Optimal Incentives to Foster Cross Selling: An Economic Analysis

by Andre Decrouppe

Institution: Vienna University of Economics and Business
Year: 2014
Keywords: RVK QP 620; cross selling / incentives / incentive problems / profit-sharing / business unit / key account / management / cross-divisional / multi-divisional companies / relationship of trust / exploiting / principal-agent theory / repeated prisoner's dilemma / repeated trust game
Record ID: 1031799
Full text PDF: http://epub.wu.ac.at/4486/1/
[email protected]



Cross selling is the practice of selling additional products to an existing customer. It has the potential to boost revenues and can be beneficial for both the company and the customer. For many multi-divisional companies with product or service oriented organizational structures the attempt to realize the benefits of cross selling generates incentive problems. In this thesis, three problems spread over three business levels are identified. Firstly, management needs to (financially) motivate business units in fostering their cross selling efforts. Secondly, in order to make cross selling happen, business units need to cooperate and to exchange product-related information. Finally, in order to increase their short-term benefits business units might act opportunistically by selling products or services of other business units without paying attention to adding value for their customers. These incentive problems are theoretically examined by applying principal-agent theory and the theory of repeated games. Our findings suggest that an optimized incentive structure is required to make both the business units and the management better off. The thesis also analyses the circumstances and necessary prerequisites under which cross selling initiatives are beneficial for all involved parties. Apart from that cross selling sometimes may turn out to be non-beneficial. In addition to the elaborations above, risks and hazards of cross selling are presented in detail and applied for the extension of the underlying model. Bottom line, the work underlines that cross selling is to be realized holistically to ensure durable success. (author's abstract)