Fostering cross selling in financial service industry: an overview of tools and techniques.
Singh, Kanhaiya ; Gupta, Priya ; Misra, Richa 等
[ILLUSTRATION OMITTED]
Introduction
The beginning of 90's witnessed major transformation in the
banking operations in India as the policy measures took a U-turn. In
this regard the business impacts of information technology deregulation
and globalization on the structure of the banking has been analyzed
since 90's. It is shown how these forces are combining to create an
unstable banking environment in which new entrants and innovation are
reducing the income streams of banks. The dynamics of the banking
industry are related to the reduction in revenues and it is postulated
that the global banking industry is entering into a spiral of decline.
The strategic responses of the banks, particularly the trend towards
mega-mergers and internal cost-cutting, are shown to be insufficient in
the long term to offset the reduction in income.
In an environment like this, a Banking Industry survival depends on
its ability to maximize customer value by effectively marketing
additional products and services to customers. Even customers are
becoming more diagnostic and logical in buying decisions, and they
expects and demands for more value and convenience from their financial
institutions. Selling new products to existing customers has long been
on most banks' agendas. Yet historically, few have had significant
cross-selling success. When establishing cross-selling strategies, banks
must remember that the ultimate goal is improving the bottom line. Given
today's intense market pressures, banking organizations find more
effective ways to cross-sell to new and existing customers in order to
improve campaign response rates, generate more revenue and, ultimately,
improve customer loyalty.
Despite this need, many banks struggle to execute effective
cross-selling strategies. Customer data that would help identify good
candidates for cross-sell is often scattered throughout the enterprise,
making it impossible to get a clear view of customer preferences and
behavior. Banks can increase sales effectiveness by providing employees
with relevant real-time customer information to enable cross-sell
opportunities and to convert them into sales, capture new leads by
targeting personalized offers to customers and automatically generating
referrals based on customer response and improve customer retention and
loyalty by enabling employees to understand customer needs with
on-demand intelligence and action alerts coupled with IT solution which
are making the real difference in the customer savvy services as
compared with the global standards.
What is Cross Selling and Why Should Banks Cross Sell
Cross Selling in simple terms is selling an additional
product/service to an existing customer. For example, if the customer
wants to open a basic savings account, a natural effective cross sale
would be to promote a linked checking account along with an automated
teller machine or debit card access, and an "overdraft
protection" line of credit.
As per the RBI report on Issues in Banking Regulation and
Supervision by Kishori J. Udeshi (2004) cross-selling is acquiring a new
dimension of invasion of the privacy of the customer and an area where
banks need to exercise self regulation as consumer spending has been
increased and the data bases of the banks' customers are also being
shared with various product sellers.
Typically it involves helping customers assemble a tailored
product, from a variety of options and these options are to be presented
so clearly, that customers can make a comfortable, educated and
considered decision for choosing among these options.
The objectives of cross-selling can be either to increase the
income derived from the client(s) or to protect the relationship with
the client(s). This can also be an effective tool to acquire new
clientle base. The approach to the process of cross-selling can be
varied. Unlike the acquiring of new business, cross-selling involves an
element of risk that existing relationships with the client could be
disrupted. For this reason it is important to ensure that the additional
product or service being sold to the client(s) enhances the value the
client(s) that he gets from the organization.
Why Should Banks Cross Sell?
The prime point for cross selling is the cost factor. It zeroes in
on the cost of new customer acquisition for asset expansion and the cost
of cross selling to an existing customer.
According to Money magazine, it costs a bank five times less to
cross sell an existing client than to acquire a new one. Another finding
says that it costs four times as much to get a new customer as it does
to keep an existing one. The underlying is the cost advantage of selling
to an existing client.
The second important reason is the profit. Cross selling an
asset/additional asset product to an existing customer improves the
profits, in general, and profits per customer, in particular.
It also fosters brand loyalty. A customer who has availed himself
of more than one product from the bank is drawn closer to the bank than
a customer who has taken only one product. If a customer having a
savings account has taken a consumer/personal loan, the chances of
switching to another bank is less as compared to if he had only savings
account. If, in addition, he takes a housing loan or any mortgage
product, the chances of bank hopping reduces further.
Research studies have established that the percentage of loyalty
increases with the number of products the customer takes from the
existing organization. The reasons may be for convenience, service,
price and value offerings by the bank for the total product solutions to
the customer. This also helps in establishing long term relationship.
It also helps banks to plan, implement and maintain better customer
relationship management programmes as it gives clarity to developing
plans based on the customers' relationship profile.
Cross-selling services is always a good idea because of the old
adage that it takes five times the amount of time, money and energy to
acquire a new customer than it does to keep an existing one. Since your
customers have invested their money with your bank, they have already
established a comfort level with the service you offer them, making it
easier to sell them an additional product or service.
