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Complimentary Products Or Services Are a Win For Everyone
Customer acquisition is expensive and for many companies their customers only do business with them once a year, once every three years, or sometimes only one transaction in a lifetime. This is especially true for industrial goods, electronics, service parts and so on.
"This Sells With That" – Complimentary Products Or Services Are a Win For Everyone
Complimentary Products Or Services Are a Win For Everyone. While this isn’t new it is amazing to me how many companies fail to offer complimentary products or services when a customer is in buying mode. ”This product also goes with…… “. OR “Would you also like X and Y with that? Most customers buy them together”. This increases service level, makes the seller sound very knowledgeable, and increases the invoice size. Now thats a win-win-win!
However it’s important to offer complimentary products that actually align with the customer’s buying patterns. Regardless of your product or service, this will help you increase the average value of each sale as well as differentiate yourself from your competition. Offering complementary products can be used for store sales, online, phone and direct sales.
“This Sells with that” for Aftermarket Parts
The SKUs (stock keeping units) in an aftermarket business is nothing but the various components of an automobile, tractor or backhoe. Every new model that comes into the market sees an addition of 2,500-3,000 parts to the existing master list, while the addition of every variant adds another 500-1,500 parts. The last forty years has seen a phenomenal growth in the number of aftermarket parts. This phenomenal growth has been fuelled by the liberalization of global players resulting in thousands of models of cars, tractors and other machines.
Frequent launch of new models has reduced product life cycle and has negative implication on the aftermarket supply chain. The implication of shorter life cycle of automobiles on the aftermarket business is faster transition of parts from runners to repeaters and soon fading into obsolescence. The revenue from parts of a new model are typically low in the first two years after launch, increasing in the third and fourth years. The sales only stabilize if the model continues in the market. Unlike other businesses where a product is discontinued if it does not yield revenue, in an aftermarket parts business the part needs to be supplied even if the model has failed. This tremendous volatility impacts the number of parts the aftermarket business has to support.
For example, if an OEM introduces a new model and two variants each year – this results in about 3,000 parts. In six years time the parts proliferation in the aftermarket business of this OEM will be least 30,000 parts. This explains the relevance of having a SKU management for the aftermarket business in order to track the movement of parts till it reaches obsolescence.
Levering “this sells with that” Intelligence from Invoices
The challenges due to inventory and assortment planning for the aftermarket parts are significant. Traditional forecasting methods that treat each part as an independent entity are outdated. For aftermarket parts, the performance of traditional forecasting methods is dismal, and hence not all the parts can be forecasted. In fact, only five percent of the master list can be forecasted with an accuracy of 75 percent on a monthly basis. This results in bloated inventory, incorrect parts assortment and lost sales.
OEMs, distributors and retailer have realized the importance and complexities of the spares business and have initiated measures for assortment planning and SKU management. This requires sustainable methods as the market grows and competition gets fiercer. Every OEM has mentioned how the downturn has reflected in increased sales for the aftermarket/service parts. A part of the business that was typically ‘a nice to have’ has become a focus for improved customer service and profit.
"This Sells With That" For Aftermarket Parts
The aftermarket business deals with SKUs in tens of thousands. Unlike soft goods, in this business customers buy parts for projects and jobs. The invoices reflect that, and are comprised of parts bought by maintenance and repair shops to get a job done. Hence, the affinities in the sales transactions reveal what parts that are bought together for repairs/jobs.
The sales transaction data for the aftermarket businesses is very rich with parts affinities and trends. That’s because the data reflects the buying patterns of repair shops and mechanics. This represents a significant opportunity to leverage the transaction patterns for assortment planning, inventory management and of course, ‘suggestive selling’.
Emcien offers analytics that reveals patterns in sales transactions, producing a complete data map of the item affinities for ALL parts. This intelligence can be input into traditional warehouse planning and retail assortment planning systems. The affinities data can be used to make traditional systems smarter as the sales patterns change, parts change and market shifts.
