Build the Stages for Raising Customer Spend by Kind of Relationship, Not by Price

Build the stages for raising customer spend by kind of relationship, not in order of price. Stages arranged by price can supply only one reason for moving up, and that reason contains no information at all about the other person.

There is a term for these stages: the value ladder. It names a design in which offerings are arranged like the rungs of a ladder, from free or low-priced up to high-priced, with people invited to climb from the bottom. In practice the ladder gets built in order of price — cheap at the bottom, expensive at the top. What this article asks is what that ordering is based on.

Presented as the method for raising customer spend is recommending a higher-priced item, and recommending related items alongside. Both genuinely raise the spend. There is, however, something the two presuppose. The premise that the stages already exist, and that the work consists of moving people up them.

How the stages were built is seldom asked. The way the ladder is propped is treated as given, and how to get people climbing is treated as the problem. Yet whether the spend rises is settled before any of that, by where the rungs were cut. Where the rungs of the ladder are cut is not a question about spend alone. The three ways of reading where a stage is cut are in the design of a marketing funnel.

Cut them in order of price and only one reason for moving up is supplied. “Because they have not bought the expensive one yet.” That reason contains neither the other person’s state nor what they are having trouble with. So the upper stage tends to become the lower one with quantity added: a longer version, a version with more sessions, a version with heavier support. A stage cut by quantity cannot carry anyone who does not need quantity.

Not a question only for people who have yet to build any stages. Where three or four already exist and the average still will not move, the same single point applies. The number of stages and the way they are cut are separate variables. Pile up operations that add to the number and the way they are cut never moves at all.

How to set the prices themselves is not treated here. What is treated is what goes between one stage and the next. What sum to charge can only be settled after what goes there has been settled. Reverse that order and the work becomes searching, afterwards, for contents that justify a sum fixed in advance.

Three things get answered. What is actually happening when the average rises. What goes into the upper stage once the stages are cut by price. What cutting them by kind of relationship consists of.

What Is Presented as the Way to Raise Customer Spend

Customer spend refers to the average sum a single customer pays in one transaction. It is calculated by dividing revenue by the number of customers.

The centre of what is presented as the way to raise it consists of two techniques.

First, the upsell. Recommend something higher and dearer than what the other person is about to purchase. A higher edition, a longer contract, an option of greater capacity.

Second, the cross-sell. Recommend alongside it something separate but related to what is about to be purchased. Accessories, complementary products, things used in combination.

Besides these, bundled provision of several items, price rises in themselves, and devices for increasing the number of items purchased are cited.

What gets described as the pay-off is not only the direct contribution to revenue. An account is attached that appropriate proposals raise the other person’s satisfaction and lead on to repeat purchase. The comparison that it costs less than new acquisition is set alongside.

Recommend a higher edition and a certain proportion select it; present related items alongside and the number of items rises. Bundles genuinely push up the average.

One premise is held in common by the two techniques. Both presuppose that the stages already exist. Because a higher edition exists an upsell is possible; because a related product exists a cross-sell is possible.

That stages exist is natural and not in itself a difficulty. Where there is only one option, no operation of selecting arises.

The tricky part is that how the stages were cut sits outside the discussion of raising the figure altogether. How they were cut is treated as already finished, and the discussion starts from how to move people.

Continue only the discussion of moving people and how the stages were cut is never once examined. What is not examined usually survives in the shape it had when first made. And the first shape is, in most cases, prices merely set in a row.

Going back as far as how the stages were cut makes the matter too large, when what is wanted is to raise the spend in front of you — that is a fair complaint.

Reasonable. On that footing, improvements in the manner of moving people have a ceiling. However far the manner of proposing is polished, if the destination is only a version with more of the same, the reason for moving stays confined to a need for quantity. A need for quantity rises and falls with the other person’s circumstances, so it does not move under this side’s design.

One more point stands: the two techniques are presented without an order. Which to take up first gets settled in practice by ease of building. Lining up related products can be taken up faster than designing a higher edition. Ascending order of ease does not coincide with descending order of effect.

Customer Spend Is a Figure Reflecting Your Own Line-Up, Not the Other Person’s Willingness to Pay

Customer spend is the average of the distribution of the other person’s selections across the set of options this side prepared.

