Adverse Cross-Buying Customer Behavior Will Decrease a Company’s Profits Significantly

Adverse cross-buying customer behavior will decrease a company’s profits between 39% and 88%, according to a Big Data and analytics study conducted by Dr. V. Kumar.

In his study, Kumar found that customer cross-buy is not necessarily profitable for all customers and can adversely impact a company’s bottom line. Across the five companies that Dr. Kumar studied, between 10%-35% of the customers who cross-buy was unprofitable. What’s more, these customers accounted for 39%-88% of profits lost from the respective companies’ bottom lines.

The study also revealed that persistent adverse customer behavior (such as repeatedly spending a limited amount with a company, excessively returning previously purchased products, persistently demanding a higher level of customer services, and selectively buying products that are steeply discounted) drives unprofitable customer cross-buying over time. Customers who exhibited such persistent adverse behavioral traits typically generated more losses with each of the additional products and/or services from the company over time.

But according to Kumar’s study, customers with non-persistent adverse behavioral traits tend to eliminate their initial losses and generate more profits with an increase in cross-buy over time.

These findings have key implications for companies.

Besides drawing attention to positive consequences of cross-buying behavior, they also highlight the negative consequences of customer cross-buy – an area that has received minimal attention in marketing literature to date. Second, the findings call for managers to rethink their current managerial practices of maximizing cross-buy opportunities for all customers of the company. This is crucial given the fact that companies typically hope to increase profits by encouraging customers to cross-buy and, thereby, engage more with them.

As part of his work on Customer Engagement Value, Kumar, Big Cloud Analytics’ Chief Scientist, highlights key findings in his just released book, “Profitable Customer Engagement,” that will impact how company officials view their sales and marketing policies.

“My work on Profitable Customer Engagement leverages the research that I pioneered with my team to bring value and measurability to social media,” Kumar, who is rated among the world’s top five marketing scholars, said in a press release.

The book proposes several concepts and methodologies to measure customer engagement by developing a framework that includes the multi-dimensional aspects of customer engagement. Methodologies to monetize these components are proposed, tested, and validated in the real-world scenarios to maximize the profitability of the customers.

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