If you're a business owner or involved in sales and marketing, chances are you've come across this term before. But what does it really mean and how does it fit into your overall business strategy?
A downsell is the act of offering a cheaper or lower-tier product or service to a customer who has declined a higher-priced offer. It may sound counterintuitive, but downselling can actually be a powerful tool in increasing sales and building customer loyalty.
In this blog, we’ll compare downselling to other sales strategies, learn its importance, and explore practical ways to avoid common challenges.
The difference between upsell, cross-sell, and downsell
Let's break down the trio of sales strategies. Upselling involves persuading a customer to purchase a more expensive item or upgrade an existing product or service. This may take the form of a premium version of the same product or a higher-tier service package.
On the other hand, cross-selling is the practice of encouraging a customer to buy a complementary product or service that enhances the value of their initial purchase. For instance, a mobile phone retailer might cross-sell a phone case with a new phone purchase.
Downselling, as we've discussed, is offering a less expensive alternative after a more costly product or service has been declined – like a basic version of a software package when the premium version has been rejected.
While they each have their unique approach, these strategies aim to maximize value from each customer interaction.
Now that you understand the difference between the three, let’s explore how downselling can actually be a useful tactic.
Why use downsells?
You may be thinking, "Why would I want to sell a cheaper product or service to a customer?". It may seem counterproductive, but when applied effectively, downsells can offer several strategic advantages for businesses, including:
1. Retaining hesitant customers
Not every customer is ready or able to commit to higher-priced options. However, this doesn't mean they don't value your product or service. The last thing you want is for a potential customer to walk away feeling your products are out of their reach. By offering a more affordable alternative, you can retain these customers and keep them engaged with your brand.
2. Increasing Customer Lifetime Value (CLV)
While a downsell might bring in less revenue upfront, it can help increase CLV by keeping the customer in your sales funnel and opening the door to future upsells. Remember, a customer purchasing a lower-priced product today could be the same customer who opts for the premium version tomorrow.
3. Reducing churn rate
If customers feel they are getting value for their money, they're more likely to stick around. Offering downsells can prevent customers from switching to a competitor's cheaper alternative, thus reducing your churn rate.
4. Building customer loyalty
When you demonstrate flexibility in your offerings to meet the customer's budget and needs, it builds loyalty. Customers appreciate businesses that make an effort to accommodate them, and a downsell does precisely that.
By strategically employing downsells, you can not only salvage potential lost sales but also build stronger, long-term relationships with your customers.
However, this approach does not come without its challenges. In this next section, we’ll explore a few common obstacles to downselling and give you practical solutions to avoid them.
Common challenges with downsells
Here are some pitfalls you might encounter and tips to avoid them:
1. Devaluing your premium products
Offering a cheaper alternative after the rejection of a higher-priced offer could make customers question the value of your premium products. To avoid this, ensure the perceived value of your higher-priced products is clearly communicated before introducing a downsell.
2. Training your customers to expect cheaper alternatives
If used too frequently, customers may come to expect a downsell after rejecting your initial offer. This could lead to strategic waiting, where customers hold off on making a purchase in anticipation of a cheaper offer. To prevent this, use downsells sparingly and strategically.
3. Decreasing profit margins
If not balanced correctly, downsells can eat into your profits. To maintain your profit margins, ensure your lower-priced offerings still cover costs and contribute to overall profitability.
4. Overcomplicating the sales process
Offering too many options can overwhelm customers and lead to decision paralysis. Keep your product and service offerings clear and simple to facilitate the decision-making process.
5. Straining resources
Offering lower-priced alternatives might demand more from your resources. Make sure you're equipped to handle the increased demand that might come from offering a wider range of products or services.
Remember, successful downselling requires a balanced approach. Ensure you're preserving the value of your premium products, keeping your offerings straightforward and manageable, and maintaining profitability while serving the needs of your customers.
Key takeaways
- A downsell is a sales strategy where a cheaper alternative is offered to a customer after they reject a pricier option.
- Although seemingly counterproductive, downselling can enhance customer loyalty, reduce churn rate, and prevent lost sales.
- It's important to balance the use of downsells to avoid devaluing premium products, training customers to expect cheaper alternatives, overcomplicating the sales process, decreasing profit margins, and straining resources.
- A strategic approach to downselling can contribute significantly to a business's sales strategy and customer relationship building.
