sunday Magazine on Feb 15, 2009

By understanding the behavioral psychology of customers, sales personnel have got smarter in using cross selling and up-selling tactics masquerading them as customer service.

Last week, an old friend of mine was in the city for a day and we decided to catch up before he took his return flight back. We picked a Café Coffee Day outlet for the rendezvous as opposed to a dreary Hotel coffee shop. The good things about the mushrooming of coffeehouse chains like Café Coffee Day or Barista are a) they make good meeting places - anytime during the day or night (up to midnight) b) you can sit as long as you want c) they are scattered all over the city d) they are easy to locate for out-of-towners. In fact, I don’t think anyone comes to these outlets just to have coffee…maybe it’s just an excuse for sitting around in plush leather couches, listening to good music and chatting or working on your laptop in air-conditioned comfort.

So we met in the evening and got talking. We decided to act courteous by ordering something although neither of us was really hungry. It was one of those hot days in Chennai (which is pretty much most days), so we thought we would quench our thirst and at the same time get injected with a shot of caffeine by ordering a cold coffee.

How we became an easy target 

We beckoned to the waiter and were supposed to give our order i.e 2 cold coffees, but here’s what happened:

Waiter: Good evening Sir, how are you doing today?

Us: Fine. Thanks.

Waiter: Sir, our evening special for the day has just got ready, would you like to try it?

Us: What is it?

Waiter: Warm chocolate doughnut.

Us: hmm…okay. May be 1/ 2?

Waiter: Sir, it is quite small, just palm sized.

Us: okay, then we’ll have two of that

Waiter: with some whipped fresh cream on top?

Us:  (hmm…sounds creative) okay

Waiter: and your drink order sir?

Us: 2 cold coffees please

Waiter: with ice cream or fresh cream? We have vanilla and chocolate.

Us: (not cream again…) one with vanilla, one with chocolate.

Waiter: Sir, would you like some chocolate gratings on your vanilla ice cream?

Us: (hmm…) okay

Waiter: How about you sir (looking at my friend), would you like some crumbled cookies as a topping on your chocolate ice cream?

He: Okay.

Waiter: Thanks Sir, I’ll be right back with your order.

 

After the waiter went away, my friend and I just stared at each other. I guess both of us realized what had happened. But it was too late. We got “cross-sold”. We just wanted to buy two simple plain cold coffees, but the waiter had politely managed to tempt us into ordering much more than what we planned to. How could two intelligent people fall prey to this textbook salesmanship? Well, what can I say - “it happens”. When we got the final bill, we realized that had we stuck to our original choice, we would have paid only one-third of the bill amount!  The waiter had achieved two things: one - he made us order something in addition to just coffee (this increased the revenues), two – he made us choose the paraphernalia like the crazy cookie topping (which no doubt cost less in absolute terms but boosted the profit margin)

Cross-selling to existing customers easier than acquiring new customers

 

The fact of the matter is that customer service oriented organizations, especially those operating in the restaurant business, in the financial services business and the telecom services domain, have realized how easy it is to increase their revenues and profit margins by selling more to their existing customers rather than seek out new customers.

You may find it interesting to know that restaurants make a higher profit margin on the dessert and soft drink compared to the main course. You might have noticed that Pizza Hut never serves water. That’s because they want you to order Coke, which they could have the pleasure of serving in a short glass with lots of ice and a slice of lime for a 400% margin (Wow!).

Larger organizations have set up separate cross-sell divisions to come up with ideas – either to upgrade existing customers to more expensive schemes within the same product line or to sell them an entirely different product line. For example, you may start by opening a salary account with HDFC Bank and before you know it - you own HDFC Silver credit card, a HDFC Health Plus Card with free EMI facility and a HDFC personal loan. The next time you walk into the branch, an executive is asking you to invest in a HDFC ULIP (Unit Linked Insurance Plan) to avail of annual tax savings and get insurance ‘free’ (yeah! right). Then you get a call from a customer service executive saying you have now been ‘chosen’ to automatically upgrade your credit card from ‘Silver’ to ‘ Platinum Plus’ with zero joining fee, as a recognition of being a special customer (conveniently omitting any talk on hidden charges). Platinum definitely sounds better than Silver, and you are getting it free! So you join - only to realize a year later that you are paying a hefty annual fee. Soon you get sucked up in a vortex of EMIs, secret charges and paltry investment returns, and then you suddenly get a bolt from the blue that makes you wonder – “why the hell am I stuck in a compulsory monthly investment plan, when I am running multiple loan EMIs on the other side?”

I don’t want to sound dramatic but it’s true! People who take a loan to make their ends meet are sold expensive insurance policies or investment plans and many take it even without independently evaluating whether it is required in the first place. Even worse, some customers are made to think that it is mandatory that they sign up for the insurance policy in order to avail of the loan. To make these cross-sell schemes more appealing, you are charged a single combined EMI for your loan, insurance plan etc., making it impossible for you to even differentiate how much you are paying for each of your commitments separately. 

Watch out!

 

So, why has ‘cross-selling’ and ‘up-selling’ become so rampant lately? In my opinion, its success can be attributed to three factors: a) the high incentives for sales staff to cross-sell & up-sell b) the irrationality of customers (although economists believe the contrary) to do crazy things that defy logic when coaxed by well-sounding advice c) the ignorance of customers.

The next time you are short-listed for a ‘special scheme’ or ‘exclusive offer’ for being a valued customer, you know what to keep in mind. About the waiter in the restaurant affectionately tempting you to go for the dessert – I will leave it for you to decide if he is just trying to display his hospitality or if he has a hidden agenda to increase the profit margin.