The current sales patterns and item affinities in planning systems are input manually using manufacturer recommendations and gut feel. These recommendations get stale very quickly and are rarely based on actual sales invoices. The value of analytics driven affinities is that the relationships are always up-to-date, backed by actual sales transactions. Emcien’s analytics produces affinities data for all parts in the supply chain eliminating the need for ‘hard coded’ rules that quickly become obsolete and are a nightmare to maintain. This enables aligning parts inventory with with sales/model changes/parts utilization based on actual invoices. The affinities data can also be use for suggestive selling to increase customer service and order size.
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SKU Rationalization and Affinities With Tobacco Products
I read this very interesting analysis of why Tobacco isn’t Going Up in Smoke.
The author argues that for 20 years the industry faced increased social, legal, and political pressure yet; it is still here, still profitable, and still reinventing its marketing to fuel growth.
The analysis is based on the following reasoning. Some investors avoid the industry due to its declining volume and regulatory, political, societal pressure. Despite those headwinds, here are four reasons why tobacco will remain a profitable for many years to come. First, the distribution network and restrictions on advertising keep SG&A 15 to 20 percentage points below other consumer sectors as a percent to gross sales. Second, regulatory pressure will meet reality. Record budget deficits at the federal, state, and local level will necessitate tax revenue from tobacco long term. Third, under the Master Settlement Agreement, the industry has made great strides to educate people about the dangers of smoking, curb underage smoking, and limit advertising. The next generation of people that get smoking related illnesses will have a more difficult time building cases against tobacco companies for loss compensation. Fourth, SKU rationalization remains an untapped lever to protect profit amidst relatively predictable volume declines.
Items (and Categories) with affinities to Tobacco Products Are Impacted When Tobacco Prices Fluctuate
As retailer look to rationalize the tobacco product, they also need to know what items in the store have strong affinities with tobacco products. As tobacco prices have fluctuated the sale of these items has been impacted dramatically. The risk of SKU rationalization is eliminating low volume sellers that are connected with other low volume sellers. You will end up losing more sales that you bargained for; not a good thing in this economy.
SKU rationalization remains an untapped lever. There are many instances where companies have rationalized products only to bring them back and more. The failure rate of SKU rationalization is due to the lack of quantitative analysis on the item affinities on low volume sellers. There are two kinds of low volume sellers:
1. Low volume sellers that sell with other products.
2. Low volume sellers that sell in singleton baskets. These are candidates for SKU rationalization.
A complete affinity analysis of your products will reveal opportunities and low hanging fruit that you can benefit from today.
Are Your Promotions Increasing Basket Size or Just Discounting Items
Are your promotions increasing basket size or just discounting items that your customers would have bought anyway! I just talked to an old friend, who is now CEO of a convenience store chain. He told me that they had completed a marketing program and he suspects that he just ended up discounting stuff that customers were going to buy anyway!
Currently the retail industry invests four to six percent of its revenue on marketing programs, and promotions. With that size of spend, C-level execs are rightfully asking - Are the promotions and programs working? Are we creating programs on items that will cause maximum sales lift? OR are the promotions just discounting items that customers would buy anyway? (“Let’s buy just the drink, it’s on sale!”)
Leverage Product Affinities To Create Promotions That Increase Basket Size
With limited marketing dollars and a desire to see real ROI, these are very important questions for effective promotions. All items in a store are linked by affinities. Leveraging the product affinities can drive higher success rate in your marketing programs as it aligns with customer buying patterns.
Items with very high volume sales occur in a large number of transactions. This creates a lot of noise and leads marketers to believe that these items can drive sales increase. For example – in a convenience store, drinks are big sellers. However, promotions on drinks will typically just end up discounting drinks! The good candidates for promotions tend to be far lower on the sales popularity chain. While lower in sales, they have higher ‘basket size’. This means that they occur in transactions with more items. Promotions on items with higher basket size causes sales lift, as these items drag along sales of items with affinities.
So – the next time you are creating a marketing program, ask yourself – ‘what is the average basket size for these items? Am I going to lift sales or just discount stuff that they are going to buy anyway!”
