Thursday, 20 October 2016


Discussion of “WEEKEND INVESTOR --- Banks' Cross-Selling Can Help, and Hurt --- Consumers could face pressure to buy a product, but it offers savings opportunities”
This article was published in The Wall Street Journal (WSJ) on September 17, 2016. It is related to several topics that are discussed in BUS 410. The importance of banks cannot be ignored in the development of economies across the globe. Banks are avenues that investors use to deposit saving and earn interests. The payment system is mostly encouraged by banks especially the electronic system that involves fewer cash usages. Investors can undertake cash transfers and direct debits by using the banking institutions. Besides, companies and individuals can cater for daily financial need by securing loans as well as capital that may be required during mergers and acquisitions. This report will focus on the positive and negative implications that emanate from bank cross-selling.
Bank cross selling
According to the article, cross-selling refers to a sales technique where companies involved pitch the customers of a particular product on complementary products (Dagher, 2016). Other features that are incumbent during the process comprise of warranties and added fees. The involvement of Fargo Wells &Co with regulators regarding its cross-selling and detailed investigations about the matter raises concerns to consumers about the practice (Pilcher, 2016). In the arena of financial services, cross selling entails the sale of various investments, insurances, or retirement planning tax preparations to clients. The figure below depicts the cross selling trends at Forgo Wells.
Most of the banks in the United States are forced to undergo reviews in their sales activities in a bid to avoid any regulatory scrutiny. Fargo wells have been alleged of harming the customers from other banks by undertaking cross-selling activities (Pilcher, 2016). However, Wells can still preserve their profitability by expanding its wholesale business and retaining its retail network (Caballero& Simsek, 2013). Wells has been adjusting the format by moving its branches to smaller towns while other peers like the Bank of America closing its outlets and moving to larger cities.
The impacts of cross –selling on special savings and special bargains
The article reports that cross-selling can be advantageous if it provides economies of scale to the customer. According to Craig Lemoine, the program director of the chartered financial program, casualty, and property insurance, companies that offer multi-policy discounts could yield savings to the clients (Dagher, 2016). If investors insure their vehicles with the same insurance company where they have insured their homes, they can then get saving in the event of cross-selling. The following chart illustrates the impacts of cross-selling to customer deposit accounts.
Banks can improve the experiences of the customers by offering multiple products to them (Singh, 2014). Financial institutions can modify the terms to better suit the saving requirements of the clients and enable efficient accessibility of the goods and services by initiating new touch points and channels (Dagher, 2016). Creating a center of economic performance allows institutions to maintain a portfolio of products while offering streamlined and standardized processes to customers. Banks cross-selling allows customers to make voluntary savings for investment purposes despite borrowing of loans and contributing to compulsory saving accounts.
Customers make commitments to save a fixed amount of money each time they settle a loan installment. All the discrepancies like savings are associated with technical modifications in the management of the portfolio and supported by fraud mitigation and frequent monitoring (Mols, 2013). Bank cross-selling provides a saving product that results in a healthy balance between the sustainable operations of financial institutions and the satisfaction of the customers.
Despite the postulation that banks cross-selling can encourage savings, the formalized financial institutions struggle when justifying the business situation of serving poor customers who want to save (Brooks, 2013). The acquisition costs are high while the low-balance savings are not sustainable. Additionally, the financial service providers are aware that allocating credits is profitable and may fail to maintain trust and durable engagements that cultivate client retention.
According to the article, Prime service is a famous example of a cross-sale. For all the annual and monthly fees that are charged by Amazon, the company additionally sell a service to consumers that attracts free online services and shipping (Dagher, 2016). The clients are thus provided with incentives that encourage them to save on the costs attributable to transportation and communication expenses (Fang, Ivashina & Lerner, 2013). The subscriptions to Amazon have been rampant because of the customers are provided with an opportunity of making special bargains in shipping and delivery of products.
