A Cognitive Approach for Better Cross-Sell and Upsell
While sales could come across as a difficult job, it really is not. Bob Franco’s book titled ‘Sales:
The Hardest Easy Job In The World’ wraps up the essence of the sales job in its short, smart title. Of course, the book could be classified as a good read. Should you ask why? Well, it’s one thing to be a sales person, and then there’s another thing – to be an effective sales person.
Effective sales doesn’t just come from the revenue you generate. It comes from the mind space you claim, while selling your service. You see – revenue from a customer will become just a one-time thing, if you don’t make sure that the newly acquired customer gives you repeated business. According to HBR, acquiring a new customer is anywhere between 500% to 2500% of the cost of retaining an existing customer.
Often, it is fondly quoted that sales is all about the numbers. While you have to ensure that you get new customers too, how do you generate the maximum possible revenue with the existing set of customers that you have?
An interesting approach for this – cognition, is one of the most important techniques that can help you create ample opportunities to cross-sell and upsell in the existing accounts. We may have observed that high-performing sales professionals share similar traits with experts in other fields such as teaching, medicine, chess and physics. These expert sales professionals display better decision-making capacity, higher confidence, more efficient communication skills, and enhanced ability to strategize their sales process. Read on to learn how cognition forms an integral part in their ability to amplify success in sales.
The Cognitive Theory
Simply put, Cognitive Psychology is the study of how people think, how their minds work – aspects like attention span, memory, reasoning, emotions, and experiences. These reflect on our ability to make judgments, how we learn new things and how we solve problems, amongst others.
Cognitive Theory is an approach to psychology that attempts to explain human behavior based on their thought process. It suggests that how one thinks largely determines how one feels and behaves.
So what does Cognitive Theory have to do with sales?
Dig down into how that sales champion at your workplace bags the coveted ‘highest sales’ every other month – chances are that he’d score high on his cognitive skills. Those who score high on cognition have a different way of understanding the customer by championing how their minds work. Cognition doesn’t just allow one to handle problems, but also pre-empt them and be prepared to solve them. Quite evidently, the adaptability and decision-making process of such a high performing sales person would be significantly more efficient than the lesser performing ones.
The Human Side of the B2B Sales Environment
In spite of its name, B2B sales still hinges on the fact that the purchase decision is being made by a group of people. And to add to the same, the deal values in the IT industry are significantly higher as compared to a B2C scenario. Therefore, it becomes all the more relevant and important for B2B sales professionals to understand how people make these purchase decisions, the thought process they go through while making these decisions and how to incorporate psychological principles of human decision making into their marketing and sales strategy as well as execution.
Principles of Psychology for upselling and cross selling
As per a recent SaaSRadar report by McKinsey & Company and Gainsight, of later stage SaaS companies (with revenue in the $25 – 75 Million range), companies that recorded the lowest churn were those that cross sold multiple products to about one third of their customers.
If correctly used, principles of psychology when used for upsell or cross sell, can have a considerable influence on purchasing decisions as well as on building long-standing relationships with the customer.
Being cognitive means to apprise the gaps or challenges in the customer’s business and trying to fit a product/service to address them. If and only if your customer feels that you’re trying to help make their life easier, will they look forward to hearing from you. It’s about taking a leap from being a regular sales professional to being a consultant whose most sought-after ware is his advice, and not the product or service that he sells.
A few such examples of the principles of psychology and the cognitive approach to improve overall sales including upselling and cross-selling are:
- Action Paralysis Principle – The tendency of people to second guess their own behavior, especially with respect to their decision and how it will impact them or people close to them is called the action paralysis principle.
Cognitive approach: While trying to trigger a customer into an upsell / cross-sell purchase decision, communicate the positive impact of the decision for the customer. That is, when your customer is questioning themselves over a decision, be ready with a good reason and a positive impact that their purchase decision will make.
Example: When the IT department of a company wants to purchase a software to be used by their Sales Team, your pitch should include not only the key benefits of the software through its features, but also talk about providing support in the initial hand holding of the end users (in this case, by the Sales Team) to make the adoption of the new software easier within the company.
- Anchoring Effect – The tendency of people to unconsciously latch on to the first fact or number one sees, ie, creating a benchmark of the first pricing they see.
Cognitive approach: A common negotiation technique where the first price / collective prices of multiple products is shown significantly higher – so as to give the effect of a significant saving in the final offer.
Example: As an industry practice, published prices or list prices of large IT companies for their solutions are very high. However, usually, when the direct interaction with sales team happens, the price of the bundled solution would typically be negotiated further down at a significant discount.
- Information Gap Theory – The tendency of people to find out more information about a topic one cares about, if there is a gap in the knowledge.
Cognitive approach: Creating a consultative rapport with the customer and providing expert information to fill in the gaps in their knowledge in areas that can support their understanding of the business.
Example: Offering latest IT industry trend reports and insights from established sources like Forrester, Gartner, Grail, IDC, McKinsey, Ovum, Nielson that portrays your company in a positive light and also helps the decision maker improve their knowledge on trends regarding their respective industries. A third-party report also helps them to internally justify their purchase decision within the company.
- Liking – We like people who are similar to us, who pay us compliments, and who cooperate with us towards mutual goals.
Cognitive approach: Taking the ‘we are in it together’ approach with the customer – working towards a mutual goal. Usage of collaborative words in communication (for example: we, us, our) thus creating a sense of belonging and increases the trust with the customer.
Example: Gain-sharing agreements, incentive-based contracts, shared risk-reward arrangements and demand-based pricing models – all of which are focused around mutual goal settings for both parties.
- Loss Aversion – People strongly prefer avoiding loss to acquiring gains. Studies show that dodging a loss is twice more likely to get a prospect interested as compared to him gaining something.
Cognitive Approach: Highlighting aspects or features that support loss aversion while presenting products and services to the customers.
Example: Positioning of the Upsell and Cross-sell IT solutions that minimize the risks across various business functions – for example, stopping of revenue leakage, reducing customer churn or decreasing bad debt.
While these are a few examples of a cognitive approach to sales, much more can be explored, on a case-to-case basis. In conclusion, the bottom line to a cognitive approach to cross-selling and/or upselling is being receptive and perceptive, rather than being reactive.