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Sales and Profit Growth Abounds Among Existing Customers It's been well-documented that retaining a current customer costs less than attracting a new one, and most business owners are aware of that fact. There may be less awareness, however, of just how valuable those existing customers can be as a source of incremental revenue and profits. Harvesting those gains takes some time and effort, but the marketing investment involved often is less than the cost of prospecting for new customers, and it frequently provides a better bottom-line return. Up-selling and cross-selling are two key strategies in mining your existing customer base for increased sales and profit margins. Up-selling involves shifting a customer's planned purchase to a product or service that carries a higher price tag and/or profit margin. Cross-selling boosts total transaction value through the addition of complementary products or services suggested by the seller. Up-selling and cross-selling can be combined to deliver eye-catching results in certain industries. For example, by adding merchandise related to the customer's dining experience at the point-of-sale, restaurants can use existing customers to increase profits, improve competitive positioning and promote their business, says John T. Bowen, dean of the Conrad H. Hilton College at the University of Houston and coauthor of "Restaurant Marketing for Owners and Managers." Such up-selling/cross-selling can add 20% to 50% to a restaurant's sales, and because merchandise margins are much higher than food margins, overall profitability gets a substantial boost. While the upside potential may be greater in some industries than in others, virtually all types of businesses can benefit from up-selling and cross-selling. One-on-one cross-selling and up-selling opportunities-the most common type of interaction for most small businesses-can also improve the customer experience, especially in a retail setting, says Dick Arnold, vice president of marketing for the retail solutions division of NCR Corp. That, in turn, leads to greater customer retention, which creates more opportunities for up-selling and cross-selling.
For Patty Trainor, owner of an eight-year-old manicure and pedicure services business, it is up-selling that provides the greatest opportunity to reap more value from existing customers. Shades of Inner Beauty, Trainor's business, has succeeded with a unique business model. While most companies in the rapidly growing nail care business are storefront locations with multiple workstations and service providers, Shades of Inner Beauty offers one-on-one customer service by appointment only. It's an unusual approach that has proved to be very popular, and it is an ideal situation for up-selling.
GOOD "BUZZ" Trainor says that the success of her business hinges on her ability to get customers in the door. With the help of her husband, Philip Trainor, she does limited advertising and promotion, but her most effective marketing tool is good "buzz" from existing clients. Word-of-mouth accounts for the bulk of her new customers.Up-selling for Trainor is most often a multi-visit undertaking, especially in the pedicure segment. "All the pedicures I offer are therapeutic, but my top-of-the-line service is really special," she says. A treatment done with milk, honey, sugar, walnut, oatmeal, apple and wax, it also carries the highest price tag and profit margin in her salon's lineup. "I always try to up-sell my customers," Trainor says. "On their first visit, I try to introduce them to everything I offer. I give them information about all my services, starting with the top of the line and working my way down. They may come in for a simple manicure, but I plant the seed and up-sell them for their next visit, which leads to higher sales and profits." Two keys to Trainor's effective up-selling efforts are her success in getting customers to book their next appointment before they leave and the unique atmosphere of the private salon setting in which she provides her services. The stark contrast between that atmosphere and what clients typically encounter in a conventional salon is an important selling point and a big part of the reason she is so successful with repeat bookings. Soft, inspirational music and the intimacy of one-on-one interaction contribute to the private salon's spiritual setting, as does Trainor's empathetic personality. Described by her husband as "a natural counselor," she is an easy conversationalist as well as a skilled technician. Her customers tend to relax and open up more than they would in a noisy public salon, and she forms strong bonds with many of them. All those qualities are sincere, her husband stresses, but they also contribute to her success at up-selling. "Patty was always the way she is. People trust her," he says. "The business just fell into place around her." There are two primary reasons most customers visit the Loose Ends Hair Salon in Denver. They are Suzie Gaines and Fran Debbins, stylists who have worked together for 15 years and co-owned the shop for the last seven. Repeat business is crucial to the salon's success, and over their years together, the partners have become skilled at making sure they get it. "The most important thing to keep customers coming back in our line of work is listening closely when they tell you what they want and doing your best to give it to them," says Gaines. A business that inadvertently sells a customer a faulty product may get a chance to redeem itself, but the likelihood of a customer unhappy with her haircut ever returning is slim indeed, she notes. While Gaines and Debbins focus their energies on that aspect of their business to ensure customer retention, they do get opportunities for up-selling and cross-selling in the retail area of the store. Rather than take a hard-sell approach, however, they concentrate on filling customer needs.
