Two of the biggest cross-selling bets in modern business, both at banks. One was quietly unwound. The other became a fraud case.
If cross-buying followed from loyalty rather than causing it, you’d expect companies that made cross-selling the goal to be disappointed. The two most famous cases were worse than disappointing.
In 1998 Sandy Weill’s Travelers Group merged with Citicorp on a simple thesis: one company selling banking, insurance and investments to the same customers would sell more of each. Amey Stone and Mike Brewster’s King of Capital tells that story. The thesis didn’t hold. In January 2005 Citigroup agreed to sell Travelers Life & Annuity and substantially all of its international insurance businesses to MetLife for $11.5 billion. Its chief executive, Charles Prince, said the sale “sharpens our focus on Citigroup’s long-term growth franchises” Filed. The company built to cross-sell insurance from inside one firm sold its life insurance business to a specialist and agreed to distribute the specialist’s products instead.
Wells Fargo went further and made cross-selling the number. From at least 2000 until the third quarter of 2016 it published a cross-sell metric, “the ratio of the number of accounts and products per retail bank household,” and presented it to investors as central to its community bank Filed. In September 2016 the Consumer Financial Protection Bureau fined the bank $100 million, alongside $35 million from its bank regulator and $50 million to the City and County of Los Angeles, after employees opened roughly 1.5 million deposit accounts and applied for roughly 565,000 credit card accounts that may not have been authorized, driven by what the Bureau called sales targets and compensation incentives Filed. In February 2020 the bank agreed to pay $3 billion to settle criminal and civil investigations by the Justice Department and the SEC. The SEC said the metric had been “inflated by accounts and services that were unused, unneeded, or unauthorized” Filed.
FiledCitigroup Form 8-K, January 31, 2005; CFPB, September 8, 2016; SEC press release 2020-38 and order, February 21, 2020.
When the number of products per customer is the target, people will find a way to add products.
No DTC brand is going to open accounts in a customer’s name. But the mechanism, a count that stands in for value and then becomes a target, shows up in small ways. An agency paid on “multi-category customers” gets there with free samples from a second category, or a deeper discount on it. Each raises the count and lowers contribution per customer, which was the point of the count.
Goodhart’s law says a measure that becomes a target stops being a good measure. Report categories per customer; it tells you whether the base is broadening. Pay people on contribution per customer, measured against a holdout.
This is one chapter of The Next Category, which is free and readable in full on a single page with no form in front of it.