When many firms pursue diversification strategies, they argue that they can provide one-stop shopping for clients. This logic implies that one-stop shopping adds value for the customer, and that the multiple business units inside the corporation are more valuable together than apart. For many firms, cross-selling becomes a key initiative, to try to provide that one-stop shopping experience (Wells Fargo, anyone?). Does one-stop shopping make sense though? Do customers actually want to purchase a series of related services from one supplier? Would you like to have all your financial relationships with one firm, or would you prefer to purchase your insurance at one firm, secure a mortgage at another, and invest in bonds at yet another company?
Olivier Chatain and Denisa Mindruta have written a paper on this topic. The paper is titled, “Estimating Value Creation From Revealed Preferences: Application to Value-based Strategies." The authors presumed initially that one-stop shopping created value for clients. After all, the firm provided customers more convenience, and it could apply learning from one aspect of a customer relationship to the provision of other products and services. Synergies seemed readily available. The research, however, demonstrated that significant drawbacks may exist to a one-stop shopping strategy. I'm not shocked; I've always been skeptical of such strategies. I think firms overvalue synergies routinely. Moreover, I'm not sure customers actually want to put all their eggs in one basket. They also get annoyed at times when firms are constantly engaging in cross-selling tactics.
Chatain and Mindruta studied law firms in this research. Chatain explains the findings:
What we think is that — especially for the law firms we were looking into — … even though you may know a client well, each time [you provide a new service to him], it’s almost like [starting] a different subject. You really have to start over and learn a lot about the client.
An alternative explanation [for our results] is that some clients are very worried about having one supplier of service serving multiple areas. So even though you might be the best expert for me, if you’re already my best expert for two or three other subjects in law, I may want to deal with someone else because I might be afraid if I get all the information from the same supplier, I might be missing out on some important themes.
I might have a preference of diversity in terms of input, which was something that is apparently more important than the savings you can realize by bundling all these products together.