As the SaaS model matures, customer lifetime value has come to the forefront as a key indicator for sustained success. Coming to the surface as well are a number of tools businesses can use to increase customer value over their lifetime. One of the most effective of those is the cross-sell, which is a subset of the expansion revenue strategy we’ve covered elsewhere.
The cross-sell is an offer of a new or different product to an existing group of customers. Office programs (word processor, spreadsheet program, presentation, etc.) are a good example. Lets say you have a customer base that loyally buys your word processor, then cross-selling would be getting that same group to branch out and buy those other programs as well. There are a lot of strategies for cross-selling, but one of the most popular ones is bundling.
Bundling is perhaps the most common cross-selling strategy. You see it everyday, from Microsoft’s Office Suite of programs to the McDonald’s extra value meal. Customers, by and large, love the idea that they’re getting a bargain even if there is something in the bundle they might not want or think they really need. Tweet
Bundling, however, is not as simple as it seems. It does require some forethought and there are a few best practices you should keep in mind.
It might seem counterintuitive at first, but it makes sense when you think about it. In order to really grasp the value of a bundle you need to be able to buy the products separately as well. It lets a customer feel like he or she has a real choice. It also means that if a customer really wants one part of the bundle without the other pieces that he or she can still have that one item. If the bundle is the only way to get those products, then it becomes a single product instead of a package deal.
While the real-world business results backup the practice, it also has support of two Harvard Business School professors and their research.
Professors Kumar and Derdenger examined this phenomenon by looking at the handheld video game market between the years 2001 and 2005. Nintendo had a monopoly on the market at the time with the Game Boy. In their study, they found buyers embraced bundles (the Game Boy Advance and a game or games that came with it) MORE if it was possible to buy the game system and the game separately, as well as part of a bundle.
When Nintendo only offered the products in a bundle, sales plummeted a full 20 percent. When there was a bundle and the option to buy separately, they sold 100,000 more game units, and millions more software (games) Tweet
Logic would dictate that you’d sell more products if the only way someone could buy them were in a bundle. This simply isn’t true, though, especially when it comes to technology (software suites, gaming hardware, smartphones, etc.). The reason why is simple too.
Consumers know that prices eventually go down. Even if they want a product you’re offering but they don’t like the way you’re offering it, the customer will typically wait until the price or offer changes. That’s why if you’re going to try and cross-sell by bundling your products, you need to make sure your customers are happy with your offerings.
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