Other benefits are received by the customers immediately after accepting to buy a given product. This allows cross-selling to cultivate the uptake of services because it creates a sense of urgency in the minds of consumers. Policies like “buy now and save 10% encourage the consumption of products and vouchers with end dates. Cross selling could also promote special bargains by offering a discounted second buy to customers (Shani & Chalasani, 2013). The financial institutions can half the price of product X when the customer agrees to buy product Y. In this regard, the special offers become irresistible to consumers and the sales volume of the company is inflated.
The impacts of bank cross-selling on making thing easier
According to Gerri Walsh, the senior vice president of the investor education, the deliberate action of buying multiple products from a particular financial institution will enable the clients to manage their financial lives conveniently (Dagher, 2016). The clients who own a checking account together with a credit card in one financial institution can easily cater for their credit card bills. Besides, most of the advances companies provide an integrated digital platform that enables the legitimate clients to check on their accounts with the institution after logging into the dashboard.
Cross selling allows the customers to understand products that correspond or alternates with others. The financial institutions make their services and products known thus reducing the costs affiliated to returns and dissatisfaction of customers. Cross selling makes things easy when done at the appropriate time and destination (Mols, 2013). Any premature sale postulates that then offer is irrelevant and distracts potential customers from the initial product.
Timely selling of alternative products makes the customers receptive while late cross-selling could overwhelm the customers making them abandon the offer (Brooks, 2013). The timing must never disturb the client but should give them ample time to make informed decisions concerning the product or service. Cross selling must be genuinely helpful to the customers by sparing their investment and time of product searching.
Although cross-selling can encourage the financial institution to sell the multi product to customers, most of the clients only use one of the services (Singh, 2014). The evidence extracted from the end consumers prove that institutions can improve their operations by deploying frequent product terms to coincide with the requirement of the customers.
The impacts of bank cross-selling on creating awareness
The article reports that customers must be informed concerning the investment opportunities that are available when their money is idle in their bank accounts. Redundant savings in banks attracts very low returns on investment and encourages inflation (Dagher, 2016). According to C.W Copeland, a professor of financial services at the American College, bank cross selling would provide a remedy to the above vices. A bank where a client owns both savings and checking accounts may suggest the initiation of a personal retirement account and later allocate the client’s money to a higher rate of return mutual funds. The figure below illustrates how cross selling at Wells has created awareness thus encouraging new customers and improved relationships.
Besides, the bank can offer financial planning to customers to improve their awareness of their current financial situations. Cross-selling is concerned about establishing the felt needs and aspirations of the customer (Dagher, 2016). The financial institutions not solely focus their attention on elevating their sales, but enhancing their customer relations through value addition and benefits. The awareness on financial planning is crucial to all the customers who aim economic progress (Pilcher, 2016). Bank cross-selling provides chances for clients to understand budgeting concepts, organize individual spending and saving for short term and future goals and draw investment plans.
When the banks fail to create financial awareness to the customers, more money is left idle due to lack of investment (Singh, 2014). Consequently, the demand-pull inflation occurs because the demand for goods outstrips the supply. Creating awareness during the cross-selling of products would encourage more production of goods to meet the deficits in demand (Brooks, 2013). Insights about the expectation of inflation enable the customer to make timely purchases of avoiding future price increment. However, the Federal Reserve stipulates the inflation target that manages the public expectation of inflation. The figure below illustrates the relationship between money growth and inflation rates
The impacts of bank cross-selling on cost
Offering multiple services does not imply that a bank saves money for the clients according to the article. The products might turn to be more expensive as compared to procuring single products individually. According to Lemoine, real estate agents tend to pitch insurance services to the client but charges referral fees after connecting the customer to the insuring company (Dagher, 2016). Hidden costs may be factored when cross selling happens and are thus transferrable to the end consumers regarding commissions and referral fees.
            In the article, the spokesperson for the consumer financial protection bureau urges the entire consumers to comprehend all the fees ascribed to the cross-selling products before making the final procurement decisions (Dagher, 2016). Clients must ascertain if the chargeable amounts are paid once, monthly or annually. According to the Bureau, the buyers of multiple products must enquire the costs that are inculcated in the base price and the features or services that are responsible for the extra cost. Besides, information ought to be availed on the likelihoods of fluctuation of costs with introductory pricing or teaser rates.