Literature Review
Cross selling is not a new concept. Though its terminology has
evolved in the recent past since when the term Customer Relationship
Management has touched its height. Gone were the days even when the
Goldsmith not only sells the Gold ornaments but also lending the money
to maintain its clientele?
As per the report of Business Journal (1998), the secret to
effective cross-selling in today's market is information. One of
the challenges for many businesses is coordinating cross-selling efforts
across a complex structure that might span multiple divisions, sister
companies, strategic partnerships, subsidiaries, Joint Venture,
Management Contracts, Licensing, Franchising. That is certainly an issue
that banks have struggled with as they continue to expand both
geographically and in terms of product offerings. "It's really
a balancing act between the right technology, the right knowledge and
the right products.
According to Deloitte and Touche study, the odds of selling a
product to a new customer are fifteen percent, whereas the odds of
selling a product to an existing customer are fifty percent. Since the
customers invest their money with their bank, they already establish a
comfort level with the service their respective banks offer them, making
it easier to sell them an additional product or service. When done
properly, it generates additional revenue at a lower account acquisition
cost. (Butera 2000). Basically for effective cross selling, its not
selling the product to the customer but staying in touch with them, so
that one can make the current customers a virtual goldmine (AMIRREZVANI
2006).
Leeladhar (2005) in his speech on Banking Sector: The Challenges
ahead had talked about the banking sector and its role enhancement in
the Indian economy and with the increasing levels of deregulation and
competition has placed numerous demands on banks. Operating in this
demanding environment has exposed banks to various challenges. Further
in his speech he stated that, it is no longer adequate for banks to
provide only traditional banking services but can offer a bouquet of
financial services to their clients, including cross selling of
financial products as the ultimate aim is to offer a one-stop-shop for
meeting varied customers' financial needs. Some banks have begun
employing customer relationship management systems to not only retain
the existing customers but also to attract new customers.
Nielsen//NetRatings(2004), the global standard for Internet
audience measurement and analysis, reported that cross selling
opportunities abound online for the financial institutions that drive
incremental revenue by expanding their online customer relationships
beyond a single financial services product..
As per the RBI report on Issues in Banking Regulation and
Supervision by Kishori J.Udeshi (2004) crossselling is acquiring a new
dimension of invasion of the privacy of the customer and an area where
banks need to exercise self regulation as consumer spending has been
increased and the data bases of the banks' customers are also being
shared with various product sellers.
The establishment of new private sector banks and foreign banks has
rapidly changed the competitive landscape in the Indian consumer banking
industry and placed greater demands on banks to gear themselves up to
meet the increasing needs of customers. For the discerning current day
bank customers, it is not only relevant to offer a wide menu of services
but also provide these in an increasingly efficient manner in terms of
cost, time and convenience. While banks are focusing on the
methodologies of meeting the increasing demands placed on them, there
are legitimate concerns in regard to the banking practices that tend to
exclude rather than attract vast sections of population, in particular
pensioners, self-employed and those employed in unorganized sector. It
takes a great deal of time, effort and teamwork to successfully
cross-sell beyond the traditional bank product set. Credibility and
motivation are keys. Clients need an easy way to get to the person with
expertise, and all the people touching the client relationship need to
want to help the client get there.
These findings demonstrate the importance of adding cross selling
strategies into a marketing program.
Objectives of the Present Study
* To identify the opinion and feedback of the Financial
Institutions regarding their upcoming practice of crossselling into
their businesses.
* To find out the importance / relevance of Cross Selling in the
Financial Market.
* To analyze the effectiveness of cross selling tool as a technique
for generating hike in their revenues and serving as an effective and
efficient customer retention measures.
Method Adopted
Data Collection:
* Primary Data: Structured Questionnaire based on eight parameters
for analyzing the acceptance and relevance of Cross Selling of Financial
Services in the prevailing market conditions, in the minds of working
personals of Financial Institutions
* Target Sample: Officials of Banking or an NBFC Organization
* Sample Size: 63 (from age group of 21 to 54 years)
* Sample Area: Delhi and NCR
Analysis of data
* Statistical tool used:
* Descriptive Analysis Frequency Analysis
* Inferential Analysis Testing of Hypothesis (Chi Square Test)
Chi-square test for each parameter or variable defined to find out
the difference in the observed and the expected responses by the
respondents
Analysis and Finding
Frequency Analysis
In this study one needs to answer question about a single variable:
What percentage of respondents feels that cross selling of
financial services providing value to the customer?
How many respondents considers cross selling generating profit and
healthy relationship with customers?
The answer to these kinds of questions can be determined by
examining frequency distribution. In a frequency distribution, one
variable is considered at a time. The objective is to obtain a count of
the number of responses associated with different values of the
variable. The relative occurrence, or frequency, of different values of
the variable is expressed in percentages. A frequency distribution for a
variable produces a table of frequency counts, percentage and cumulative
percentages for all values associated with that variable.