S.P.Richards Shows Dealers the Keys to Succeed
Just got back from S.P.Richards’ Advantage Business Conference (ABC) in Miami. It was a fantastic week packed with networking opportunities, learning experiences and fun. The HP sponsored Buccaneer Bash was amazing in scale and attendance, engulfing the Fontaine Bleu in a big party atmosphere. The next morning was a great keynote by Larry Winget, who says it like it is!
SPRichards’ Advantage Business Conference (ABC) in Miami
Apart from being lots of fun, the conference was great learning venue. With thousands of dealers and manufacturers, the key questions revolved around “How do we sell more to our customers, increase customer service and profits!”
S.P. Richards works hard to make their dealers successful. Their latest value-add is automated up-sell/ cross sell capabilities on their ecommerce web site. This capability is very powerful and could not come soon enough for the dealers. Many of them expressed their views. Here are a few:
- If we can sell on more item to a customer, who is already buying from us, the impact on sales is dramatic. (Quoting verbatim – “it’s a no-brainer!”)
- My customers want me to suggest relevant items that they can buy, while I have them on the phone! I want every sales rep to have that capability.
- It is so much easier to sell more to existing customers than to try to get new ones. So we embrace all the help we can get to service our existing customers better.
All the manufacturers agreed with this view because it’s a win-win if the dealers can sell more and more efficiently. The list of dealers at the conference was very impressive…including companies like ReStockit, Village Office supply and GiveSomethingBack.
Congratulations SPRichards! A great 2010 conference. Look forward to attending next year!
About S.P. Richards Company -
S.P. Richards Company, one of North America’s leading business products wholesalers, distributes over 30,000 business products to a network of over 7,000 resellers in the United States and Canada from a network of 44 Distribution Centers. S.P. Richards Company is a wholly-owned subsidiary of Genuine Parts Company, (GPC:NYSE)
Grow Your Business with Value Upsell and Cross-sell Strategies
Grow Your Business with Value Upsell and Cross-sell Strategies
Gearing traffic to your website can prove quite difficult, and converting even two-thirds of the visitors into customers can be a challenging task in itself. Most e-commerce conversion rates fall between 2% and 3%, unless you are selling at Amazon (9.6%) or at Proflowers (14.1%)! Therefore, when you manage a hard-fought victory, capitalize on it through aggressive upselling and cross-selling strategies.
Benefits of Upsell and Cross-sell
When a customer enters a shop searching for a specific product, a salesman comes to their aid, provides them whatever they need while suggesting alternatives and complementary products. Perceptive suggestions by the salesperson enhance the store’s image in the eyes of the customer, since it reflects a level of thoughtfulness on the part of the store. Suggestive selling online can serve as a practical method of increasing profits.
Cross-selling and upselling have great value for e-commerce as well, since they increase:
- Average order value
- Conversion rates, since they guide consumers to select appropriate alternatives in case they are looking at the wrong product or one that does not complement the product in the shopping cart
- Exposure to high margin products
- Customer satisfaction through the recommendation of related products that will supplement the product as well as the user’s experience
- Deeper awareness about the product you are offering
Upsell and Cross-sell: Tips and Tricks
The following are certain ideas that would definitely improve your opportunity to upsell and cross-sell:
Suggest the obvious: Several cross-selling and upselling opportunities arise all by themselves. For instance, if you are offering tennis racquets, suggesting balls, bags and other tennis accessories is natural. You can also consider mentioning a few other related products and services that you provide.
Relevant suggestive selling works wonders: Overloading customers with unrelated suggestions can only serve to exasperate them and hamper purchase scope. If not immediately purchased, it will definitely eliminate chances of developing a recurrent clientele. Therefore, product suggestions should be as closely related as possible.
Expert recommendations help: Another way to facilitate upselling and cross-selling is by offering recommendations by professionals, field experts and customers. This could be anything – from a chef’s suggestion on a particular menu to a doctor’s recommendation on drugs. This is a strategy followed by Amazon.com.
