Cross-selling and upselling is a popular tactic among online retailers in hopes of increasing average order value, items per sale and improving customer service with relevant suggestions. Amazon shared that cross-sells were responsible for 35% of its sales in 2006! According to the e-tailing group’s 8th Annual Merchant Survey Report (of 190 ecommerce executives), 55% of retailers will include cross-selling and upselling in their merchandising activities this year.

But cross-selling and upselling is one of the most difficult activities to do well and effectively measure, as evidenced in the e-tailing group’s findings:

Cross-sell/Upsell in Shopping Cart, Conversion Rates:

• Less than 1% conversion - 8% of retailers
• 1%-4% conversion - 16% of retailers
• 5%-10% conversion - 9% of retailers
• More than 10% conversion - 3% of retailers
• Don’t know conversion rates - 44% of retailers
• Don’t merchandise in shopping cart - 20% of retailers

Cross-sell/Upsell on Product Pages, Conversion Rates:

• Less than 1% conversion - 5% of retailers
• 1%-2% conversion - 15% of retailers
• 3%-4% conversion - 5% of retailers
• 5%-7% conversion - 6% of retailers
• 8%-10% conversion - 2% of retailers
• 11%-15% conversion - 1% of retailers
• More than 15% conversion - 2% of retailers
• Don’t know conversion rates - 50% of retailers
• Don’t merchandise on product pages - 14% of retailers

The only overwhelming statistic here is that most retailers have no clue how product associations convert. With 92% of retailers citing web analytics as the number one data source for merchandising decisions, it’s disturbing that many retailers are not measuring the outcome of these decisions.

Of course, measuring conversion rates for cross-sell/upsell can be ridiculously complicated, and depends on what kind of cross-sell/upsell solution you’re using. If you’ve built your solution in-house or your commerce platform came with cross-sell/upsell out of the box, you’ll need to figure out how the data will feed into your analytics tool. If you’re using a third party Software-as-a-Service like RichRelevance or Baynote, analytics might be provided for you, but it might not provide the depth and detail that you want.

Measuring the Right Thing?

For example, your merchandising tool might not break out conversion rate by shopping cart vs. product page. It may not be able to show you detail like product category cross-sell/upsell conversion, or tell you “conversion rate for cross-sells in price range $X-Y in relation to product price $A-B is xyz.”

Then there’s the question of “what does conversion rate mean?” Does it mean the product is viewed, added to cart, or a sale is made by a customer who is shown cross-sells on his/her visit? The merchandising tool we use on the Vancouver 2010 Olympic Store tells us that their tool lifts conversion by 140% and average order value by $14.94 (with A/B split testing). That doesn’t tell me if customers are buying more items per sale. I don’t know which suggested products are most successful to refine our merchandising strategy. I don’t know which products and categories have the highest conversion rate.

These problems and questions are common among online retailers, and while tracking these detailed events is possible (with complicated analytics mashups, for example) there’s often not enough IT resources or budget to make it happen.

Though you may not have access to all the data that would be helpful, at minimum, a global conversion rate is a start. I wonder how many retailers who “don’t know” their conversion rate just don’t know where to access the reports from the vendor.

Improving Cross-Sell/Upsell Conversion

If you do know at least your conversion rate for pages with cross-sells vs. pages without, you have a benchmark you can work on improving.

“You’ve read this far in this article. We think you’ll also love…” last year’s Get Elastic post Cross-Selling Tips for Online Retailers for a list of Dos and Don’ts, along with retailer examples.

Elastic Path also did a webinar on effective merchandising with Mike Svatek, formerly of Baynote. Mike offered this advice:

When do cross-sells work?

Cross-sells work well for considered purchases (high involvement rather than impulse - typically higher cost) provided they are lower cost accessories related to the product. They also work for smaller purchases with small accessories like Barbie and an outfit. You want to keep the cross-sells at half the price or less. When they are more than 1/2 the price of the item considered, the attach rate is low.

Products with natural bundling are also good, like cameras with lens, cleaner, memory cards and warranty.

When do cross-sells fail?

Don’t try to push higher priced items together with lower priced. People who buy a camera may buy a camera lens at the same time, but it’s unlikely someone adds a lens to cart and then all of a sudden wants to buy a camera. Same with sports tires - you wouldn’t try to upsell a Porsche.

Be careful that you don’t just look at correlation in your analytics data - but consider the primary and secondary intent. You may want to manually add constraints to your rules engine so you don’t goof your directional selling.

When do up-sells work?

Upselling (suggesting a similar item instead of the item being viewed) must have a small difference in dollar value or a small nominal percentage difference - 10-20% max. You need to show some incremental value for the increase in price.

When do up-sells fail?

