Modeling customer reactions to sales attempts: if cross-selling backfires

Abstract

Cross-selling attempts, based on estimated purchase probabilities, are not guaranteed to succeed and such failed attempts may annoy customers. There is a general belief that cross-selling may backfire if not implemented cautiously, however, there is not a good understanding of the nature and impact of this negative reaction or appropriate policies to counter-balance it. This article focuses on this issue and develops a modeling framework that makes use of a Markov decision model to account for negative customer reactions to failed sales attempts and the effect of past contacts in managing cross-selling initiatives. Three models are analyzed, where purchase probabilities are affected from customer maturity, the number of failed attempts since the last purchase, or both. The analysis shows that customer reactions to cross-sell attempts make the purchase probabilities endogenous to the firm's cross-selling decisions; hence, the optimal cross-selling policy becomes a function of customer state. The results highlight the role that the cost of excessive cross-selling (direct as well as in the form of customer reactions) plays in optimal policies. Cross-sell data from a retail bank illustrate in what context the modeling framework can be applied and underline the importance of customizing cross-sell policies to individual customers.