Cross-sell is dead

Every companies’ strategy mentions owning the full customer relationship as a key goal. The thinking goes somewhat like this.

  • We have identified a customer need in a super specific niche area inside a large industry vertical.
  • Once we acquire this customer for this super specific need, we want to continue serving them and building a relationship with them
  • This same customer has varied needs that exist in the large industry vertical, a vertical that is unnecessary complex and filled with incumbents offering poor products.
  • We will build products that address all their needs. We will cross them into all these products
  • The customer is happy as there is only one place to go for all his needs
  • We will own the customer for everything they need in that industry vertical – we build high LTV

To illustrate with an example, let’s take financial services as a vertical

  • We have identified that there is a problem with customers managing their spending. We will solve this problem by building an awesome tool to do that.
  • Once we acquire this customer to solve their budgeting problem,  we want to continue serving them and building a relationship with them. They have a lot of financial needs. They may want access to various types of credit (cards, student loans, business loans, mortgages) and they may want to invest their money and need access to brokerages and advisors.
  • We will build products that address all these needs.  We will cross them into all these products.
  • The customer is happy as there is only one place to go for all his needs, they come to us to manage their entire financial lives.
  • We will completely own the customer for everything they need with regards to money- we build high LTV.

Cross-sell into a customer base is a lynchpin of the strategy, it’s the path to world domination.

I used to be a firm believer in this strategy, every financial services company is a strong believer in this strategy. But does it work? I’m not sure anymore.

To build my argument, I’d first like to take a detour to the types of purchases, impulse purchases, and considered purchases. As the label suggests we don’t spend too much time thinking about impulse purchases, but we spend a lot of time thinking about considered purchases. We can all agree that anything to do with money and finance are not impulse purchases. We do not take a loan out on an impulse, we do not invest in an investment account on an impulse – financial products are the exemplar of a considered purchase.

The strategy of cross sell is predicated on the following (in no particular order)

  • There is natural inertia for customers to try out new things. The known (your company) is better than the unknown (your competition)
  • The industry product set is complex (financial products), customers like to have somebody tell them on what’s best. Since you already have a relationship with the customer for a product, they will naturally prefer you to advise them on other products
  • Customers prefer just one place to go for everything, reducing choice is good.

This sounds pretty logical and convincing, right? Cross-sell should work, it’s a sound strategy.

So why am I doubting this?

There are two trends that are in my opinion that turn these assumptions on their head. The first is the trend of the internet (mostly google) reducing search costs to almost zero. This is not a new trend but is useful to discuss. As financial services products are almost always considered purchases the customer can easily overcome his initial inertia to search for products that solve his problem. Maybe the assumption of inertia was wrong all along. We diagnosed the result correctly but mistook the cause. We assumed that the customer had inertia but actually, pre-google, searching required enormous time and effort.

The second trend is the niche-sass-ification of everything. Since the advent of the mobile phone and browser-based software, customers are comfortable dealing with multiple apps. The primary interfaces of the phone and browser have made this really easy. Internet-native companies have rightfully focused on solving a niche really well and thus trained customers to use multiple apps/webapps. The customer is used to having lots of highly niche apps/webapps from different companies to solve his varied needs.

So the core assumptions that a customer will not search for alternatives and likes using one piece of software to do everything, does not hold any more!

And here is the main reason why I think I’m off the cross-sell train. For a considered purchase where the search cost to find alternatives is low, every product in your product set needs to be the best product ever for that user need! And in addition, it needs to be a fully vertically integrated product. You can’t just have a credit card product, a budgeting product, and an investment product. You have the best credit card product, the best budgeting product, and the best investment product and they all have to work seamlessly together!

How many companies do you know that can accomplish that? It’s hard enough to get one product right, getting multiple products right at the same level is extremely hard! Having perfect execution on one product is hard enough, doing that on multiple products is exponentially hard. I don’t think this strategy is executable!

Ok, you say building best in class products for the entire vertical is hard, what about partnerships? Why not partner with companies who are good at the individual things to make a full suite of best in class products that you can then cross sell?  There are two fundamental problems with this approach. Firstly, with partnerships, who controls the customer becomes a massive point of friction. More time is spent on structuring the deal in a way that both partners feel a bit less bad than actually making a great integrated product for the customer. Secondly, to build a seamless integrated bundle , multiple roadmaps across different companies have to align and execute. Getting alignment in a single company is hard, imagine doing that across multiple companies, each of which have their own priorities to grapple with. The seamless bundle never comes to fruition. You end up getting a patch work of products that don’t come across a bundle to the end customer.

The cross-sell strategy sounds great in theory, it is almost impossible to pull it off in practice! Maybe it’s unique to financial services, but I’m more and more inclined to be off the cross-sell train. I think cross-sell is dead. Would love your thoughts in the comments.

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