Upselling Meaning
Upselling is a marketing or sales technique a company salesperson uses to encourage customers to buy a superior product than the one they wanted to buy initially. The main aim of this strategy is to persuade the customers to buy expensive products instead of their previous choice.
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Upselling products plays a vital role in increasing the sales of the company. As a result, it generates additional revenue for them. Besides, it also influences customers to invest money wisely in products. In addition, it increases the customer lifetime value (CLV). However, there is an equal amount of risk associated with upselling.
Table of contents
- Upselling Meaning
- Upselling Explained
- Techniques
- Examples
- Advantages And Disadvantages
- Upselling And Cross-Selling
- Frequently Asked Questions (FAQs)
- Recommended Articles
Key Takeaways
- Upselling is a marketing and sales technique where a company persuades the customer to shift their buying decision from a lower-priced product to an expensive one.
- Its main aim is to encourage consumers to choose a premium-priced product instead of their earlier choice. As a result, it increases a company’s sales and customer lifetime value (CLV).
- Various techniques like relevant pricing, pushing complementary discounts, and others increase the sales price.
- The major difference between upselling and cross-selling is that the latter compels customers to buy more than one product. However, salespeople upsell only one product of a higher value.
Upselling Explained
Upselling is a marketing strategy where businesses or sales teams persuade customers to buy superior, premium, and expensive products instead of their previous choice. It encourages customers to invest in good and luxury products. As a result, the CLV of the Business increases. Such strategies are commonly executed through discounts and free trials.
Salespeople and businesses commonly practice upselling strategies to increase their profit margin. However, it does not correlate with customer satisfaction. So, if a retailer tries to influence the customer into buying an expensive product, there are high chances of dissatisfaction. Since not all customers might like the product, upselling products can be a turn-down for them. However, certain well-executed upselling tips can bring high profits to the business.
Hotels use this technique frequently, primarily known as “restaurant or hotel upselling.” First, the waiters, waitresses, and chefs will encourage customers to try a new dish, appetizer, or drink. Then, customers tend to try these new dishes while waiting for their order to be prepared. And as a result, hotel upselling generates extra revenue for the business.
There are various ways through which an upselling occurs. For example, sales representatives can offer more discounts on the premium product than they purchased earlier. In addition, they can offer time-bound deals on such products that attract customers easily. In contrast, companies can also create FOMO (fear of missing out) strategies. Thus, influenced by social trends, customers will buy the products.
Techniques
Let us look at the common techniques of upselling:
#1 – Providing Relevant Deals
Among the major upselling tips, this one proves impactful. Companies must provide correct, relevant, and practically possible deals to profit them and their customers. For example, a company selling a product worth $250 at $80 will create a wrong impression about the brand. The same applies to high prices. Selling anything at an extremely low price doubts its quality and efficiency. As a result, the business might lose its CLV.
#2 – Persuading Existing Customers More
According to statistics, the probability of selling to current customers is 60-70%. It reduces to 5-20% for new customers. Since existing customers already know about the company, sales staff can easily persuade them; however, for the new audience, the risk and difficulty increase.
#3 – Pushing Frequently Brought Or Bundled Products
Many firms launch deals that combine several products and offer a great deal. It serves as a multi-purpose tool, as two products are sold simultaneously. For example, a retailer on Amazon upsells laptops, mouses, and bags at a great price. Similarly, they can do this for products purchased frequently.
#4 – Giving Multiple Choices (Using The Decoy Effect)
To persuade customers easily, giving them many choices can promote upselling. For example, while buying a McDonald’s meal, the person might ask to choose from regular, medium, and large. Among the choices, the customer goes for a large meal. Although the price differs by 9 cents, it eliminates the option of a medium meal. As a result, the business earns extra 9 cents.
#5 – Provide Proof And Viability
To gain the trust of new customers, companies can use upselling strategies. Since customers tend to believe more in facts, providing genuine reviews can be a bonus point. As a result, they will tend to buy products despite their price.
#6 – Giving Extra Benefits And Discounts
Companies can provide extra incentives like free delivery, complimentary gifts, or other discounts.
Examples
Let us look at the examples of upselling tactics to comprehend the concept better:
Example #1
Suppose Juliet is going to a movie with her friends. However, she is yet to shop for a good dress. So, Juliet goes window shopping and ends up choosing a dress. As she was looking for more choices, the salesperson showed her another beautiful dress. However, after looking at the price tag, Juliet refuses it. But, the salesman offered her complimentary shoes as a gift if she bought the dress. So, with the perfect deal, Juliet buys the dress despite its price. As a result, the salesman succeeds in upselling.
Example #2
In November 2022, according to a report, many Windows users noticed excess promos trying to upsell other Microsoft products to them. For example, some users report prompts like “Sign in, Complete the profile details, and others while surfing. Similarly, in March 2022, Microsoft tried to slip banner ads for other services.
Advantages And Disadvantages
These strategies play a vital role in increasing the CLV of the company. If the company successfully upsells, its relationship with the customer gets stronger. As a result, the existing customers start trusting the company more. In addition, they receive various perks and benefits on the purchase. Also, the company makes high-profit margins on it. However, there are equal risks associated with upselling.
The upselling technique is only sometimes up to its mark. If salespeople fail to upsell any product, it leads to disappointment. Also, it can result in unusual expenses for the customers, and if the product they end up with is unsatisfactory, customers can feel manipulated.
| Advantages | Disadvantages |
|---|---|
| Increases Customer Lifetime Value (CLV) | Unnecessary pushing of products |
| Strengths relations with the customer | Pressure on sales representatives |
| Retains existing customers | Excess shopping |
| Attracts new customers | It can lead to customer dissatisfaction |
| Increases Return on Investment (ROI) | |
| Provides additional income to the business. |
Upselling And Cross-Selling
Although upselling and cross-selling are sales strategies, they have a vast difference. Instead of selling the customer’s original choice, the former focuses on selling an expensive product. It aims at increasing CLV and generating additional revenue for the firm. In contrast, the latter sells two or more products simultaneously to the customer.
For example, if a person decides to buy a tv, the sales representative will also persuade them to buy a sound system. However, purchasing the original item is necessary for the latter’s sale.
| Basis | Upselling | Cross-Selling |
|---|---|---|
| Meaning | A sales strategy that compels the customer to buy a premium product. | Another sales strategy of persuading customers to buy additional products with the existing ones. |
| Purpose | To sell an expensive or high-priced product to customers. | To sell two or more products at the same time to a customer. |
| Advantage | Increases actual sales value or CLV. | Increases overall sales value. |
| Quality | Higher and premium-based. | Either of them or both can be efficient enough. |
Frequently Asked Questions (FAQs)
Following are the steps to identify and test this sales strategy on consumers:
– Understand the customer’s needs
– Analyze the market trends and demands
– Search for product gaps in the market
Both companies and customers benefit from this strategy. However, the former has a greater advantage compared to the latter. Although customers get a premium product, there are chances of getting dissatisfied. In contrast, the former can still make profits.
Staff or salespeople are the forefront representatives of the business. Their job is to upsell the products to the customers. So, consumers will visit local stores if they want to shop for products. Therefore, it is necessary to train the staff.
No, upselling is a legal form of business operation. Companies can use this business strategy to persuade consumers to spend more and earn high-profit margins.
Recommended Articles
This article has been a guide to Upselling and its meaning. We explain the topic in detail, compare it with cross-selling, its examples, and techniques. You may also find some useful articles here –
- Growth Manager
- Account Executive
- Cross-Sell
This post first appeared on Free Investment Banking Tutorials |WallStreetMojo, please read the originial post: here