Timing is crucial: The best time to cross-sell or upsell is when the customer is trying out some item. For instance, if the customer is looking for a low-priced camera and seems disappointed with a particular model’s features, the person may not mind buying a higher-priced model with more advanced features. Or, suggesting a belt when the customer is trying on a pair of trousers is quite fitting.
Offer products of a different price range: The supplementary product suggestions should be across a varied price range. If three items have been suggested, it is crucial that all three offer a welcome mix of different price points. Most often, the item that costs the least will be chosen. However, it will leave a good impression in the minds of the customers, increasing the chances of future sales from the same client.
The secret to successful cross-sells and upsells is complete focus on customer needs and requirements, instead of concentrating on increasing sale. As they say, Take care of the pennies and the pounds will take care of themselves.
Assortment Planning and Up-selling based on “This Sells With That”
Walmart’s (formerly Wal-Mart) announcement of a SKU rationalization project contained in this year’s 10-K filing with the Securities and Exchange Commission confirms the importance of this initiative for all retailers. In SKU (Stock Keeping Unit) rationalization, a retailer examines the profitability of items and vendors as a whole. When done in a linear fashion it results in lost sales and bringing back the SKUs.
SKU rationalization projects look for “What items are bought together” so that retailers and distributors can improve assortment planning. As shoppers, we all know that we buy items in groups. It is the job of the retailer to figure out what kind of stuff we buy together, so that they can optimize their assortment planning. Simple example – If I cannot buy both bagels and cream-cheese at the same time, I will go to a store where I can find it!
SKU Classification Based on Frequency of buys and Product Relationships
SKU analysis for assortment planning is based on two key metrics:
- The frequency of buys. This is a metric that measures true popularity of an item based on how often customers buy this product. For measuring popularity, it is better metric than volume as it is not skewed by one-time large volume purchases by a few customers.
- How often this item is bought with other items. This metric is a measure of how strongly correlated this item is with other items that you sell. If an item is always purchased with another item (like bagels and cream-cheese), it is very important to know the “often bought with” items, and ensure that they are stocked together and in the right proportions. Not having one item from a basket of high affinity products will result in loss of the customer.
These two metrics also apply for Amazon-esque suggestive selling for online sales. Items that have high correlation with other items are candidates for suggestive selling, up-selling, cross-selling and add-ons. For example, this would be a way to detect that cables, cartridges and paper that are bought with a particular printer. So when that printer is bought, you can automatically suggest the other items as add-ons. (Not to get too technical here, but the suggestions are not symmetrical. So – you cannot suggest a printer when a customer buys paper!)
The implications of these product relationships cannot be emphasized enough on your merchandising strategy and your supply chain planning. Manufacturers, distributors and retailers struggle to manage thousands of SKUs. This SKU classification presents a methodical approach for assortment planning to maintain the most profitable portfolio.
SKU Categorization For Merchandising, Up selling and Cross selling
The second chart presents a more detailed discussion of the SKUs based on frequency of buys and affinity with other products. (Affinity simply means “this items sells with that”. )
I - Items that have low-frequency/ high correlation are important to detect. These are trouble-maker SKUs. As companies goes though SKU rationalization projects, these items often end up on the chopping block, only to brought back again because they caused lost sales. These items are difficult to identify and there is a need for sophisticated analytics to easily identify these items.
II – Items that are bought in high quantities, but always with other items are great candidates for merchandising and bundling. They are a natural for creating sales lift and revenue lift. It is often counter-intuitive, but your #1 top seller may not be in the #1 pair of top selling items. That is why linear analysis of the SKUs based on volume or frequency results in incorrect merchandising.
III – The low frequency/ low correlation items are the targets for SKU rationalization projects. However, these items are very difficult to identify. Hence SKU projects typically end up cutting the wrong SKUs. We call these items Low-Loners. If you are a distributor, you do not want to carry these items. They are perfect candidates for drop-ship.
IV – Items that sell in high frequency, but usually on their own, require high service levels. We call these Hi-Loners. Examples of these items are cigarettes and gas at a convenience store. And by the way, beer also falls in this category. And please do not believe the beer and diapers myth! It is a myth!