The restatement carries substance. What this figure measures is not how much the other person is prepared to pay. It is which point within the prepared options was selected.

With the same party, change the set of options and the position selected changes. From a state in which the middle of three was being selected, add one more above, and the previously top stage becomes the middle and its share rises.

Research on consumer behaviour has confirmed this phenomenon. Itamar Simonson showed experimentally that an option occupying the intermediate position within a set gains share (Simonson, 1989, Journal of Consumer Research, 16(2), 158–174).

The same research shows one further thing. The effect appeared more strongly in subjects who anticipated having to explain their decision to others.

What can be read here is that the middle is not necessarily selected because the middle was judged best. One reason it is selected is ease of explanation. A position that is not extreme is also a position for which a reason can readily be given afterwards.

That is to say, when three stages are set out and the middle sells, there is no guarantee that the middle matched the other person’s need. The case of matching and the case of being easy to explain appear as the same result.

Even if it was selected for ease of explanation, selection is selection and the outcome is the same. That can be put back.

The outcome on the occasion is the same. The difference emerges afterwards. Where it was selected because it matched the need, it gets used, an effect appears, and it connects to the next occasion. Where it was selected for ease of explanation, it sometimes goes unused.

Where it is unused, no material for the next judgement remains on the other person’s side. Not remaining, no reason for the next purchase arises either. The combination of spend rising while continuation does not is produced by this route.

Three stages are not the thing being argued against. With two options no basis of comparison emerges, and with too many the processing grows heavy.

What is hazardous is reading the middle selling as evidence that the pricing is appropriate. That distribution is made by the shape of the set.

Learn this structure and it becomes apparent that adding a stage above in order to create a middle is usable as an instrument. It is usable, and it works.

And at the moment it is used, one item of material for determination is lost. Whether the middle selling is evidence of matching the need, or the result made by the shape of the set, can no longer be distinguished on this side either.

Placing an upper stage is not in itself an act of manipulation. Where parties genuinely need it, that stage ought to exist. The line of determination lies in whether the stage was built in the expectation that somebody would select it, or built so that the one beside it would be selected. The former is a stage it is fine to have bought; the latter is a stage it is awkward to have bought.

When the Average Rises, Three Things May Actually Be Occurring

Beneath a record that customer spend has risen sit three events of differing nature. The three call for different prescriptions and appear as the same figure.

First, the case where the same party has come to pay more. This occurs as the result of a relationship deepening. The range widened, more was asked, higher-tier substance became necessary.

Second, the case where the composition of the parties has changed. As the segment selecting the cheap stage shrinks and the proportion selecting the dear stage rises, the average rises even though no individual has changed anything. Here what rose is the average, and it is nobody’s payment.

Third, the case of a price rise. Everybody’s payment rises, so the average rises too. Only, where some have left, their share disappears from the denominator. If those who left were concentrated in the cheap stage, the average rises further.

The three are, as states of a business, entirely distinct. The first is a deepening relationship, the second a change in acquisition, the third a change of price.

Yet what is visible in the monthly aggregate is a single line: spend rose. Separating which occurred requires looking at the records before aggregation.

Read without separating and what happens? Where the second is occurring and it is read as the first, the interpretation remains that the substance provided has improved. In fact only the entrance of acquisition changed, so when the entrance reverts the spend reverts too. At that point one ends up doubting the side of the substance.

If revenue is rising as a result, how much does the breakdown matter. There is a view along those lines.

It becomes important at the next act. Where the first is occurring, continuing the same direction suffices. Where the second, the entrance must be maintained. Where the third, the departures must be checked. The prescription differs in all three.

The habit of not separating the breakdown becomes harder to correct as time passes, because past records cannot be decomposed after the fact. The grain of a record is settled at the moment of recording.

It sits in the same place as the structure handled in how to read the drop-off rate, where the design of records settles the range of what can be asked later.

Telling the three apart needs no elaborate machinery. What is needed is only that the transaction record retains how much this party paid last time. Compare the same party’s previous and present occasions and the first and second separate. Whether there was a price rise, this side knows.

And this record must be kept from the outset. The composition of parties at the time cannot be reconstructed retrospectively. Being unreconstructable, the periods that can be separated are only those after recording began.

