September 02, 2008

E-Mail Marketing: Discounts And Promotions

I recently reviewed a profit and loss statement for a marketer that conducts e-mail marketing programs. This marketer offered significant savings on the items offered in the e-mail marketing campaigns. This marketer offered the savings in every campaign!

When asked why the marketer discounted the merchandise so significantly, the marketer showed me a profit and loss statement that looked something like this:

Up To 60% Off No Promotions
E-Mails Delivered 100000 100000
Click-Through Rate 6.30% 3.40%
Conversion Rate 6.90% 4.70%
Total Response Rate 0.43% 0.16%
Total Orders 435 160
Average Order Size $165 $160
Demand $71,726 $25,568
Net Sales $57,380 $20,454
Gross Margin $31,559 $11,250
Less Marketing Cost $500 $500
Less Discounts $14,345 $0
Less Pick/Pack/Ship $6,599 $2,352
Variable Operating Profit $10,115 $8,398
Profit As A % Of Net Sales 17.6% 41.1%
Ad/Discount To Sales Ratio 25.9% 2.4%
Profit Per Order $23.27 $52.55
Profit Per E-Mail Delivered $0.10 $0.08

The marketer told me that, by offering the promotions, response to e-mail marketing campaigns was almost three times better than when full-priced e-mail marketing campaigns were delivered to the customer. Furthermore, profit was a full twenty percent better when significant discounts were offered.

The marketer told me that "... we've built an e-mail file of customers who now demand discounts and promotions. They simply won't buy from us unless we do this."

So I ask you, the knowledgeable direct marketer, if the situation this brand is in is good for the brand? I mean, we see profit and loss statements like this all the time, so it seems like it would be a "best practice" to offer heavy discounts and promotions, right?

One thing that rings consistently true in Multichannel Forensics projects is that full-price customers will buy discounted merchandise, but discount customers aren't thrilled about paying full-price for merchandise. If that holds true for most brands, then this e-mail marketing best practice can alter the composition of the customer file.

Is altering the composition of the customer file a good thing? Do our practices alter the long-term trajectory of the brands we work for without management fully understanding what we are doing?

Your thoughts?