According to industry estimates, the likelihood of selling to a current customer is 60-70%, significantly more than the meagre 5-20% chance of selling to a new user
With high CAC making customer acquisition unsustainable in the long term, Wigzo’s Umair Mohammed believes that increasing customer lifetime value by upselling and cross-selling is the way to go
Personalising customer engagement and seamless CX can boost a brand’s upsell and cross-sell potential
Tough times never last but tough people (read D2C brands) do.
Indian startups faced a harsh funding winter in 2022 due to macroeconomic and geopolitical issues. The deepening conflict between Russia and Ukraine, rising interest rates and a looming recession created an atmosphere of gloom and doom among investors looking for the next growth engine. A volatile stock market did not help either, bringing the investment crunch to a head.
In sharp contrast to the FOMO-driven VC dollar rush of the previous year, startup investments in 2022 declined by 40% YoY, from $42 Bn to $25 Bn. More importantly, the ecommerce sector, of which direct-to-consumer (D2C) is a subsect, could raise merely $4 Bn compared to $11 Bn amassed in 2021. Clearly, investors had tightened their purse strings while every startup was under pressure to focus on profitability instead of going for growth at any cost.
The new business mantra meant that the growth parameters hitherto pursued by D2C brands also had to change. India’s D2C market is set to cross $300 Bn by 2030, growing at a CAGR of 24%, as per an Inc42 report. But growth is no longer measured by the number of customers acquired. Also, with more and more D2C brands entering an overcrowded and highly competitive market, adding new users at a high customer acquisition cost (CAC) is not feasible in the long term.
“Instead, brands should explore an obvious but often overlooked strategy – increasing customer lifetime value (CLTV) by upselling and cross-selling products,” said Umair Mohammed, founder and CEO of New Delhi-based martech platform Wigzo.
According to industry estimates, the likelihood of selling to a current customer is 60-70%, significantly more than the meagre 5-20% chance of selling to a new user. This is because it is easier to talk to an existing customer as brand trust already exists across key preference areas such as product quality and value for money, fast delivery, hassle-free exchange/return and more.
What Is Upselling/Cross-Selling And How D2C Brands Can Master These
Upselling, as the name suggests, focusses on increasing the order value by urging customers to upgrade their purchases and go for more expensive/premium products. Cross-selling, on the other hand, involves pitching additional products which complement the initial purchase.
Here is an example that differentiates the concepts. Say you want to buy an iPhone 14 (128 GB) online/offline. Upselling will involve pitching the version with a bigger memory (256 GB) or the ‘Pro’ variant (an advanced version). Cross-selling, in this case, involves selling a phone cover, earphones or other phone accessories to go with the initial purchase.
Thus, upselling and cross-selling can help D2C brands increase the average order value (AOV) and CLTV, as they target customers at a convenient phase in their buying journey when the intent is high.
However, brands should refrain from bombarding their existing customers across channels whenever convenient. It must not be done randomly, as personalisation is critical for designing effective customer engagement, which will help elevate customer experience (CX), boost retention rates and improve CLTV.
But how can D2C brands achieve this?
This is where martech platforms like Wigzo and its ilk have a crucial role to play.
“D2C brands can leverage Wigzo’s post-purchase automation to enable shipment visibility, accurate order updates and timely notifications. Brands can then optimise these transactional messages to upsell, cross-sell and get more repeat orders,” said Umair.
D2C brands should also consider the overall costs of additional transactions, as Indian consumers are notoriously frugal. Hence, industry experts recommend that upsells should not raise the total cost by more than 25%, while cross-sells should be at least 50-60% cheaper than the standalone product’s pricing to ensure a better success rate.
Let us do some napkin maths for better understanding. Say you buy a pair of shoes for INR 850 from an D2C website. A lot of them charge a delivery fee if the item being purchased is priced less than the minimum amount that triggers free shipping. Let’s say this D2C brand offers free shipping on all orders above INR 999.
Upselling might involve suggesting a pair of shoes that cost more than INR 999 (say INR 1049, which is approximately 24% more than the original item’s price) such that shipping is free. Cross-selling might involve selling a few pairs of printed socks for INR 150, which takes the total to INR 1,000 (an increase of about 18%). Here again, the customer benefits from both free shipping and a cool pair of socks.
How Personalisation, Seamless CX Boost Upselling And Cross-Selling
Companies that excel at personalisation generate 40% more revenue than others, according to a McKinsey & Company report. It further states that 71% of consumers expect companies to deliver personalised interactions, while 76% get frustrated in their absence.
