According to Forrester research analyst Sucharita Mulpuru-Kodali, product recommendations are responsible for an average of 10-30% of eCommerce site revenues.
Way back in 2006, Amazon reported that 35% of it’s revenues were as a direct result of it’s cross sales and upselling efforts.
If you want to increase your Q2 revenues & you don’t currently have a upselling testing program in place, you need to read this.
What is Upselling?
Upselling is when the seller encourages the customer to spend more than they had originally intended. For the purposes of this article, this is by recommending a higher priced alternative to the item the visitor is currently considering.
Many definitions of upselling also lump “add-on sales” or “bundle sales” into upselling, but in order to have an accurate view of what is the most effective, I believe it’s important to look at these as entirely separate practices.
Asking a customer to spend an extra $100-$200 on a more powerful computer – a true upsell – uses a very different written & visual language than than asking customers to buy the extended warranty.
While we’ll be focusing on pure upsales in this article, it’s worth mentioning the other ways of adding more to your average cart value.
What Are Cross-Sales, Add-On Sales & Bundle Sales?
A cross-sell is when you recommend your customer buy a product that compliments their existing purchase, but is from a different category (or vendor).
Here’s a great example of a cross-sell interstitial by Product Upsell, an app for Shopify customers.
These can significantly increase your customer lifetime value, as many customers don’t need to take advantage of the service & instead buy it “just in case”.
This academic paper by Joseph Hartman & Kamonkan Laksana of Lehigh University shows you how to effectively calculate the cost of extended warranties.
It also analyzes various price-points, factoring in risk/cost conditions and shows profit increases up to nearly 40%.
Bundle sales are when two or more products that complement each other can be added to the cart from the product page or checkout.
Product bundles are often sold at a discount in order to raise the perceived value of buying multiple products at once.
Something to be aware of though, recent research by Vineet Kumar of Harvard Business School analyzing handheld game systems – a popular bundle sale item – shows that customers are more likely to buy when both the bundle & the individual products are available.
“…when a bundle was the consumer’s only option—a “pure bundling” scenario—Nintendo would fare much worse, when compared with both offers that lacked any bundle as well as those with the mixed bundling option. Revenues decreased by over 20 percent compared with the mixed bundling scenario; the total hardware units sold declined by millions of units; and software units fell by over 10 million as well.”
Takeaway: when offering a bundle, make sure customers know the individual products are also for sale.
The Opportunity For “Pure Upselling” & Why It’s So Effective.
The only way to know for sure what revenue boosting strategy will provide the most profit for your specific business is going to be to test.
However, a study of Predictive Intent’s eCommerce customer base, has shown that displaying slightly higher priced options than those in your visitors immediate view drives an average of over 4% of sales, 20x more than the standard “recommended products” option found on most eCommerce sites.
“Techniques our clients are adopting include incorporating the customer ratings of products when they are being presented, and clearly separating out what are ‘upsells’ and what are ‘cross-sells’.” Paul Rouke – Prwd
While it may seem counter-intuitive that you can increase in sales by recommending more expensive options, keep in mind, we’re talking about tapping into a relatively small portion of your visitors (just over 4%) who aren’t quite sure they’re getting the exact right thing – or only want the very best.
1. The Indecision Of Choice
People’s ability of making rational decisions when presented with multiple options has been a joke as far back as 350 B.C when Aristotle wrote:
“…a man, being just as hungry as thirsty, and placed in between food and drink, must necessarily remain where he is and starve to death.”
From buying Jam, to reducing form fields, to multiple images in a slider, to various options on a homepage – presenting your prospect with too many choices can be paralyzing, often resulting in no choice being made at all.
As more information becomes available, decisions are even harder to make as evidenced by Google’s Zero Moment of Truth report, showing that shoppers doubled their information consumption from 2010 to 2011, and doubled again from 2011-2012 to nearly 18.4 different pieces of content.
Research by Cisco also found that 78% of shoppers are using the internet to research their purchases & make sure they’re getting the most value out of their decision.
Which leads me to the next reason why presenting higher priced alternatives may lead to an increase in sales.
2. The Monty Hall Problem
In 1963, American television show, Let’s Make A Deal, presented contestants with an opportunity to win a new car IF they picked the right door.
Behind one door would be a brand new car & behind the other two – a goat.
After picking a door, contestants were shown the door where the one of the goats was hiding then asked if they’d like to stick with their original decision or switch doors.
Figuring there was a 50/50 chance they picked right the first time, most stuck with their original decision, claiming “I would never forgive myself if I switched & ended up with the goat.”
Mathematically speaking though, the odds are always in favor of the switch.
Watch the video to understand why:
Most people will stick with their original decision – whether it’s a door, or a product on an eCommerce site – even though it’s probably wrong, due to a psychological bias known as the Overconfidence Effect. It’s the same reason why 93% of American’s believe they’re above average drivers.
Looking a Predictive Intent’s research another way, you see we’re only talking about 4.25% of your customers – a relatively small portion – will be inclined to “switch” & that decision can be very profitable for you.