The challenge with SKU management is that companies make decisions based on product relationships from hear-say, industry veterans or tribal knowledge. I think that’s how the beer-diapers myth was started! Across thousands of SKUS, and with fast changing demand patterns, this results in errors, and not a sustainable process for assortment planning and SKU management. There is too much at stake to base a companies sales and revenue on hear-say.
As SKU management is getting a lot of attention, there is need for robust solutions based on real customer buying behavior, to help companies maintain their SKUs on an continuous basis. The value is high sales, higher margins and improved customer service.
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What is Pattern Based Analytics?
Emcien's Pattern Based Analytics Automatically Reveals Choice Combinations and Trends in Sales Transactions
A fast emerging area of business analytics is Pattern Based Analytics (PBA). This has been launched due to the very large amounts of data and need for analytics that can reveal meaningful patterns that businesses can act on. A typical reaction to the large amount of data is “If I had seen this coming sooner, I could have acted faster, decreased my risk and enhanced my opportunities for growth. Pattern Based Analytics typically requires focus on a business areas, e.g. Sales, Marketing, Finance, etc. The key to Pattern Based Analytics is automatically revealing intelligence that is hidden in the data/information.
This is a fast growing area because of key value points:
Instant Use - The inherent nature of Pattern Based analytics is that it does not require models and it accepts unstructured data. Hence, one of the greatest value points is Instant Use!
Accepts unstructured data – A key value point that drives down implementation time, barriers and cost, and dramatically increases applicability of the analytics. The ability to detect patterns in unstructured data makes it very easy for applications from sales data, marketing data, to twitter strings.
Big Problems are easy – Problem size and data size are not an issue with PBA. On sales data, Emcien’s PBA will easily solve buying patterns on 250,000 to 500,000 SKUs in a few minutes. This offers the ability to solve problems that were too large/expensive to solve previously. This is a game changer, when the closest alternate solution requires complex models and has serious size limitations of a few hundred SKUs.
Works on problems big and small – On problems big and small, PBA is a natural fit. PBA dramatically lowers the price of analytics, enabling smaller companies to gain immediate value from business analytics.
No data-models, No data-cube, No set-up – This is one of the single biggest value points for PBA. This eliminates the need for specialized analysts, statisticians and technical staff to interact and maintain the system. The ability to accept unstructured data and not require a model means No Setup. This also means you can go live now! No more 18-month implementation cycles!!!
Intuitive for non-technical users – Pattern Based Analytics can present results naturally in a very intuitive way. This is because the patterns that are pop are typically the top categories that need attention. There is not need to drill down and ask questions – the ultimate bain of every BI user.
When Pattern Based analytics is pointed at sales data, the patterns that pop are “what are the top selling items”, “what is the pattern of choices combination”, “where is this happening”? Any non-technical business user can use this report to stock better and drive more sales.
Always up to date – Patten Based Analytics does not use models and cubes. Hence there are no cubes to maintain and update. Even as time passes, the analytics are always up to date, due to the ability to input non-structured data.
Gartner has rightfully established Pattern Based Strategy as the next frontier for capitalizing on large volumes of data and deriving value fast and continually.
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BI is for IT, But Analytics is for the Business User!
I’ve just come out of a meeting with a business user who is passing up on a well-known BI software package. “It takes too many IT resources to implement. My IT guys love it but I cannot afford the cost/time,” he said.
As companies drown in data, BI is a very expensive route to try and gain value from the data. Mark McDonald, head of research for Gartner Executive Programs, has a very nice article titled Without the Business in Business Intelligence, BI is Dead!. Sounds like – “The King is Dead. Long Live the King.”
BI has been built for the IT community. It is an old-school solution built on the heavy weight model of technology. That model rests on the acquisition, installation and operation of technology based on a significant upfront investment that is earned out over a period of time. This has been the investment/implementation path for enterprise ERP/SCM/CRM/PDM software packages. BI is in this class of software solutions, and results in an expensive and less responsive solution. Mark McDonald calls this the “old ‘heavy weight’ model of technology”.
