Business

Businesses seize on side hustles to counter inflation’s bite

Retailers are mining their huge customer bases in hopes of capturing digital marketing dollars

Airlines have been cross-selling for years, as any flyer who has ever been hit with “opportunities” involving rental cars, travel insurance and credit cards knows. Photograph: iStock

Brooke Masters
Wed Jun 1 2022 - 12:01

With input prices rising and supply chains snarled, it is getting awfully hard for consumer-facing groups to deliver the profit growth investors demand, as retailers Walmart, Target and Marks and Spencer all admitted recently.

That leaves enterprising executives looking for easy ways to boost revenue without adding much cost – a bit of a challenge in an inflationary environment. What better way than to cross-sell your customers someone else’s product? You earn commission revenue, and your partner gets the production headaches.

So fettuccine from UK delivery service Pasta Evangelists comes with a side of come-ons for gourmet cheese and cocktails, while the US’s Home Chef meal kits include promotions for high-end cookware and wine.

Mentions of cross-selling opportunities have been markedly higher on corporate earnings calls and in company presentations and regulatory filings since the start of 2021, according to Sentieo data.

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Much of that comes from airlines, who have been at this for years, as any flyer who has ever been hit with “opportunities” involving rental cars, travel insurance and credit cards knows.

Delta’s deal with American Express brought in a record $1.2 billion (€1.1bn) in the first quarter, up 25 per cent from pre-pandemic, and a key part of its plan to draw 60 per cent of revenue from premium seats and non-ticket sources by 2024. And its tie-up with Lyft is so tight that the ride-sharing group this week “reminded” me of an upcoming flight to Chicago and asked if I wanted to book a car.

Air Canada last year struck a partnership with Starbucks, allowing customers to earn and redeem points in each others’ programmes, and American Airlines chief commercial officer Vasu Raja crowed recently that spending on its Barclays-linked credit cards was outpacing inflation. American also heavily promotes Apple TV+, allowing passengers to try series onboard and encouraging them to pay to continue at home.

Now, not surprisingly, others want to get in the game. Several dozen large landlords are among the customers of Paylode, a software platform that links businesses to one another’s client bases. Property companies promoted tax services in April, Mother’s Day items in May, doggy day care to tenants with permission to have a pet and moving companies to both new and departing tenants, says founder Mikhail Naumov.

While cross-selling is not new technological change has made it easier and more attractive to a wider range of groups. Supermarkets and big-box stores have long hosted banks, pharmacies and cafés on their premises. Now they offer third-party goods through their websites. Germany’s MediaMarkt electronics chain has been rolling out such a service for several years.

That allows retailers, who operate on very narrow margins, to mine their huge customer bases for targeted opportunities. Those with strong customer relationships are looking to shake loose digital marketing dollars at a time when iPhone and Android privacy changes have made it harder for Facebook and Snap to sell targeted advertising.

Airline customers tend to have prime credit ratings and discretionary spending money, and foodies often like wine, so the cross-promotion potential is there. The flyer from a gutter-cleaning company included in a gourmet food delivery to a rented Manhattan apartment seems less apt, but perhaps they want to share our home ownership dreams.

Still, the newfound enthusiasm for cross-promotion and ancillary revenue has risks. Just look at the financial services sector.

In the UK the big high street lenders became so addicted to making money from selling payment protection insurance on credit cards and mortgages that they started tacking it on without permission and signing up people who were ineligible for payouts. The PPI scandal ultimately cost the industry more than £50 billion (€59bn). In the US Wells Fargo’s catastrophic fake accounts debacle stemmed from management pressure to cross-sell.

Regulators in both countries have also repeatedly expressed concern when cross-selling programmes for extended warranties, travel insurance and the like require customers to opt out rather than opt in.

It’s hard to imagine that scale of a problem developing from simple cross-promotion. But if companies become too dependent on revenue from their side hustles, the potential for misuse of data and high-pressure tactics is certainly there. – Copyright The Financial Times Limited 2022

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