Smart Tech Customer Expansion Enabling Automatic Cross-Selling
I’m old school when it comes to writing. By the time you read this I’ve probably printed and edited this article by hand 10 times. I’m also kind of cheap, at least for some things. I get the razor/razor blade biz model, but I always felt gouged when buying printer cartridges. So, I used to do whatever I could to reduce their cost, even if it meant wasting hours of time searching out and buying aftermarket refilled jumbo cartridge to save a measly 30 or 40 bucks. It’s the principle, right?
When I moved on to my latest printer, a smart printer, I was intrigued by the accompanying offer: ink cartridges as a service based on consumption, in this case, based on the number of pages printed. Through an internet connection and embedded code, HP knows how many pages I’ve printed and when my ink is running low so they can send me fresh ink cartridges before I run out. It’s so easy and fair I signed up for the subscription. It’s turned out to be a win-win. For me, it’s a low-friction equitable exchange in value. For HP, it’s a brilliant customer expansion strategy.
There are good reasons for every company to double down on customer expansion, that is, selling more products to their existing customers. Existing customer relationships mean higher conversion rates. Also, higher margins since customer acquisition costs are lower. And it’s a proven way to increase customer lifetime value. Up-selling and cross-selling has been done in this way for years in the software industry. Now this strategy can be applied by makers of physical products… if their products are smart. Smart tech puts this revenue growth driver on steroids, and it all starts with maintaining the customer relationship.
Unlike with traditional products, manufacturers of smart products don’t loose touch with customers after the sale. The smart product’s virtual connection provides a 24/7 window into their customer’s world. Code within the product allows these companies to analyse how their customers use their product and what they use it for. This pays off in a number of significant ways. The specific payoff for customer expansion is knowing when the customer needs a related product. But smart digital can also be used to boost customer expansion in other ways too, such as: personalized marketing based on product usage, new product recommendations ala Netflix, in-product upgrades and land & expand strategies, long used by SaaS companies… and now available to physical products.
Based on my experience with cutting fluids, grinding wheels and gaskets, this way of cross selling is perfect for industrial consumables. For companies that produce both the machine and the consumable, making the machine smart will greatly improve the cross-sell conversion rate. For companies that don’t sell both, it points to a winning rollup strategy based on inorganic customer expansion. But this play is not limited to industrials. Picture any product that consumes other products. Making it smart bulks up cross selling by making it automatic.
This can be just the start of a series of data-driven value creation opportunities. One example is to follow HP’s lead by deploying a compelling and recurring revenue model tied to a KPI the customer uses to gauge their success… something other than the consumable itself. Another value creation example comes from Amazon. They use this type of customer data to improve inventory management by training AI models to predict their customers’ needs in order to shorten deliver times. Based on their predictive model, Amazon ships products to the distribution center closest to the customer even before the order is placed.
Smart digital improves existing customer expansion strategies and enables new ones for physical products, services and environments, that until now were only available to software companies. Automatic consumable cross selling can be emulated in the industrial sector and any other sector where one product depends on another product to operate.
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Bruce Sinclair is Managing Partner of Digital Operating Partners
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The views expressed in this article are those of the author and do not necessarily reflect the views of AlphaWeek or its publisher, The Sortino Group
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