September 11, 2008

E-Mail Cannibalization

Our industry doesn't talk a whole lot about e-mail cannibalization.

We do spend a lot of time talking about declining performance. Interestingly, performance declines can be correlated with increased campaign frequency.

Take a brand that used to send one e-mail campaign a month, generating $0.25 per e-mail delivered. Then they began sending one e-mail campaign a week, generating $0.19 per e-mail delivered. Then they began s
ending two e-mail campaigns per week, generating $0.13 per e-mail delivered.

An Executive might grumble about declining performance. It is the responsibility of the e-mail Marketing Director, however, to illustrate what is really happening. And we don't illustrate this with simple metrics like open rates and click-through rates and conversion rates.

A negative view of the world:
  • E-mail campaigns used to generate $0.25 each.
  • Then e-mail campaigns generated $0.19 each.
  • Then e-mail campaigns generated $0.13 each.
A positive view of the world:
  • E-mail marketing used to yield $0.25 of demand per customer per month.
  • Then e-mail marketing generated $0.75 of demand per customer per month.
  • Then e-mail marketing generated $1.04 of demand per customer per month.
Because of the non-existent cost of e-mail marketing, it is ok to look at demand per customer per month as an appropriate metric. As long as opt-out rates don't consume incremental demand, this is an acceptable way to view the business.

Now let's get back to the volume we observed.

As contacts increase, volume increases at a decreasing rate. This is a classic relationship. Some call it cannibalization --- each additional e-mail eats away at the productivity of existing e-mail campaigns. Others view this as diminishing returns. Either way, the concept is the same.

In the old school world of catalog marketing, cannibalization was critical to understand, because the incremental demand didn't offset the cost of delivering a catalog.

With e-mail, your cannibalization costs are based on customer frustration --- how many contacts until you no longer get enough revenue to offset the folks who opt-out of your campaigns? You can answer this by executing simple contact strategy tests.