NEED-BASED SELLING "The customers know which products we use on them here in the salon," Debbins says. "We explain how the products work, what other products work well with them and which would be best for a customer based on her particular type of hair and styling needs."The retail segment accounts for just a small percentage of the salon's sales and profits, she adds, but considered application of the right kind of cross-selling helps them maximize its performance. Face-to-face interaction with customers at the point of sale has proven to an effective technique for Bean Dreams, says Barbara Tumulty, a partner with Frank Marlow in the Houston, TX shop, which bills itself as the best specialty coffee shop in the city. The practice is known as "suggestive selling" in the retail industry, and it can help boost the top line substantially. "We do this as a matter of course," says Marlow. "When a customer comes in to buy a pound of coffee, we ask them if they need any coffee filters. We show them the newest coffee makers we just got in. We offer them a sample of one of our specialty food items. It's amazing how quickly you can take a one-pound coffee purchase and turn it into a $50 transaction. The face-to-face interaction is key." Studies suggest that the average customer sees only about 30% of the products a seller has to offer in a retail setting. By informing customers about other products and services which might interest them, suggestive selling not only helps boost sales, it functions as a form of customer service. The psychology of selling plays an important part in this technique, and its practitioners must straddle a sometimes murky line between suggestive selling and just being plain pushy. "Customers don't want to feel like they are being sold' something, especially something they don't really want," Tumulty acknowledges. "But many people welcome help in buying things they do want, especially when that help is presented in a non-threatening way. That's the approach we take." Suggestive selling is a technique that is simple to teach and learn, and it can be effective in all kinds of business settings. It is used successfully by virtually every fast food chain-"Would you like fries with that?" "Would you like to super-size your order?"-underscoring how easy it is to train employees in its basic concept. At just about 1,800 square feet, Bean Dreams is a compact shop with a small staff. Besides Tumulty and Marlow, the regular staff includes Marlow's 88-year-old mother, Jenny Simpson (whom Marlow describes as "the smiling face in the shop that greets all our customers) and a couple of part-timers. But Tumulty and Marlow take the time to make sure everyone who comes in contact with customers is trained in cross-selling and up-selling.
HANDS-ON "We don't have a formal training program; it's more of a hands-on thing," Marlow says. "We work side by side with a new employee so they can see how we do it, and we explain the reasons why we make the suggestions we do. Once they get the hang of it, we let them do it on their own."
When the business opened in 1971, it focused almost exclusively on coffee beans, which it continues to roast on the premises, with the roaster prominently situated in the store's front window. Over time, Tumulty, who bought the store from its original owner in 1973, began adding more products to the mix, always with an eye towards maximizing up-selling and cross-selling opportunities.
"Cross-selling and up-selling are very important to our business. They always have been," she says. "It's really become a kind of second-nature to us," adds Marlow. "Most of our customers come into the store to get their coffee, but once they're here, we help them find a lot of other things they may not even have known they wanted."
Everyone who comes in contact with customers is trained in cross-selling and up-selling. "We have a good number of repeat customers, and the way we try to retain them is by providing consistently high-quality products and services at better prices than they will find anywhere else," he says. "We maintain a database of our existing customers and periodically target them with promotional item specials." Cross-selling is standard operating procedure at Design by Graphics. Every customer is offered additional products or services to consider, and the company gives them a discount when they buy two or more. It also bundles complementary products and services together in order to boost transaction totals. "When a client commissions us to develop a logo, for example, we often upgrade that sale to include a combination of brochures, promotional items and Web site development," Reyes says. "If a client has extended advertising needs, we will offer them a contract on a retainer basis, which adds value for both of us and is a real plus from a cash flow perspective."
GAINING TRUST Up-selling in the conventional sense presents more of a challenge for the company because it is selling high-end products and services to begin with, Reyes says. However, once the company has worked with a client for a period of time and gained their trust, it often suggests stepping up to the next tier of similar product or service. "It gets easier to up-sell in that sense once we have established a relationship with a client and demonstrated what we are capable of doing," he says.Reyes recognizes up-selling and cross-selling as highly effective tools for increasing sales and profits from existing customers, and he admits Design by Graphics currently is not maximizing opportunities in this area. The half-million-dollar company, which Reyes founded 18 years ago, has outgrown its current space. "We are in the process of designing new offices that will be better suited to our present and future needs," he says. "One consideration in that process is making sure we will be well-situated to do a better job of getting more value from existing customers going forward."
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