When important attributes are different (red vs. blue dress) or when you show items that don’t have the features the customer is looking for. You can also fail by showing different brands. If a customer owns a Nikon he needs Nikon accessories, not Pentax or Canon.

You also need to consider any contractual agreements you have with suppliers and brands. For instance, you may not be allowed to show certain brands next to each other.

Effective merchandising often requires tweaking your tool with custom rules, rather than a “set it and forget it approach.” Make sure you fully understand your tool’s ability to set constraints, blacklist products and create custom associations. Also understand how to review any available analytics data your solution provider collects.

Back in 2007, Facebook opened its API (application programming interface) to allow any developer to build an application that could extend the functionality of Facebook (and maybe make you a bit of money). Facebook understood that it couldn’t possibly create all the cool things possible with the resources it had, and that creative folks would be happy to do the job for free. Today there are over 50,000 Facebook applications. While most applications are at the bottom of the haystack, some have become wildly popular.

Online retailers Amazon, eBay and Best Buy have opened up their own APIs. Like Facebook, they can leverage a force of free developer talent to create innovative, fun and useful applications and bring their product catalogs to more places around the web — not just their own .com sites or shopping engines. This could be the next ecommerce trend. Gartner predicts that by 2012, 25% or more of top retailers will allow software developer partners to access their APIs (application development interfaces) to connect to product catalogs and payment systems for affiliates.

eBay and Amazon have offered their APIs for a while, and I’ve spotted some interesting creations like the eBay Auction Misspeller. The idea is to help bargain hunter find poorly optimized listings (that get little or no bids) and find eBay deals. Others have built their own Amazon Wishlist applications for Facebook by mashing up Amazon and Facebook APIs:

More recently, Best Buy launched its Remix API asking “Can you build a better best buy?” It incentivizes its developer community with contests at RemixChallenge.com with prizes like flat panel TV screens and cash.

The challenges are product and customer experience focused, like the Flat Panel TV Challenge:

Here is your opportunity to help customers find the right TV for them. Create a complete customer solution around large, flat panel television systems. The purchase of a large TV is particularly difficult on-line, Best Buy wants to help their customers navigate all of the different choices they are presented with, in order to make the correct decision for their circumstances.

There are also idea generation contests: “How do we make Best Buy the best ink destination? What would attract more people to our experience? Ease of use? Better assistance tools or applications? You tell us.” Developers can interact with Keith Burtis, the Best Buy Remix community manager through Twitter.

Check out some of the featured creations at the Remix Sample Gallery. One of my favorites is the GPS Discovery Tool, an interactive product finder a bit like what Telus Mobility does with its handsets.

Another developer is using the API to feed Twitter accounts for video game preorders, with a separate account for Wii, XBox, PS3 etc.

Even if developers don’t win Best Buy’s coveted prizes, they can still use the API to enhance their own affiliate sites and make money through referrals. The more Web sites out there displaying Best Buy products, the more sales Best Buy makes. This is a win-win situation.

It will be interesting to see what kind of applications the community comes up with to solve Best Buy’s challenges, and to see which retailers follow suit.

Not all ecommerce projects fit into a nice little box. Some industries have very complex sales and require advanced features like product configurators, bundling of products, accessories and services that need heavy customization. The telecommunications industry is a perfect example.

For telcos with mobile service offerings, an ecommerce platform must have the ability to support a complex sale where the customer selects a phone, a rate plan, a term length, additional services such as text messaging and caller ID, product accessories like a case or Bluetooth headset and even options like “I want to keep my own phone number” or “I don’t want my number to appear on caller ID.” It’s possible that no two product configurations are exactly the same.

The ecommerce platform must also support special promotions and customer service like upgrading a plan, renewing a contract, adding services or purchasing an additional handset.

And because there are so many steps the customer has to take, a usable site is crucial to converting new customers and keeping existing ones. Because competition is fierce, having unique features is highly important to telcos to be competitive.

If you recall our webinar The New Ecommerce Dilemma: Buy, Build, or Leverage?, organizations where the ecommerce solution required is complex, unique, requires heavy integration with other systems and is of high strategic importance — chances are slim an out-of-the-box commerce platform is going to have features exactly as you want them nor the ability to extend them to set you apart from your competition. Such a project requires a completely in house build, or an ecommerce framework that gives you a jumpstart with the basic features you need (faster time to market than build from scratch) and the ability to customize the daylights out of them.

This was the case of Telus, a leading telco here in Canada. Telusmobility.com went live a couple weeks ago on the Elastic Path platform. Telus chose Elastic Path’s ecommerce framework to build its custom solution.

Here’s a little “Show and Telus” of what they built with our framework. A lot of these features I have never seen before on any other sites.

Email/RSS subscribers, can’t see video? View this post on Get Elastic.

