As with all facets of modern life, the internet has dramatically changed the world of business. The ease with which consumers can turn away from a business to find a better deal elsewhere – anywhere – has resulted in falling profit margins on the traditional, core products of most companies. In turn, this has led to businesses implementing increasingly creative methods to push up their revenue in order to survive.
One of the most successful methods has been the cross-sell. This sales technique endeavours to convince the customer to purchase an additional item or service, related to what they were already buying. The cross-sell generates a secondary revenue stream that does not come from the company’s main product line.
Amazon’s “customers who bought this item also bought” option is a fantastic example of the cross-sell method. Airlines, and particularly budget airlines, are also notable practitioners of the cross-sell, often offering car hire, seat-upgrades, or hotel bookings as part of the flight booking process.
The importance of the cross-sell
Sinead Finn, current director of Affinnity and former Ryanair director, explains the importance of the cross-sell as a second form of secondary revenue. “It is a very important component of the airlines because as air fares continue to fall it becomes an increasingly vital source of revenue. At Ryanair it was 20-25% of the secondary revenue. The company would survive without it but it is another string to its bow.”
Indeed, as Webloyalty’s Beyond the Core: How UK Retailers are Looking Beyond Core Offerings to Drive New Revenue Streams report found, around 18% of British retailers generate at least a fifth of their revenue through secondary revenue streams, with a handful of businesses generating close to half of their income this way. Clearly, the potential of the secondary stream is more than a mere trickle.
Though airlines have been making use of the secondary revenue and cross-selling since the dawn of online retail, the vast pools of data have allowed their secondary revenue methods to become far more exacting. With the popularity of personal online retail accounts and in-store loyalty cards, this glut of data is a resource that Finn believes most retailers could take advantage of.
“The reality is that retailers probably know when I’m going on holiday,” she said. “If I’m in a Boots in December and I buy sun cream then this would be an opportunity to sell me more products. I could be given a voucher for £10 off at the airport store and maybe given a travel exclusive offer. There is a massive opportunity for retailers with shops so in the case of Boots they could email me the vouchers after my in-store sun cream purchase in order to get me to return to an outlet.”
Webloyalty’s report also found that support from the business’ senior management was a vital tool in the success and viability of secondary revenues, stating “business attitudes to secondary revenues were strongly linked to results.”
Finn holds the same opinion: “If secondary revenue is too low down the agenda at a company then change cannot be brought about. It needs to be at the forefront of thinking. The CEOs who take secondary revenues seriously are the ones that will ultimately be successful,” she said.
Though small businesses may not have the financial means to fully enact a secondary revenue stream across all areas, they can certainly implement one at the in-store level.
For retailers looking to set up a secondary revenue basis, Finn’s advice is clear. Every sale should be considered an opportunity. Amazon is suggested as a good example as when a product is bought, multiple products closely associated with original and very possibly needed by the consumer, are automatically offered. “Another retailer that is doing very well in the furniture category is Loaf. Customers that buy a mattress will be offered a bundle that includes all the bedding items,” said Finn.
Businesses that don’t explore the secondary revenue possibilities within their own market are likely to be missing out on great amounts of potential earnings.
Webloyalty states that 73% of businesses that said they had a secondary revenue strategy reported their efforts to be working.
As long as retailers are able to keep secondary revenue programmes low-cost, then not exploring these alternative avenues is simply a missed opportunity.