Inferences of the Table-1
Dimension 1 (Truly relevant offer combines which right timing,
appropriate product choice and appealing offer mix simultaneously):
Financial Institutions are in favor of a relevant offer which truly
combines, right situational timing and apt product mix
Dimension 2 (Is cross selling of financial services providing value
to the customer) The respondents are of the opinion that the customers
are delighted with the multi products and services (product mix)
supporting the main offer. Hence, in this context, the concept of
cross-selling is of great value to the customers.
Dimension 3 (Is cross selling generating profit with healthy
relationship with customer): The respondents, company people accept that
the technique helps in generating better revenues and healthy
relationships with customers that helps in tackling customer attrition.
Dimension 4 (The approach must be build around serving the
customer, not just selling more stuff): Companies not emphasize in
selling more stuff to increase revenue, rather they prefer to maintain
relationships with existing customers by focusing on serving them well.
Dimension 5 (Offer a range of prices, if a company suggest three
financial benefits i.e. items to complement a product, try to offer a
mix of price points): Companies prefer to offer different benefits
associated to a main financial product with different price quoted, with
high majority opinion.
Dimension 6 (Try product or service mix; insist shoppers to buy not
just a single item but an entire group of item that go together.):
Finance industry people, in majority say, the offer is less likely to
succeed if it is not closely related to the main selling.
Dimesion 7 (If a co. attempts to cross sell are not closely related
to original purchase, they are far less likely to succeed) Finance
industry people, in majority says, the offer is less likely to succeed
if it is not closely related to the main selling.
Testing of Hypothesis
Chi-Square Test for each parameter taken, number of variables: 07
Chi-square or goodness-of-fit test compares the observed and
expected frequencies in each category to test either that all categories
contain the same proportion of values or that each category contains a
user-specified proportion of values.
H0-There is no relationship between Cross Selling and providing
value to customers.
H1-There is a relationship between Cross Selling and providing
value to customers.
Inference: As per the table there is significance difference
between the two variables, therefore we accept the null hypothesis ie
there is no relationship between cross selling and providing value to
the customer,
H0- There is no relationship between Cross Selling generating
profit and maintaining healthy relationships with customers.
H1- There is a relationship between Cross Selling generating profit
and maintaining healthy relationships with customers.
Inference: As the result of chi square test is .008 which shows a
significant difference between cross selling generating profit and
maintaining healthy relationship with customers, therefore we accept
null hypothesis.
H0-There is no relationship between gain of extra sale and company
simply mentioning the other products or services that are available?
H1- There is a relationship between gain of extra sale and company
might simply have to mention that the other products or services are
available?
Inference: Since the test result is .000 which shows that there is
no significant difference between gains of extra sale by the company
simply mentioning the other products or services that are available;
therefore we simply reject the null hypothesis.
H0-There is no relationship between company's attempts to
cross-sell and success of offer closely related to original product?
H1- There is a relationship between company's attempts to
cross-sell and success of offer closely related to original product
Inference: The test result (.166) shows that there is a no
relationship between company's attempts to cross sell and success
of offer closely related to original product i.e. we accept null
hypothesis.
H0-The approach must not be built around serving the customer, but
selling more stuff.
H1-The approach must be built around serving the customer, and not
selling more stuff.
Inference: As there is a significant difference between the two
variable (.011), therefore we accept null hypothesis that is the
approach should not be built only around serving the customers but also
to sell more stuff.
H0- There should be no insisting for shoppers to buy not just a
single item, but an entire group of items that go together.
H1- There should be insisting for shoppers to buy not just a single
item, but an entire group of items that go together.
Inference: As there is not a significant difference between the two
variables (.001) therefore we reject null hypothesis ie shoppers should
be insisted to buy not just a single item but an entire group of item
that go together.
Conclusion
Majority of working personals in some or the other Financial
Institution believe that for the growth of the company, Cross Selling
plays a vital role. It tackles the problem of customer attrition quite
efficiently. Companies are focusing on the bundling of offers, product
mix with main selling. They are making all possible avenues for tailor
made one place shopping to their customers. The concept of cross selling
in financial domain helps the concerned companies to generate better
revenues and cost cutting which could be incurred by them in making
profits through new customers. This paper concludes that multiple offers
involve fair amount of right timing, relevance, closely related bundling
of services and range of prices. The approach is built around serving
the customer as well as selling more stuff by the technique of cross
selling and henceforth maintaining a healthy relationship with them
through out their life cycle.
Strategies for Effective Cross Selling
* A robust customer database is foremost for effective cross
selling. The database is the core on which the entire cross selling
strategy is built.
* Based on the customer relationship history and the cross selling
model, a broad mapping of the customer profile and retail products to be
cross sold has to be done.
* The mapped data has to be sliced and diced to develop specific
asset related cross selling information.