In an Upsell and a Cross-Sell, Opposite Things Are Occurring on the Other Person’s Side

The two are spoken of side by side as techniques for raising spend, but what occurs on the other person’s side differs in nature.

An upsell is the operation of reselecting a deeper form against the same need. The problem the other person is trying to solve does not change. What changes is how far into it one goes.

A cross-sell is the operation of newly recognising a separate need. The other person either was not conscious of that need or had postponed it.

This difference separates the conditions under which they hold.

An upsell holds when the other person has understood the depth of the problem. Once it is apparent that the roots run deeper than I thought, a deeper form becomes necessary. Understanding first, selection second.

A cross-sell holds when the other person has noticed a separate need. The material for noticing usually sits inside the first transaction. Having tried one thing, it became visible that a separate problem stood beside it.

That is to say, neither holds by virtue of this side recommending. What makes them hold is a change of recognition occurring on the other person’s side.

In practice this shows up as follows. Polish the technique of recommending and the rate at which they hold does not rise unless recognition has changed. What rises is only the rate of assent on the occasion.

Rate of assent and rate of holding are separate things. Assent is a record of having said yes; holding is a record of having been used with an effect. The former is known that day, the latter some months later. Only the former comes back quickly to hand, so that is what becomes the object of optimisation.

Nobody is arguing that the manner of recommending is irrelevant. Where a need has arisen and no option is presented, nothing is selected.

What holds is that the manner of recommending is a necessary condition and no substitute for a change of recognition. This shares its root with the structure of inflation in externally supplied reasons handled in the product launch. To obtain assent without a change of recognition is to keep adding reasons from outside.

This difference between the two also changes where the proposal is placed. An upsell is most natural placed at the moment the depth of the problem becomes visible. That moment usually falls partway through a transaction.

A cross-sell is natural placed after the first transaction has reached a break. The need beside it becomes visible only after one thing has been finished.

Yet in practice both tend to get placed in the same location: immediately before purchase. That is the point at which assent is most readily obtained. Settle the location by rate of assent and the conditions of holding that the two techniques carried are both ignored.

Cut the Stages by Price and the Upper Stage Becomes a Version with More

Design the stages in order of price and the question arises of what to put in the upper one. And the answer easiest to design is more of the same.

Increase the number of sessions. Extend the period. Widen the range covered. Each holds as a higher edition, and each supports an account of the price difference.

This design carries a clear consequence. Where the higher edition is defined by quantity, the other person’s reason for moving up is also quantity. No reason beyond because more is needed is supplied.

And a need for quantity is usually temporary. Once the busy season ends, the quantity is not needed. A stage risen by quantity falls by quantity.

Further, stages cut by quantity carry a consequence on this side too. The more higher editions are sold, the more the workload here rises in proportion. The spend rises and income per unit of time does not change.

This is the structure handled in getting out of a labour-intensive structure, appearing inside the price list. As long as the design of stages is made of quantity, the higher one goes the more time is taken.

What, besides quantity, is one to differentiate by. That question remains.

There are two axes besides quantity.

One is completeness. Whether a part is handed over, or a form complete in itself. This is the division handled in the design of a trial offer, applied to the upper stages.

The other is the location of judgement. Whether the form is one where this side decides and executes, or one where the other person becomes able to decide. These two are differences in the kind of relationship, not in dearness.

Cutting by quantity is not always mistaken. There are fields where quantity genuinely is required.

What holds is that keeping only stages cut by quantity leaves no place in the price list to express a relationship having deepened. A deepened relationship gets recorded only as an increase of quantity.

Stages cut by quantity impose the same constraint on the other person. A party who selected the upper stage is required to use that quantity up. Failing to use it up leaves a sense of loss, and at the next renewal they revert to the lower stage.

The constraint tightens the higher up the ladder you go. The lower stage carries a small quantity, so failing to use it up costs little. The upper stage carries a large one, and what is left unused is correspondingly larger. The further up you go, the faster reasons to step down accumulate against reasons to stay.

And a party trying to use it up ends up using it in situations where it is not needed. Consulting because sessions remain, continuing because the period runs on. A relationship whose reason became quantity ends when the quantity is exhausted.