Clients must take precautions when ascribing to automatic renewals because costs will keep on accumulating regardless of whether the client ceases to use the product or even forgets about their product ownership (Pilcher, 2016). The isolation among practice groups is an impediment to efficient operations. The banks that are not vigilant about developing key client teams and integrated service strategies make their client incur losses by investing in products that have low rates of return. Further, cross-selling would become more expensive when financial institutions offer additional products that belong to the same category (Fang, Ivashina & Lerner, 2013). Other clients consider cross-selling as a gray area in business because some products are counterproductive and only suck the revenues of the clients without extra value.
Banks cross-selling and unnecessary services
The article reports that companies at times provide services and products that clients do not require. In this regard, financial institutions pressure customers to embrace certain products by depicting them as exclusive and time sensitive (Dagher, 2016). Mr. Kumar, a marketing professor at Georgia state university, depicts how a given cable company offered a package of a land telephone line when he was requesting to procure a cable service and cell phone. The clients must be aware of the red flags affiliated with purchase coercions and must be ready and willing to deny any product or service that they consider unnecessary.
            Additionally, individuals must conduct a thorough search on their credit reports and financial reports to eliminate any accounts that they fail to recognize. Bank institutions should apply due care when adding multiple products in their sales model (Dagher, 2016). The client’s perspective must be considered when recommending the beneficial items that match customer benefits and satisfaction requirements. Products must be truly complementary but not for income generation alone.
Financial institutions become service demanders by continuously propagating the vice of overexploiting the customers through the channels of the phone, website, or direct interactions. The level of cross-selling is directly proportional to service demand and cost. Some of the services that increase costs consist of balance transfers and online banking (Shani & Chalasani, 2013). Revenue reverses accrue when a segment of the customers generate revenues but is later reabsorbed by the firms. A bank that engages in selling services is dominated by revenue reversals characterized by early termination of contracts or loans and increased defaults. In most retail banks where annual income reversers are many, this implies that a considerable number of members of the group are defaulters (Caballero& Simsek, 2013). The cost of the customers often gravitates towards the side of steep discounts in a bid to avoid the regularly priced items.
Nevertheless, the spending limiters often incur smaller portions of fixed amounts with a particular company because of financial constraints or the desire of spreading the purchase in multiple companies (Singh, 2014). When spending limiters cross buy, they often reallocate the expense among a vast assortment of services and products. Further, cross-selling propagates a downward spiral of declining profits and accumulating losses (Pilcher, 2016). Concisely, cross-selling inflates the marketing expenses as well as increasing the costs by reinforcing undesirable behavior to a vast number of services and products.
Cross-selling entails offering a product that is related to existing customers while basing the operation of the current and past purchasing history. Cross-selling is one of the tactics that is incorporated in sales and marking models of most companies including the money lending institutions. The article demonstrates how the bank's cross-selling operations can harm or benefit the customers. On the positive edge, cross-selling encourages savings and special bargains, makes things easier, and creates awareness to the client about investment opportunities. However, uncoordinated bank cross-selling shifts the other hidden costs to the end consumers thus making it an expensive process. Besides, companies may offer services that are void of customer benefits and requisition.

Brooks, N. A. (2013). Strategic issues for financial services marketing.Journal of Services Marketing.
Caballero, R. J., & Simsek, A. (2013). Fire sales in a model of complexity.The Journal of Finance68(6), 2549-2587.
Dagher, V. (2016). How Bank Cross-Selling Can Help, Hurt You.
Fang, L., Ivashina, V., & Lerner, J. (2013). Combining banking with private equity investing. Review of Financial Studies, hht031.
Mols, N. P. (2013). The Internet and the banks’ strategic distribution channel decisions. International Journal of Bank Marketing.
Pilcher, J. (2016). Busted: Wells Fargo Axes 5,300 Employees In Banking Industry’s Biggest Cross-Selling Scam Ever.
Shani, D., & Chalasani, S. (2013). Exploiting niches using relationship marketing. Journal of Services Marketing.

Singh, M. (2014). An insight into factors influencing cross selling activity: A bankers perspective. International Journal of Management, IT and Engineering4(6), 394.

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