* The cross selling information has to be put in place for staff
(internal customers) to view and communicate to the target customer
group.
* The employees should be trained to effectively cross sell and
convert the initiatives into business
* Cross selling is a team effort and success depends on the
attitude and involvement of all the staff concerned.
* The success of cross selling depends on offering at the right
time, the relevant product to the customer. It will be a futile exercise
to cross sells a product which is not needed or relevant for the
customer.
* Selecting the target customer group is essential for cross
selling success. Selling the right product to the right customer
improves the relationship.
* Cross selling is more relationship- than transaction-based. At
any point of time, the cross selling initiative by the line staff should
not be an irritant for the customer.
The above are only some illustrative strategies and success depends
on the bank management's belief and commitment in retail asset
expansion through cross selling as a viable tool and also customer
acceptance of the initiatives by the bank. In the present day networked
scenario and availability of customer database, banks can adopt a pilot
run in some potential regions and based on the success rate, extend it
in a phased manner to other regions.
* Amirrezveni Ali, "Effective Cross Selling", 2006
* Butera, Ann M, " Cross-selling: Capitalizing on the
Opportunities" , Hoosier Banker, 2000
* Malhotra, NK, Marketing Research: An Applied Orientation, 3rd
edition, Prentice Hall, New Jersey, 1999
* Nielsen / Net Ratings ,Cross Selling Opportunities Untapped for
Financial firms, 2004
* RBI report on Indian banking--The Challenges Ahead by Shri V
Leeladhar ,2005
* Udeshi Kishori J, Issues in Bank Regulation and Supervision, 2004
* www.bfmag.com
* www.cfoproject.com
* www.economist.com
* www.fina.org
* www.ftindia.com
* www.rbi.org
* www.securities.com
* www.dealeron.com
Kanhaiya Singh Professor, FORE School of Management, New Delhi.
Priya Gupta Sr. Lecturer, Amity Business School, Amity University,
Noida, UP.
Richa Misra Lecturer, Amity Business School, Amity University,
Noida, UP.
Table--I
Frequency Distribution and Percentage
Dimensions Frequency Percentage
Percentage
Truly relevant offer combines : Yes 48 76.2
right timing, appropriate product No 15 23.8
choice and appealing offer mix Total 63 100.0
simultaneously
Is cross selling of financial Yes 42 66.7
services providing value to No 21 33.3
the customer Total 63 100.0
Is cross selling generating profit Yes 42 66.7
with healthy relationship with No 21 33.3
customer Total 63 100.0
The approach must be build Yes 41 65.1
around serving the customer, No 22 34.9
not just selling more stuff Total 63 100.0
Offer a range of prices, if a Yes 44 69.8
company suggest three financial No 19 30.2
benefits i.e. items to complement a Total 63 100.0
product, try to offer a mix of
price points
Try product or service mix; insist Yes 45 71.4
shoppers to buy not just a single No 18 28.6
item but an entire group of item Total 63 100.0
that go together.
If a co. attempts to cross sell are Yes 37 58.7
not closely related to original No 26 41.3
purchase, they are far less likely Total 63 100.0
to succeed
Dimensions Valid Cumulative
Percentage Percentage
Truly relevant offer combines : 76.2 76.2
right timing, appropriate product 23.8 100.0
choice and appealing offer mix 100.0
simultaneously
Is cross selling of financial 66.7 66.7
services providing value to 33.3 100.0
the customer 100.0
Is cross selling generating profit 66.7 66.7
with healthy relationship with 33.3 100.0
customer 100.0
The approach must be build 65.1 65.1
around serving the customer, 34.9 100.0
not just selling more stuff 100.0
Offer a range of prices, if a 69.8 69.8
company suggest three financial 30.2 100.0
benefits i.e. items to complement a 100.0
product, try to offer a mix of
price points
Try product or service mix; insist 71.4 71.4
shoppers to buy not just a single 28.6 100.0
item but an entire group of item 100.0
that go together.
If a co. attempts to cross sell are 58.7 58.7
not closely related to original 41.3 100.0
purchase, they are far less likely 100.0
to succeed
Table--II
Hypothesis testing using pearson chi-square method.
Pearson
Dimensions Chi-Square Df Significance
Relationship between Cross Selling 7.000 1 .008
and providing value to customers
Relationship between Cross Selling 7.000 1 .008
generating profit and maintaining
healthy relationships with
customers.
Relationship between gain of extra 13.349 1 .000
sale and company simply mentioning
the other products or services that
are available?
Relationship between company's 1.926 1 .166
attempts to cross-sell and success
of offer closely related to original
product.
The approach should not be built 6.452 1 .011
around serving the customer, but
just selling more stuff.
There should be no insisting for 11.571 1 .001
shoppers to buy not just a single
item, but an entire group of items
that go together.
