Cross Selling in Banks
Marketing practitioners and banking consultants alike understand the need for relationship development in establishing and maintaining a solid customer base. This relationship is particularly important for services like Banking and insurance where the relation between the customer and the service provider is of trust. Adding to the magnetism of customer retention as a strategy is the finding that it can reportedly cost anywhere from five to ten times as much to acquire a new customer than to retain an existing. One of the more widespread strategies for customer retention is the practice of cross-selling. Cross selling has been defined as “offering current customer additional products or services that can provide added value for them”. Cross selling has also gone by other names such as companion selling, suggestive selling, and complementary selling (Polonsky et al. 2000). Early jargon for a related selling practice is “bundling.” Bundling refers to “the practice of marketing two or more products and/or services in a single ‘package’ for a special price”.
Many experts feel that by selling additional products and services to existing customers, the cross-selling operation creates more value for both customer and service provider. On one side by offering more products from their contemporary product portfolio, service providers create value for their customers, who now can procure services from a single vendor. On the other hand, cross-selling enables service providers to boost up their sales and exploit their broader product portfolio, thus contributing high turnover with only marginal costs. They experience no extra costs in acquisition or distribution, because their customer relations and sales channels already have been recognized. The marginal cost of selling additional products is relatively low when compared with total costs, and most services offered by firms are interdependent in nature.
In spite of all the benefits of cross-selling, many companies including banks still come across various economic and financial challenges in trying to meet their cross-selling prospective. To cross-sell to an existing customer, there must be sales across business units. “Cross-selling has become a necessity, for many banks and financial institutions. Everybody wants to do it, spends a lot of time and energy planning to do it, but, at the end of the day, the results fall far short of the goal”. Organizations usually focus on core processes, not customer needs, which create great potential for conflict. The reason many cross-selling initiatives fail is not the strategy behind them, but rather the strategy’s implementation. In non-customer-focused organizations, the sales force is structured according to product areas and individual business units, and salespersons likely have clear product responsibilities and incentive schemes that focus their efforts on one product area or business unit. In some cases, organizations have relied too heavily on sophisticated customer relationship management technologies that were far more focused on segmentation of customers than asking for their business. When executed efficiently, cross-selling can bring in some positive results such as augmented sales, better levels of customer satisfaction, loyalty, and a elevated level of spending per customer.
Cross Selling and Up Selling
Up-selling and cross-selling can be a technique to profit generation for various business houses. Cross-selling and up-selling are often puzzled with each other and used synonymously but in fact there is slight difference between the two types of selling techniques. Both help in profit generating by offering bouquet of products related to its main product line, or numerous versions of the same product. Cross Selling is selling the customer supplementary or related products. Some fields in which cross-selling is most obvious include those of the banking and financial services industries. For instance, a banking customer may visit a branch for account checking and later is sold an investment or insurance product. On the other hand, Up Selling is selling the customer a more expensive version of the product. Here the approach of seller is not concerned with selling an additional product to generate additional commissions, but rather with selling a higher-end version of the product the customer originally came to buy.
Organizations may have Product Centric or Customer centric approach. Efforts to cross sell must transform from product-centric to customer-centric approach. This approach is also known as wealth management of the customer or one-stop shopping offers.Customer demands the financial services depending upon its growing financial maturity. Thus, each customer’s preferences and receptiveness to cross-selling solicitations may vary time to time and the banks have to trail and anticipate these changes. Industries and types of businesses are very diverse and intrinsically vary the type of cross-selling and its conception varies as well. One company may consider cross selling as cross specialty selling, whereas another company may consider it as strategy of a one-solution provider Cross-selling can also crop up on a cross-company basis.
Cross Selling in Retail Banking
At present Retail banking is facing the pressure of improving the quality of service, along with Cost reduction to remain competitive in a tremendous volatile and uncertain market. Improving customer service is essential for banks in the current economic and market scenario, where product and price no longer provide a clear competitive base. The pivotal role in delivering superior customer service is of distribution channels as customer relations begin and end with these channels. Nowadays along with providing the conventional banking services, banks have started offering a bouquet of financial services to their customers, together with cross selling of financial products. The main aim is to offer a one-stop shop for wide-ranging customers’ financial needs. For this reason, many banks have started deploying customer relationship management systems not only to retain the existing customers but also to attract new customers. For example, Banks not only sell core banking products (saving a/c, current a/c), but also sell additional products such as credit cards, insurance products, mutual fund plans, Govt securities. By selling these additional products they reduce per customer cost and increase per customer earning.
Cross selling is a major element of driving business revenue, to augment this most of the banks in India have separate verticals for cross selling. It is a foundational sales strategy which remains to be an unshakeable pillar for growth.The banking sector is no different. Cross selling has been a major source of revenue growth for the banking sector since last two decades. According to Banking Intelligence solutions (BIS) from Fiserv, a customer with one product at a bank will stay for about 18 months. The same relationship can extend for up to four years with two products. And at three products, the relationship averages 6.8 years! In order for banks to be able to continue cross selling effectively, they need to adapt their practices with changing times, while wearing a tech forward lens.