What It Means to Cut the Stages by Kind of Relationship

Cutting the stages by relationship means shaping them so that who holds the judgement differs at each stage.

There are three forms.

The first form is a relationship of receiving answers. The other person holds a question and this side hands over an answer. Fast, with clear results. At this stage, this side holds the judgement.

The second form is a relationship of receiving materials for judgement. This side hands over what happens under which conditions. The other person applies it to their own circumstances and decides. The other person holds the judgement and this side holds the materials.

The third form is a relationship of assembling the criteria themselves. This side attends while the other person does the work of making their own criteria of judgement. Both judgement and materials sit on the other person’s side, and what this side holds is only the order of assembly.

Rising in price is not guaranteed as one goes up. The first form can be dearer, since acting on someone’s behalf takes more labour.

Cutting by relationship is not discarding the order of price but holding the order of price and the order of relationship as separate axes.

This cut carries a practical advantage. The other person can judge for themselves which stage they are at. Do I want an answer now, or materials, or to build criteria? — only the other person can know.

Under stages cut by price, this judgement is impossible. There is no information beyond the dearer one must be better. Selection is then settled by budget alone, and the correspondence with need is lost.

Cut by relationship and the further up one goes the less this side appears to hand over. No acting on their behalf, no deciding, no stating answers. The quantity handed over decreases and what remains on the other person’s side increases.

This asymmetry makes explanation difficult, because a high price is being attached to something that looks like less. It can be explained only where what one becomes able to do at that stage can be shown in advance.

The three forms can be read as a division made, in the end, for this side’s convenience.

It can be determined. Compare what remains to hand for the other person when each stage ends. Under the first form a result remains, under the second materials for judgement, under the third criteria.

If what remains is the same in all three, the stages are not cut by relationship. Only the names have changed while the quantity varies.

Nor are three always required. Depending on the field, two suffice. What is needed is not a number but that the location of judgement differs at each stage.

Nobody in the Upper Stage Does Not Mean the Stages Are Too Few

The state of having built an upper stage and nobody coming arises often. The prescriptions that emerge first are to increase the stages or lower the price.

Both are prescriptions that move the side of the stages. The premise has entered that the reason for not moving lies on the side of the stages.

The reason for not moving usually lies outside the stages. It is that the reason for crossing over has not been made at the lower stage.

A party who received only answers at the lower stage remains a party who wants answers. To a person who wants answers, a stage handing over materials for judgement looks like a drop in value. The further up, the more labour it seems to demand.

That is to say, the upper stage not selling is a consequence of the lower stage’s design. What was handed over below makes the reason for crossing above.

In the price list this is how the structure handled in where to begin doubting when the conversion rate is poor — that the observable indicator sits downstream while the cause sits upstream.

Handing over materials at the lower stage too would remove the reason for going up. This needs settling.

This worry works the other way in practice. A party who has received materials learns how to use materials. Using them, they notice that their own criteria of judgement are insufficient. Only upon noticing does the third form acquire meaning.

Hand over no materials and the other person never notices that criteria are lacking. Against a need that has not been noticed, the upper stage is as good as non-existent.

Not everybody goes up. There are people for whom answers suffice, and that state is not a deficiency.

If not a single person goes up, it is the turn of what is handed over at the lower stage to be reviewed. The work of adding stages comes after that.

Reviewing the lower stage is not the same as thinning it, though. Reduce what you hand over below in order to push people upward and more of them may indeed move, but what moved them was shortage rather than need. Someone who moved up out of shortage meets the same shortage at the upper stage.

Where the upper stage continues not to sell, the prescription of lowering the price is readily adopted. Lower it and a certain number move. The movement then fixes the interpretation that price was the cause.

Yet parties who entered at the lowered price stand in the upper stage still lacking the reason that was not made below. They cannot make use of it, no effect appears, and they do not renew. And in the next period this appears as a separate problem: that the upper stage’s retention rate is low.

Prescribing more stages produces the same thing. Insert one in between and it fills. The filled stage contains both those who came down from above and those who came up from below. Without separating the breakdown, only the increase remains in the record.