The top two categories for Gartner’s predictions for 2010 are Cloud Computing and Analytics – these are both directions that are a far cry from the old world of heavy/expensive/pay upfront software. BI in its current form is completely out of step with these predictions and where the market is heading. So, why did Gartner renamed BI to Analytics? In doing so is BI going to magically transform from its old heavy weight form to a new lean enterprise 2.0 form? Long Live the King?
Emcien offers pattern-based analytics that easily takes sales data in any form to reveal customer buying patterns and trends. The technology has completely eliminated the need for data models, structures, mapping, etc. Emcien’s pattern based analytics technology was created explicitly to overcome the ‘old heavy weight model of technology’. Pour your sales data in, and watch the customer buying patterns. “Like Google analytics for sales data”, our customers told us.
Mark McDonald has prophecy for BI that I think is dead-on (pun!?). “On a radical note, we are seeing some early signs that companies are looking to use social media/web 2.0 technologies to address business issues that were previously assigned to BI.
Lighter weight technologies handle tacit information and semi-structured process support better than BI solutions that rely on structured and standardized information.
Our customers completely agree with Mark McDonald. Quoting a VP from a Fortune 500 company, “We have lost the appetite for million dollar software and long implementations that consume IT resources”.
However, the need for harvesting intelligence from data is not going away. On the contrary, it has never been more important than it is now. The data hides jewels of intelligence that companies need to act on NOW. But that is only possible if Business Intelligence is not a technology but a capability for the enterprise. Long Live the King!
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Demand Intelligence Among IDC’s Top 10 Retail Predictions
Just read a great article by Amanda Ferrante based on an interview of Leslie Hand, Research Director at IDC Retail Insights for Retail Touchpoints. The interview focused on providing new strategies to optimize the value of IT in 2010, as IDC Retail Insights unveiled its Top 10 Predictions for the retail industry. The IDC report explored several hot retail topics, including social commerce, mobility and how demand intelligence is driving inventory management.
In the interview for Retail TouchPoints Leslie expanded on the IDC predictions. The first set of points were around the impact of social networks and it sizeable impact in retail. Everyone is talking about social networks, and we all know it is like the iceberg that sank the Titanic. We see a small piece and there is a big chunk underwater! (bad analogy!) But no ones knows the true financial value of this. I guess the analysts counsel is to chase this bubble it and stay on top of it, so that when folks figure out how to monetize it, you are positioned well. Just hope that we are not standing there with a load of tulip bulbs!
The interview mentions Demand Intelligence as being critical. Leslie says that retailers with capabilities for sensing demand were able to fine tune assortments, reduce demand forecasts and adjust prices and promotional programs to maintain margin expectations given expected product sell-through issues. On the flip side, many retailers were left holding the bag, as they did NOT have the capabilities to adjust to the changes. As consumer spending shifts and demand fluctuations grow, Demand Intelligence is mandatory to run a a profitable business.
In Leslie’s words “Many of the retailers who were not able to adjust expectations soon enough, because of the timeliness of demand data or insufficient analytics, remedied the situation by investing in better forecasting and planning tools in 2009. Part of the success this past holiday season can be attributed to merchants sticking to the plan, with an understanding that the data and the analytics and planning tools that were used to develop the plan were smarter and more agile than human experience alone. We believe this was a tipping point for many retailers, who may not have been fully invested in demand intelligence before.”
The predictions also touch on the importance and trends of mobile applications, and connecting customer behavior and purchase data for more insight. However, to me, the second one sounds like lots of data, long implementations, ……
On that note, I would like to add that a key factor for applications to be successful in this economy is quick proof points and fast implementation. As competition heats up even more, retailers needs tools that can quickly demonstrate proof points and deliver value. Solution providers and software vendors need the capability to quickly implement their solutions, without lengthy and costly implementation cycles. This is even more important for the small and medium retailers. I guess the bigger guys would say … why leave me out! :))
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