How cross-selling can lower your fulfillment costs

cross selling lower fulfillment costs

Once the new frontier of the retail landscape, ecommerce has become a very crowded space. With new digitally-native brands popping up left, right, and center, it’s becoming increasingly difficult for online retailers to stand out from the crowd.

In this climate, the price of success is rising higher and higher, especially where fulfillment is concerned. As the demand escalates for fast, cheap shipping and curated brand experiences, ecommerce fulfillment requires ever more resources - which causes already narrow profit margins to shrink further. 

How can your business combat this trend? 

By introducing a comprehensive cross-selling strategy at your online store. 

So what is cross-selling, and how does it help to lower your fulfillment costs? Read on to find out.

What is cross-selling?

‘Cross-selling’ is when a customer is presented with suggestions for complementary products in addition to those already in their cart. This is a common strategy on ecommerce sites, where brands use the data gathered during the shopping journey to suggest items that fit a customer’s browsing patterns.

For example, an appropriate cross-sell would be a customer who has placed a pair of dress shoes in their cart being prompted to also add a matching shoe polish. The suggestion is logical, helpful, and most importantly, it doesn’t break the bank. 

This differs from ‘upselling’, where customers are encouraged to buy a more expensive version of what they’ve already browsed or selected e.g. persuading that customer to ‘upgrade’ from those same dress shoes costing $100 to a pair priced at $150.

The goal of cross-selling is simple: To convince customers to purchase additional products that they didn’t initially plan on buying. This increases AOV (average order values) for the merchant and helps them to maximize revenue opportunities. 

Types of cross-selling

There are a variety of methods that your business can use to cross-sell online effectively. The suitability of each strategy depends on what products you sell, and whether they have any obvious links to other offerings in your store.

Best-selling products

This is a relatively simple cross-sell where a merchant can suggest ’trending’ items to create some urgency to purchase i.e. ‘selling fast - don’t miss out!” This works best for merchants who are relatively specialized and sell products with a limited number of variants i.e. booksellers.

Complimentary products

This is one of the more successful cross-selling tactics because it relies on pairing products that are commonly used together, meaning that it comes across as helpful rather than promotional. Because if someone is looking at buying a fountain pen, it’s more than likely that they’re going to need some ink cartridges too. By suggesting this to your customer, you’re also adding value to their shopping experience.

Bundled products

This is when a retailer elects to combine one or two items into one product offering. Usually, this combination of products will come at a slight discount to persuade customers to buy items together, rather than separately. This is an effective way of helping customers to discover new products and brands, while also increasing convenience.

Seasonal products

Certain holidays can produce some very favorable cross-selling opportunities for retailers that aren’t available year-round. For example, Christmas trees can produce all kinds of add-on opportunities, from Christmas lights and tinsel to decorations. It’s more than likely that your customer has these items in mind - even if they don’t realize it.

Service products

Adding a recurring service to a one-off purchase is a brilliant way to reap a recurring source of revenue from your customers, and massively increases the lifetime value of your customer. For example, if you’re buying a car, this is likely to come with an offering for insurance or regular maintenance for a yearly fee. 

Impulse products

These tend to be low-priced products that consumers are unlikely to seek out and buy individually, but make a great add-on to more expensive items or help to meet free shipping thresholds. A great example of this is Sephora, which has a ‘Beauty under $20’ product category in their navigation menu to entice price-conscious shoppers:

The benefits of cross-selling for your ecommerce business

Increased order values

As we mentioned above, being able to cross-sell in mass is one of the best strategies for increasing AOV’s. Because the more items that customers buy, the bigger your profits will be. An analysis by McKinsey found that cross-selling strategies increased sales by an average of 20% on an annual basis; that’s a lot of extra revenue!

Enhancing the shopping experience

Being able to anticipate shoppers’ needs - even before they’ve identified them - is the mark of a retailer who understands their customers and wants to make the shopping experience is as frictionless as possible. Increased convenience means happier customers - and higher odds of repeat purchases.

Lower fulfillment costs

When customers are buying multiple items, this helps to reduce the cost of shipping and handling for the retailer. This is because SKUs can be processed as part of one order as opposed to separate orders, which increases volume and costs for the retailer (more on this in the next section!)

4 Ways that cross-selling helps to lower your fulfillment costs

1. Combating the ‘Amazon habit’

Ecommerce has changed our buying habits in more ways than just where we choose to shop; it’s also changed how we shop. 