Think of it this way, if the average customer has already looked at 18 sources of information before committing to a purchase, by the time they’ve hit the product page, it’s like they’re picking Door #1.
Their research helped them eliminate Door #2, a product they figure is not right for them, before they ever reached the page.
So while they’re looking at Door #1, mostly sure they’re making the right decision, right there they see Door #3, a product with with better features, better testimonials & better ratings…
…and it’s only x amount of dollars more…(damn it, I deserve it!)
Research has shown that cost isn’t always the most important factor, emotion plays a significant role in purchase decisions & that 52% of online shoppers felt that online reviews have the most influence on what they buy.
Even though the Predictive Intent research shows that 95.75% of your customers are still going to stick with their original purchase, how significant would 4.25% of your customers spending an extra $20, $50 or $100 be for your bottom line?
If single product averages 1,000 customers/month, that means you’d be adding an extra $860 – $4,300 to sales every month. By the end of the year, that’s an additional $10,320 – $51,600 on a single product.
Not bad, right?
Bonus: Predictive Intent’s research also showed that displaying cross-sells at checkout increased sales by another 3%.
Get Elastic has a great article, “The 3 P’s of Cross-Selling In The Cart,” that discusses what you should consider & test when designing checkout cross-sales.
What Do You Upsell? Analyze Your Customer’s Purchase Behavior.
The question then becomes what products should you be up-selling?
In many cases displaying the “next model up” is a perfectly reasonable option.
Why get the 30 day supplement when the 60 day supply is $20 more but will last twice as long? Why get the 50″ television, if the 55″ is bigger & only $162 more?
Pricing experiments have already shown us that this is kind of the rational that goes through customer’s minds. As long as you’re not obnoxious about the way you upsell, it’s not unreasonable to offer a higher price model.
However, a better way to upsell is when the recommendation puts your customer into the product that’s the best fit for their needs.
Take this WinZip Cart upsell for example:
The offer provides a very clear savings advantage (20%) as well as lists additional features – like data backup, and zip straight from camera capability & Cd burning – for an extra $10, that could end up saving a lot of time for someone like a Professional photographer.
This example by L.L Bean is ok, though I would like it better if they would add something like “Perfect for Hiking In The Mud” to add more context to why I should buy mid-cut as an alternative to the low-cut shoe.
The product selection page for iPad Air does an ok job here too.
By showing the option to get Wi-Fi + Cellular, visitors know they don’t have to be confined to Wi-Fi areas, but adding a quick line about “Always being on the go” might make it easier for high-travel tablet users to identify themselves, rather than justifying buying a lower model because “there’s Wi-Fi everywhere.”
Even though it’s a step before you reach the product page, the Microsoft Surface 2 provides additional context as to why you should consider the 4G LTE model when you purchase their tablet.
Adding that little extra – “Do more on the go” or “for serious photographers” or some other copy targeting power users – can add so much more context as to why you’re “recommending” a product.
If you’re manually uploading your upsells & not currently using some kind of personalization software, look at the higher priced models (and alternatives) that sell well or get better reviews as a starting place for your upsell offer.
Once you know what you’re upselling, use an A/B testing tool like Optimizely to determine which upsell offer is going to be the most profitable for you.
But You Absolutely Should Use Automated Upselling.
The trouble with manually entering your upsell items is that it’s impossible to scale & it will never adapt to your customer’s browsing behavior.
This is the exact reason why headphone retailer SkullCandy switched from Google Analytics to Adobe Marketing Cloud. Despite a small dip in traffic, they were able to increase upsell revenue by 30%
“Switching from manually configured recommendations to Adobe Recommendations increased upsell revenues by 30%,” says Meacham [Analytics & Testing Manager] “Plus, it saves us time. Optimizing recommendations used to take about 10 hours a week. Now it takes just half an hour, which frees up staff to do other important work.”
Similar stories are reflected on personalization provider 4-Tell.com “Success Stories” where clients see anywhere between 29-70% (and more) lifts in revenue & cart value.
BrainSINS founder José C. Cortizo Pérez also wrote about the benefits of personalization & marketing automation in great detail before.
Tools For The Job
There are a number of tools you could use for this, many of which have already been mentioned throughout the article. However, here are a few I recommend:
Conductrics – Real time optimization combined with machine learning to understand visitors behavior and optimize itself to serve the most profitable recommendations.
Adobe Marketing Cloud – Full featured CRM that enables product upsells, multi-channel analytics, remarketing & more.
Marketo – Another full featured CRM that enables personalized upsells. Also included is personalized email, ad spend optimization & a host of other features.
Evergage – Software suite that focuses more closely on personalization & optimization of eCommerce websites without extra features offered by full blown marketing suites like Adobe Marketing Cloud or Marketo.
Today’s customers are smart and know when you’re trying to squeeze more out of their wallet.
What it all comes down to is value. Helping your customer to get exactly what they want without compromise & feel good about it not only makes you more money, it makes them happier in the long run.
That means offering personalized experiences, relevant recommendations, and products that truly are worth spending a little extra on.