Highlights

There’s many paths a customer might take to build a bundle, here I demonstrate starting with a plan. After you choose your plan, you’re notified that your cart is updated, and there’s a prompt to take the next step: add a phone.

If you don’t know where to start finding a phone, there’s a phone-finder tool that filters the available phones based on the features you want (about 1 minute into the video). You can view a gallery of product images by scrolling horizontally, which means less clicks to see multiple product views. You can also see 360 degree views.

Because handset prices depend on the length of your contract term, each handset requires a choice of terms and prices. Once you select your handset, the cart notification appears again with a summary of everything in your cart and links to next steps: add services or accessories.

If you select accessories, the system remembers which handset you selected and filters compatible accessories automatically.

You can edit your contract term right in the cart summary, and line items are separated into categories: Phone, Rate Plan, Services, Activation Fee and Accessories. Each category has its own return to shopping link.

How About Your Ecommerce Project Requirements?

Whether you’re enterprise, mid-market or a mom and pop shop, your ecommerce project is going to have certain requirements. It’s crucial to know your requirements before you go shopping for an ecommerce vendor. The framework isn’t a fit for everybody, and just as Software as a Service doesn’t serve all needs.

Need guidance sorting out your project requirements? Don’t miss our next webinar with Fit For Commerce’s Bernardine Wu: Requirements Diligence: The Cornerstone to an eCommerce Project’s Success. This webinar will discuss:

• How to build a comprehensive requirements set
• How to incorporate workflow design and best practices into your requirements
• How to use benchmarking and market data to justify your requirements
• How to distinguish between a must-have vs. should-have vs. nice-to-have

It’s happening Tuesday, June 30 at 9am PST, 12pm EST. We hope you’ll join us.

If you missed today’s webinar Multichannel 2.0: Are you ready for the next generation of commerce channels?, stay tuned for the blog recap and webinar replay coming Friday.

1800flowers recently launched an interactive shopping widget with a product developed by Alvenda. The widget allows a fully functioning storefront to appear in ad units on other websites. Shoppers can browse and purchase through the unit without leaving the web page they’re looking at. You can play around with the demo here.

At first blush, I didn’t think browsing within the smaller window would be usable. Wouldn’t a larger screen make the shopping experience more pleasant? Why does everyone think customers would rather jump off a cliff than click an extra button?

But as I played around with the widget, its AJAX-y goodness actually felt more usable than a traditional site. I didn’t have to scroll up and down the page to view products or click to load another page. I could scroll within the widget, hover over thumbnails to see more information, and see a quick view without a new page load (saves time). I started to dig it.

The size also had the feel of a mobile application - something designed specifically for a smaller viewing area.

Shopping widgets have a lot of potential for mobile applications, Internet enabled television, gaming consoles and other electronic devices that access the ‘Net. Pushing your storefront anywhere there’s a screen is the next step in multichannel retailing.

Stay tuned for the recap of today’s Webinar Multichannel 2.0: Are you ready for the next generation of commerce channels? hitting your Inbox or RSS reader Friday.

JC Penney was the first retailer to explore interactive television shopping in the 1980’s. Its Telaction service was available to 30,000 home in the suburbs of Chicago.

Customers would use their touch-tone phones to navigate the screens, add products to cart, select payment and billing offers and confirm purchase.

Though Telaction showed promise with 13% making purchases of a $60 average value (actually outperforming its mail order catalog), Penney pulled the plug on the 6 year, $106 Million project after failing to find a partner after just one year in action.

The service was delivered through cable systems which received a flat fee for each subscriber rather than a % of sales. Screens were provided by video disc players, and complicated ‘frame grabber’ technology had to be installed at each neighborhood cable node to allow for a city of 75,000 people to to use the service. (Hat tip to Youtube user davismv for converting this VHS video and providing that last tidbit of information).

Twenty years later, Interactive TV shopping is re-emerging (however with much more sophisticated technology) and JC Penney is leading the way again with a new way to shop in-store through a TV screen. These are some of the things I’ll be talking about in next week’s webinar Multichannel 2.0: Are you ready for the next generation of shopping channels?

Join me and play futurist as we explore the exciting technologies of mobile, interactive digital TV, digital signage and other Internet-enabled devices. I’ll be joined by our product manager Peter Sheldon and we’ll cover the possibilities and challenges for both IT and marketing professionals:

• How are retailers and shoppers already using Multichannel 2.0?
• What are technology vendors building to enable Multichannel 2.0?
• What are the technological barriers and how can you bypass them?
• How will you prepare for the next wave of shopping channels?

I promise this will be an enlightening hour, and it goes down on Wednesday, May 20, 2009 from 9:00 AM - 10:00 AM PST.

Sign up today!