In brick and mortar, we would never consider walking into a store every day - or even multiple times in a day - just to buy a single item. It’s time-consuming and massively inefficient. Instead, we consolidate what we need into a single shopping trip on a less frequent basis.

But online, our purchasing habits are very different due to the allure of convenience and membership programs like Amazon Prime. This has led many consumers to purchase as soon as a need is recognized, as subsequent orders won’t come at any extra cost to them. 

However, this does result in huge additional costs for retailers, especially as the practice spreads from ecommerce giants to smaller merchants - hence the term ‘the Amazon habit’. 

These ‘micro orders’ can be very detrimental to merchants’ profit margins because the cost of fulfilling (i.e. packaging and shipping) is much higher for small, frequent orders compared with one large order - while the actual profits from the sale remain the same. Over time, this can cause a merchant’s fulfillment costs to rise dramatically. 

Cross-selling encourages consumers to break this habit by offering them value-added suggestions during the shopping journey that increase the odds of multi-item orders. By increasing your proportion of multi-item sales over time, your fulfillment costs will become much better value for money.

2. Bundling products allow businesses to better plan their packing strategies

As we talked about near the top of this post, product bundling is a fantastic way to boost perceived value while also encouraging the uptake in multi-item orders. 

For merchants, one of the biggest underlying benefits of bundled products is that as an official offering in your product catalog, you can explore the most cost-effective strategies for packing, which is much harder to do when customers combine SKUS in unexpected ways. 

The cost of packaging and shipping also helps to serve as a guide for what products should or shouldn’t be combined. For example, pairing a light product at a low price point with a heavy product will massively increase the DIM weight of that bundle - meaning much higher shipping costs that could erode your profit margins.

3. Optimize your shipping strategy

As rapid home delivery becomes the norm in ecommerce, online sellers are having to grapple with how to meet consumer expectations without reducing profitability to unsustainable levels. 

A blanket free shipping policy might be attractive to consumers, but free shipping offers its own set of problems for merchants. When different products come with different profit margins, you’re faced with making a gain on some sales, but a loss on others. Furthermore, it also encourages consumers to make smaller and more frequent orders - the same ‘Amazon habit’ problem we described above.

But when your cross-selling and shipping strategies are working in tandem, you can find innovative ways to lower your shipping costs while also promoting larger orders.

For example, instituting a certain threshold for free shipping causes consumers to add more products to their cart to qualify, meaning they will be much more receptive to cross-selling suggestions that add value to their existing purchase. 93% of online shoppers say they’re encouraged to buy more products if free shipping is available. Likewise, flat-rate shipping encourages customers to buy additional items to make the cost of shipping feel more worthwhile. 

By using cross-selling and shipping as a mutually-enforcing strategy, you can generate more high-value sales and avoid making a loss on carrier fees.

4. Restructuring your picking systems

The picking process is often the most inefficient stage of the fulfillment process. Why? Because getting it right depends on so many factors; optimized warehouse space, routes that minimize walking time, and robust staffing levels, just a name a few. 

If any of these elements are off-kilter, it can add whole minutes to the picking of each order.  This might not sound like a lot, but it can be the difference between your customer receiving their order on time - or getting it the next day.

How you organize your picking locations is one of the biggest considerations when fulfilling online orders. It's also an immensely tricky process. Over the course of the year, the SKUs most in-demand by customers will shift as new stock comes in, meaning that you constantly need to evaluate whether your picking system is still optimal.

If cross-selling is a big part of your sales strategy, your picking system needs to reflect this by mapping which products are commonly promoted alongside each other during the shopping journey. This way, you can use sales data to identify whether or not it makes sense for certain SKUs to be stored in the same area.

For example, if you’re running a zone picking strategy that assigns workers to a specific section of the warehouse, it makes sense to put SKUs which commonly appear together in orders within the same zone. This maximizes efficiency by reducing the number of times an order has to be passed onto a new zone during the picking process.

Cross-selling is a vital strategy to maximize selling opportunities and drive higher transaction values in a competitive climate where new customers are increasingly difficult to acquire. By making value-added suggestions that enhance a customer’s existing product selections, you won’t just improve your bottom line; smarter selling strategies also mean lower fulfillment costs by discouraging single-item purchases and helping your business to coordinate more cost-effective packing and shipping strategies. In short, now is the time to add cross-selling to your ecommerce sales toolkit!

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