Making sense of cross-purchasing: A note
- PDF / 106,825 Bytes
- 6 Pages / 595 x 765 pts Page_size
- 31 Downloads / 217 Views
Tony Woods is a partner in Statistics Applications and a director of the Marlborough Consultancy.
Merlin Stone is IBM Professor of Relationship Marketing at Bristol Business School, University of the West of England. He is a senior manager at Mummert + Partner UK Ltd. and a director QCi Ltd and Swallow Information Systems Ltd.
Abstract This paper examines the supposition that there is a correlation between holding more than one product and customer profitability. Most companies fail to understand the simple statistics of cross-selling, therefore the paper considers a series of statistical models that will help financial services marketing managers to assess their cross-holding rates in relation to the average for the industry. Keywords modelling
Cross-purchasing, statistical modelling, financial services, probability
INTRODUCTION Many financial services companies have customer bases in which many, usually the majority, of customers hold only a single product. On the other hand, customers who buy more than one product can be very profitable. Customers who buy more than one product may stay longer, although only a properly constructed timeseries analysis can show whether this is true, or whether customers who are loyal tend to buy second products. The supposed correlation between holding more than one product and customer profitability has led many companies to justify investment in customer databases primarily on crossselling potential. The justification is in terms of: Tony Woods Statistics Applications, Penhales House, Ruscombe Lane, Ruscombe, Berks RG10 9JN. Tel: +44 (0) 118 934 4265, Fax: +44 (0) 118 934 3266; E-mail: [email protected]
— a lower cost source of leads than other means of identifying and reaching prospects, eg external list rental, media advertising
# Henry Stewart Publications 1363-0539 (2000)
Vol. 5, 2, 129–134
— possibly higher response rates, if customers are assumed to be more receptive to offers from a company whose product they already hold. Note that this cannot be assumed — much depends upon branding. However, it should be noted that most major insurers (eg Axa, Royal & Sun Alliance) have invested large sums in establishing a wider financial services branding in order to encourage customers to generalise a supposed positive image from their experience of dealing with the company from whom they only hold one product — reduction in duplicated mailings, ie not trying to sell products to customers who already hold them. This is particularly important if a company has been formed from a series of mergers, or if new products have been added over many years, each product having its own customer database.
Journal of Financial Services Marketing
129
Woods and Stone
There is also some evidence, however, that just focusing on increasing product holdings per customer can also attract larger numbers of unprofitable customers. For example, cross-selling household insurance to motor insurance customers irrespective of their propensity to claim can lead to a higher claims ratio tha
Data Loading...