Cross Selling by Banks in India
Liberalization, privatization and globalization jointly have transformed the entire Indian banking system. The liberalization of the financial sector and banking sector reforms, which took place thirty years back, have exposed the Indian banks to a new economic environment that is characterized by increased competition and new regulatory requirements. As a result, there is a revolution in every sphere of activities of the banks in India, Innovation, and intensification in new technologies escorts to increase in the customer expectations and there is a major shift from product centric approach to customer centric approach. People not just demand more from their banks but also receive more. Banks are striving hard for retaining the old customers then acquiring the new ones in the era of intense competition. And one of the main customer retention strategies is to cross sell more and more financial products to the customers. Most managers’ cross-sell to every customer, sure that more sales means more profits. And cross-selling is profitable in the aggregate. But best of our knowledge the first of its kind, found that firms that indiscriminately encourage all their customers to buy more are making a costly mistake: A significant subset of cross-buyers are highly unprofitable.
To be able to cross sell effectively, banks need to shift their focus back to the customer, or risk being left behind. The new way is to rely more on establishing long term relationships with customers based on trust and loyalty. Pushing products blindly is no longer acceptable.Customers have come to expect just in time information and service when it comes to services like opening an account, buying financial products or solving queries through chatbots. They are empowered and independent, and prefer being in the driver’s seat. They need to be offered the choice to get solutions seamlessly through multiple devices and platforms. The way to win customer interest is by investing time and resources in understanding their personal preferences through data, using latest technology to reach out to them in the right way and at the right moment, and acting as financial advisors to them, rather than sellers.
Use of AI in Cross Selling
Large banks are already diving into adopting artificial intelligence (AI) as a part of their core marketing strategy to create such personalized experiences for their consumers. Customers of various International as well as Indian Banks have access to a predictive banking feature that analyses account information, and provides customized financial guidance. All major International and Indian banks have introduced the virtual financial assistant that uses predictive analysis and cognitive messaging to offer financial guidance to the millions of customers. It is well known truth that Banks have access to a large amount of information relating to their customers. But this data has not been properly utilized to their advantage. AI can help address this by simplifying automation and use of valuable data to enable proactive and personal customer experiences at low cost and superior efficiency.
Virtual Assistants run by Artificial intelligence may ask the right questions and provide customized solutions to every customer at the bank. Such use of AI for marketing and cross selling purposes have become a key factor for growth in banksInteraction with customers’ needs to be continuous, and not just with the sole purpose to cross sell or up sell. Analytics should to be used on a regular basis to offer advice and solutions. Any kind of communication, be it customer centric messaging, sending expert recommendations to improve financial health of the customer or lower costs, offering tutorials – they need to feel natural and extremely tailored. It should be about offering what the customer needs and values at that point in time. The ultimate goal behind any interaction with the customer, digital or personal, should be to serve them with a genuine intent in mind. It is during all these interactions are where tiny windows of opportunities to cross sell or up-sell lie.
Businesses using AI for customer service typically use it for handling the most basic queries. These are questions that tend to come up time and time again, and have relatively simple answers. Though the questions may be framed in slightly different ways, the system is programmed to understand the vast majority of these variations and then learn the others. As time goes by, the system also learns to deal with increasingly complex enquiries, meaning the need for human intervention is reduced. Not only does this enable businesses to reduce their cost, it also results in a happier customer – response times are quicker, and the answers they get are consistently accurate.
While the use of AI in banking is currently picking up as more areas have been covered by it, in the future, we can expect to see it being used in many new ways. The most significant will see AI being used in the role of a salesperson. Banks that do a good job of organizing and interpreting customer data will be in a strong position to increase their revenues by identifying people who are open to being sold additional services. Whether it is the bank itself or an affiliate that makes the sale, there is a massive opportunity here that, on top of increasing revenues, will help banks provide better customer experience by suggesting proactively to the client what they need at the exact time that they need it.
While data has to be used responsibly and only with the customer’s express permission, there are many benefits for everyone involved to use AI in this way. Besides the example of the car buyer being offered an insurance product, consider a traveler who has bought tickets to fly abroad on holiday. They might receive a push notification on their smart phone when they arrive at the airport to notify them of the best foreign exchange deals so they can start spending money. Or a mortgage payer who has encountered an unexpected expense just before they are due to make their payment could be offered an emergency loan at a competitive rate. The bank has all of the customer’s details, and has already carried out credit and KYC checks, so the actual loan-application process would potentially take just minutes.
Different kinds of customers will have different needs that can be met through these AI innovations. Think of an SME needing to carefully manage cash flow in the run-up to Deepawali or Pongal. It may need to not only give its employees their pay packet early, as is traditional in November/January, but also buy extra stock in order to fulfil customer orders during this period. The bank could step in at this stage, knowing from past data just how much revenue the festive season will generate for the business, and offer a loan to finance the purchase of this stock.
Serving the demands of the millennials and beyond
The millennial generation constitutes the largest percentage of the workforce at present, only to increase in the future. The needs of this generation are completely different from their predecessors.The millennials are smart, equipped with knowledge and demand seamless experiences wherever they go. But they aren’t very happy with the way traditional banking industry functions. For instance, in a consumer survey, 51% of millennia said they would be happier if banks “got” them. Time taking and Cumbersome experiences at the banks are a strict no for millennials. This is a major reason why they prefer competitors outside traditional banking models such as use of Google, Apple or PayPal. The kind of tools that these new age startups are bringing with them have captured the attention of millennia’s by providing features such as cross platform solutions, ease of use and low cost. Banks need to focus on offering such seamless experiences to the millennial population to reduce the threat of being completely abandoned. With AI powered analytics, a bank can understand the behavior of customers, their preferences, their current financial condition and much more. On the basis of this knowledge, it can cross sell with personalized solutions such as what kind of an investment would help them get a higher return. Or offer a service right at the time of need.