The Operation of Raising Spend Simultaneously Reselects Who You Deal With

There is one consequence readily overlooked. The operation of raising spend invariably changes the composition of the parties.

Raise the price and the segment that will not pay it leaves. Give prominence only to the higher edition and the segment that needed the lower stage stops entering. Increase the stages from three to five and the segment that dislikes the labour of choosing declines.

That is to say, the design of spend is at once a design of price and a design of whom you deal with. The latter is carried out unintentionally.

Being carried out unintentionally, its results also appear afterwards. Six months after the spend rose, one notices that the substance of enquiries has changed. The quality of questions, the volume of demands, how readily things are understood. That the composition changed becomes apparent first in the daily texture, not in the figures.

This change occurs in good directions as well as bad. Raising the spend can leave only parties who want deeper involvement. It can also reduce the segment that judges by price alone and increase parties who judge quickly.

The obstacle is that which of them occurred cannot be read from the spend figure. The record that it rose remains in the same form in both cases.

Selecting whom you deal with ought to be done deliberately, runs the counter-argument.

Better so. Doing it deliberately allows the criterion of selection to be written first. A written criterion can be verified afterwards.

Select by price alone and the criterion becomes what can be afforded. What can be afforded, and whether what this side can hand over is needed, are separate variables. Select by the former and the latter is left to chance.

This is the structure handled in pricing that does not start from cost — that value is settled by the set of things compared against — seen from the other person’s side. Moving the price also moves the set of comparisons.

There is no method of avoiding the reselection. Even without changing the price, the composition changes as time passes.

Treating a change of spend solely as an adjustment of sums leaves the simultaneous reselection unrecorded. Unrecorded, the change of texture six months later cannot be tied to its cause.

Reselection proceeds in one direction only. Segments that left do not come back. Lower the sum and a new segment enters, but it is a different population from the one that was there before.

Accordingly, the operation of raising spend cannot be tried and reverted. Since it cannot be handled as an experiment, there is no course but to settle in advance which segment you will deal with. Where it is not settled, what settled it was the price.

Where It Can Be Confirmed Whether the Stages Are Cut by Relationship

Whether the stages are cut by relationship can be verified with three indicators. Each looks at the structure of the stages rather than the sum of the spend.

The first indicator is whether each stage can be described without touching price. If nothing can be said beyond the higher edition has more sessions, that stage is cut by quantity. If at the upper stage we build the manner of deciding together can be said, it is cut by relationship. As long as the description is a justification of the price difference, the stages remain in the order of price.

The second indicator is whether a party who selected the upper stage can state their reason in their own words. It looked good and it was recommended are appearances of selection by ease of explanation. I judged that what I need now is not answers but criteria is evidence that the difference between stages was conveyed.

The third indicator is at what point those who moved from the lower stage to the upper did so. If they are concentrated immediately after a proposal, what is moving them is the proposal. If they move at times unrelated to any proposal, what is moving them is need on their own side. That the latter occurs in a certain proportion is evidence that the stages are cut by relationship.

The sum itself is a quantity the three indicators do not read. Since the stages are divided by kind of relationship, what ought to be confirmed is the side of the relationship.

Taken together, the three have limits. All can be used only where several stages exist and movement is actually occurring. At a stage with only one offering, there is no object to confirm.

Available at that stage is making clear to oneself whether what is currently handed over is an answer or a material. Where it is clear, the second offering can be cut on an axis other than quantity.

The third indicator is unusable without a record of when people moved, and such records are often not kept.

In most cases they are kept. Transaction dates remain automatically as payment records. What is missing is the date on which the proposal was made.

A line of memo suffices. To whom, when, and what was proposed. Without a record of proposals, whether what moved was the proposal or the need can never be separated.

How many stages to build, how large a price difference to set, when to prepare a higher edition. No numbers can be supplied here. These change in meaning with the field being handled, the breadth of the other person’s needs, and the form of what this side can hand over. Supplying one would mean handing down the judgement in somebody’s place, without seeing those conditions at all.

So what your stages are currently cut by can be read off a single sentence: the description of the higher edition. If that description can be written as “more of the same thing,” the cut is by price. If it can be written as an answer to a different need, the cut is by kind of relationship. Moving the first into the second starts not from the price table but from counting the needs again.