Cross-selling

Professional services

For the vendor, the benefits are substantial. The most obvious example is an increase in revenue. There are also efficiency benefits in servicing one account rather than several. Most importantly, vendors that sell more services to a client are less likely to be displaced by a competitor. The more a client buys from a vendor, the higher the switching costs.

Though there are some ethical issues with most cross-selling, in some cases, they can be significant. Arthur Andersen's dealings with Enron provide a highly visible example. It is commonly felt that the firm's objectivity, being an auditor, was compromised by selling internal audit services and massive amounts of consulting work to the account.

Though most companies want more cross-selling, there can be substantial barriers:

1. A customer policy requiring the use of multiple vendors.
2. Having different purchasing points within an account, which reduce the ability to treat the customer like a single account.
3. The fear of the incumbent business unit that its colleagues would botch their work at the client, resulting in the loss of the account for all units of the firm.

Broadly speaking, cross-selling takes three forms. First, while servicing an account, the product or service provider may hear of an additional need, unrelated to the first, that the client has and offer to meet it. Thus, for example, in conducting an audit, an accountant is likely to learn about a range of needs for tax services, for valuation services and others. To the degree that regulations allow, the accountants may be able to sell services that meet these needs. This kind of cross-selling helped major accounting firms to expand their businesses considerably. Because of the potential for abuse, this kind of selling by auditors has been greatly curtailed under the Sarbanes-Oxley Act.

Selling add-on services is another form of cross-selling. That happens when a supplier convinces a customer that it can enhance the value of its service by buying another from a different part of the supplier's company. When one buys an appliance, the salesperson will offer to sell insurance beyond the terms of the warranty. Though common, that kind of cross-selling can leave a customer feeling poorly used. The customer might ask the appliance salesperson why he needs insurance on a brand new refrigerator, "Is it really likely to break in just nine months?"

The third kind of cross-selling can be called selling a solution. In this case, the customer buying air conditioners is sold a package of both the air conditioners and installation services. The customer can be considered buying relief from the heat, unlike just air conditioners.

References

Sources

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References

1. (14 July 2022). "What is Co-Selling And How Can You Benefit From A Co-Seller?".
2. "Arthur Andersen: An Accounting Confidence Crisis".