With rising input prices and tangled supply chains, it is becoming exceedingly difficult for consumer-facing groups to deliver the profit growth demanded by investors, as Walmart retailers have all recently admitted. , Target and Marks and Spencer.
This leaves enterprising executives looking for simple ways to increase revenue without increasing costs – a challenge in an inflationary environment. What’s better than selling your customers someone else’s product? You earn commission income and your partner has the production headache.
For example, fettuccine from UK delivery service Pasta Evangelists comes with gourmet cheeses and cocktails, while US Home Chef meal kits include promotions for premium kitchenware and wine.
Mentions of cross-selling opportunities have been significantly higher during company earnings calls and in company presentations and regulatory filings since the start of 2021, according to data from Sentieo.
Much of this comes from the airlines, which have been in this business for years, as any traveler who has ever encountered “opportunities” involving rental cars, travel insurance and credit cards will know.
Delta’s deal with American Express brought in a record $1.2 billion in the first quarter, up 25% from the pre-pandemic period, and a key part of its plan to squeeze 60% of revenue from premium seats and non-ticket sources by 2024. And its connection to Lyft is so close that the rideshare group this week “reminded” me of an upcoming flight to Chicago and asked if I wanted to book a car.
Last year, Air Canada entered into a partnership with Starbucks, allowing customers to earn and redeem points on each other’s programs, and American Airlines chief commercial officer Vasu Raja recently said spending on his Barclays-linked credit cards were outpacing inflation. American is also heavily promoting Apple TV+, allowing passengers to try out series on board and encouraging them to pay to continue at home.
Now, unsurprisingly, others want to join in. Several dozen large landlords are among the customers of Paylode, a software platform that connects businesses to each other’s customer bases. Real estate companies promoted tax services in April, Mother’s Day items in May, dog sitting to tenants allowed to have pets and moving companies to new and outgoing tenants, the council said. founder Mikhail Naumov.
While cross-selling isn’t new, advancements in technology have made it easier and more appealing to a wider range of groups. Supermarkets and big box stores have long hosted banks, pharmacies and cafes on their premises. Now they offer third-party products through their websites. The German electronics chain MediaMarkt has been deploying such a service for several years.
This allows retailers, who operate with very narrow margins, to tap into their huge customer bases for targeted opportunities. Those with strong relationships with their customers are looking to shed their digital marketing dollars at a time when privacy changes on iPhone and Android have made it harder for Facebook and Snap to sell targeted ads.
Airline customers tend to have prime credit scores and discretionary spending, and foodies often like wine, so the potential for cross-promotion is there. A gutter cleaning company’s flyer included with a gourmet food delivery to a Manhattan rental apartment seems less apt, but maybe they want to share our dreams of home ownership.
Yet the new enthusiasm for cross-promotion and ancillary revenue comes with risks. Look at the financial services sector.
In the UK, the high street lenders became so addicted to making money selling payment protection insurance on credit cards and mortgages, that they started sticking to it without permission and to enroll people who were not eligible for payments. The PPI scandal ultimately cost the industry over £50 billion. In the United States, Wells Fargo’s catastrophic fake account debacle stems from pressure from management to cross-sell. Regulators in both countries have also repeatedly expressed concern when cross-selling extended warranties, travel insurance and other programs force customers to opt out rather than participate.
It’s hard to imagine the magnitude of a problem developing from simple cross-promotion. But if companies become overly dependent on revenue from their secondary businesses, the potential for data misuse and high-pressure tactics is certainly there.
Follow Brooke Masters with myFT and on Twitter