The banking industry is rife with sour tales of the cross-sell that could have been. And they are set to reach epic proportions after banks' recent buying spree of nonbank financial service businesses.

The stories unfolding include that of Boston-based Fleet, which bought discount brokerage house Quick & Reilly Group; Charlotte, N.C.-based First Union Corp., which bought consumer lender Money Store; and the merger of Citicorp with Travelers Group to form Citigroup.

Their plots will likely get complicated because most companies fail to accurately value cross-selling potential, usually assuming goals that are out of reach.

An accurate valuation of cross-selling potential figures the volume of products that can credibly be sold at specific events in customers' lives.

For example, how many customers of a credit card company acquired by a bank are likely to become first-time homeowners? And what is the likelihood that these customers would seek a mortgage from the card company's new parent?

It's a question of credibility. That means that Cendant Corp., which has acquired both ERA Real Estate and PHH Mortgage Services, might credibly sell a mortgage along with a house.

But Sears, Roebuck and Co., which bought Dean Witter in 1981, learned that it couldn't count on selling mutual funds when it sold a pair of socks.

How can companies assess their credibility? Products to be cross-sold should fit plausibly under a company's umbrella of brands. Or they should be associated with a product the consumers already know and use.

For example, commercial banking customers do not have to reach far to associate other financing instruments with their loan activity. Bankers Trust Corp., which just announced plans to merge with Deutsche Bank, demonstrated remarkable revenue gains from cross-selling after it bought brokerage house Alex. Brown & Sons Inc. in 1997.

By the end of 1997 one-third of BT Alex. Brown's volume involved clients that had previously dealt only with New York-based Bankers Trust or Baltimore-based Alex. Brown.

How did they do it? Before the merger the firms went through each other's books- business by business, customer by customer- calculating where they might win business from each other's clients. After the merger the companies focused on inside sales: Bankers Trust financial engineers worked to familiarize the Alex. Brown sales force with its products and offered tips for how to sell them. They also put their staffs under the same roofs.

The merged companies achieved an enormous boost by approaching clients together and jointly selling products or services. In essence, Bankers Trust bought the credibility to sell customers investment banking products when it acquired Alex. Brown's expertise and name- and used that credibility to close the sale. The merged company created a cross-sell dynamic more profitable than top officials of either unit had dared hope.

But building credibility is only half the battle. The other half is identifying specific events in a customer's life that create a need for an add-on product or service. And that need must be satisfied simultaneously with the event.

Companies can do so in at least two ways: first, they can build a detailed, relevant data base of their customers and hire excellent customer service representatives. These reps must master their company's portfolio of products and understand all the links between products and life events flagged in the customer data base. Second, companies can succeed by cross-training their sales forces to seize the moment-for example, to sell mortgage expertise after they sell a house.

To illustrate the point, let's take another look at consumer marketer and service franchiser Cendant. In December 1997, Stamford, Conn.-based Cendant acquired a mix of well-branded real estate brokers including Century 21, Coldwell Banker, and ERA Real Estate. It also acquired PHH Mortgage Services, a nationwide mortgage originator.

Such acquisitions pumped Cendant's data base of customer names up 35 million, to about 80 million. From there, Cendant focused on cross-selling financing to real estate customers. It trained brokers to sell a mortgage when they sell a house.

The result? For 1998, Cendant expects mortgage originations to grow 50%, to more than $15 billion, and loan servicing to grow 25%, to $31.9 billion, through cross-selling.

And mortgages are just one product that can be bundled with home sales. Others include relocation services, home insurance, and credit lines for renovations. Meanwhile, other key events in the next 20 years of a first-time homebuyer's life-let's say a working woman with one child-could include:

The birth of another child, when the need increases for life insurance, college savings plans, and even child IRA accounts.

The first child enters kindergarten. The customer may consider relocating to a better school district or space-rich suburb, and require a raft of home-sales-related services.

The first child reaches driving age; the need for auto insurance coverage expands.

Children graduate high school; the customer may consider downsizing her home and may need tuition loans.

Cendant estimates that each home purchase triggers up to 17 major transactions -and it wants to capture all of them. It is investing long term to build data bases that will do just that.

After a company figures out what products can credibly be cross-sold and has flagged events in each customer's life that create a need, it's time to do the merger math. It's time to comb customer data bases and estimate which customers can be sold what products and when.

Travelers justified part of its $50 billion Citicorp acquisition with the expectations of cross-selling. Analysts put predicted revenue synergies at about 10%, and cost synergies at 8%.

But today employees aren't sure what to call their businesses, let alone how to cross-sell them. The longer top brass dither over where to integrate business units, where to let them stand alone, and who to appoint to run the show, the less likely Citigroup will be to realize the potential cost reductions or cross-sales.

In the case of Fleet and Quick & Reilly, there is no data base that could identify when a bank customer might need a discount brokerage transaction or vice versa. Fleet may have the credibility to sell stocks, but no ability to seize the moment.

To ensure a happy ending, companies should:

• Ensure that products to be cross-sold fit the customers' image of the brands.
  
  
• Enumerate specific life events that create a need (e.g. homeownership, starting a family, retirement, etc.).
  
  
• Ensure that staff can identify these events, and give them an incentive to do so.
  
  
• Quantify a cross-selling plan according to the volume of products that can be credibly sold, and the probability of specific events.
  
  
• Put systems in place to properly measure and attribute cross-sell success, and adjust targets and incentives accordingly.
  
  
• Involve key players in the organization in valuing the cross-selling potential of the merger and, once the deal closes, give them ownership for achieving goals.
  
  

  
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