Getting personalisation right has always been challenging for many emerging D2C brands. It has become even more difficult for D2C businesses with an omnichannel presence as the online-offline combination requires a multi-channel strategy without any perceptible gaps. Nevertheless, 50% of Indian D2C Brands have already adopted a phygital approach to make the most of online and offline opportunities, according to an Inc42 report.
In sync with the nature of the omnichannel business, customer touchpoints include offline/in-store interactions and online communication via apps, websites and marketplaces, social media, email, SMS and more. But manually tracking, collating and analysing this influx of user data is not feasible. Unsurprisingly, most brands, even big ones, failed to integrate personalised interactions/engagement across channels for a cohesive CX.
Therefore, D2C brands need to employ intelligent tech solutions such as AI-based data segmentation and cohort analysis offered by Wigzo and its ilk to stay ahead of the curve.
“Wigzo helps D2C brands segregate customers based on recency, frequency and monetary values (RFM) to create 360-degree customer profiles,” said Umair. “Knowing who their high-valued customers are, their preferences and potential needs help D2Cs come up with customised recommendations for initial purchases and upselling/cross-selling and thus drive CLTV.”
He also urged D2C brands to ensure that cross-functional stakeholders (in-house/third-party) – those from sales and marketing, customer service or even product development and quality assurance teams – are well-aligned to ensure seamless CX. Timely training, constant attention to customer feedback and making the necessary improvements can help brands corner long-term success.
Investing in personalisation for an overall smooth CX is bound to increase a brand’s upselling/cross-selling opportunities as the concept of ‘frictionless retail’ is gradually becoming popular, says PwC’s 2023 Global Consumer Insights Pulse Survey. “Empowered by technology, they’re seeking and demanding seamless in-store and online experiences,” the survey points out. The more such experiences, the more the chances of retaining customers and increasing profitability through high CLTV.
Umair recounted how Wigzo helped Delhi-based gourmet popcorn brand 4700BC generate higher revenue by leveraging channels like WhatsApp and tools like the ‘invoice URL email’. The latter can be used to email a shopper a smart invoice URL after they have made a purchase. This feature not only allows brands to send regular updates about the purchase/s but also allows them to upsell/cross-sell products, display ads, banners, collect customer feedback and more, he added.
“The content is customisable, allowing brands to optimise the same in sync with their campaigns, get repeat orders and boost CLTV,” said Umair.
Onboarded in July 2022, 4700BC used the tool to send personalised product recommendations for upselling/cross-selling.
“By January 2023, the brand saw transactions and revenue increase by 156.25% and 187%, respectively,” he added.
The Way Forward: How D2C Brands Can Capitalise On The Next Billion Users
The rising smartphone and internet penetration is set to bring a billion Indians online by 2025, while India’s online shopper base is expected to grow at a 23% CAGR to reach 500 Mn by 2030, according to an Inc42 report. More notably, an improving Indian economy is set to double the country’s consumption expenditure from $1.5 Tn in 2020 to $3 Tn by 2030, as per an Inc42 report. This underlines bigger market opportunities for D2C brands, estimated to grow at a CAGR of 24% during 2021-2030.
Recent events like the festive and holiday season sales of 2022 also validated that online shoppers from Tier 2 regions and beyond (commonly mentioned as Bharat) would facilitate the next growth phase for D2C brands. As a result, they need to localise sales and marketing efforts to target India’s vast but non-English-speaking consumer base effectively.
Additionally, brands will leverage new-age tech innovations such as AR-VR, 5G telecommunications (if not 6G, to be introduced by South Korea by 2028), voice search, virtual styling and more to build hyper-personalised, immersive and enriching customer experiences that will increase CLTV.
Although the future looks promising, D2C brands will have to be careful about the CLTV:CAC ratio to make sure that their profitability is sustainable. When CLTV is greater than CAC, it indicates that the brand is recouping its investments fast. But the opposite (CAC higher than CLTV) indicates that the brand’s business model is far from viable as it cannot recover the money spent to acquire customers in the first place. Industry estimates show a good CLTV:CAC ratio to be 3:1 or greater.
As the funding winter shows no signs of letting up, brands should try to enhance customer engagement and increase sales to improve the bottom line and stay in the game. For example, one can use Wigzo’s drag-and-drop builder to create automated communication workflows. This feature will help retain high-value customers and boost CLTV required to reach one’s business goals.