April 06, 2009

Role Of A Channel: E-Mail

Your Channel Advisor creates a profile of each channel, determining the role each channel plays in your business. Let's look at an easy marketing channel like e-mail.
  • Does The Channel Scale? The answer, undoubtedly, is no. For most businesses I work with, e-mail comprises somewhere between 2% and 10% of total annual sales ... usually closer to 2% than to 10%. You could really do a spectacular job of e-mail marketing, and you might increase sales a few percentage points. So this isn't going to be a channel that carries the freight. E-mail is a support channel, an important role, but a role of support.
  • Does the channel do a good job of acquiring new customers? In most cases, the answer is no. The number of new customers from e-mail, on an annual basis, are generally under five percent of the total number of new customers ... and for many businesses, under two or three percent. This tells you that e-mail isn't a channel that you use to start new relationships (though it certainly could be if the right formula is discovered), and is probably not a channel you'd launch new businesses or product lines with. Your mileage may vary.
  • Does the channel aid in profitable customer retention? Yes and no. E-mail doesn't dramatically move the annual customer retention metric --- without an e-mail marketing program, the retention rate might be 40%, with a program, maybe 44%. However, the channel has essentially no variable cost, so all the sales (if the channel isn't a discount/promo/free-shipping channel) flow through to profit at a high rate.
  • Does the channel aid in customer service? Maybe a little bit, though certainly not in the way that folks use social media to solve consumer complaints. Because e-mail isn't a "human" channel, it fails many of the customer service tests that retail and call centers pass.
  • Does the channel feed other channels? Yes, and other channels feed e-mail. Many businesses acquire e-mail addresses through their catalog channel and through their retail channel. So e-mail is utterly dependent upon those two channels for survival. However, e-mail feeds other channels. Retailers know that half of their e-mail generated sales happen in stores, so that's a big deal. And e-mail fuels paid search --- you send an e-mail marketing campaign to a customer, and the customer goes to Google to do some research. Google loves e-mail marketing! Finally, most catalogers know that up to half of their e-mail orders come from a customer who received a catalog in the past "x" days, so e-mail can feed the catalog channel. E-mail makes your online marketing executive look good! As a result, e-mail is an important link in the "channel chain".
  • Does e-mail marketing generate profit? Oh yes! With essentially zero variable cost (don't give me that argument about the need to hire people to execute e-mail, all marketing channels have to hire people to get the work done), e-mail flows-through to profit at the best possible rate. I know of catalogers who break even on nearly all activities --- making all of their profit from e-mail marketing, even though e-mail marketing only represents ten percent of total annual sales.
  • Does e-mail marketing educate customers? Yes again! In fact, if we're not using e-mail to educate customers, we're failing. E-mail marketing is maybe the most inexpensive way to teach customers about us. In many ways, we ruin e-mail marketing by trying to "sell" all of the time --- using our open rate and click through rate and conversion rate metrics to go to the lowest common denominator of free shipping and %-off promotions.
  • What is the exit strategy for e-mail marketing? Oh, this is a delicious question. Under what circumstances would you shut down your e-mail marketing program? If I asked 100 of you this question, I doubt more than 5 would say that e-mail marketing should be shut down, ever But please, be realistic. If your e-mail list was declining by fifteen percent a year, would you consider shutting the channel down? If productivity fell to $0.05 per e-mail (as many of you tell me is happening), would you just stop wasting time and give up, allocating resources elsewhere?
  • What is your R&D strategy for e-mail marketing? This isn't as simple a question as "we're testing subject lines". Do you have an R&D strategy that includes completely ending your current version of "creative", scrapping it for something so new and different that you'd frighten your e-mail marketing manager? How about the 80% of e-mail subscribers who don't click on anything ever --- why keep doing the same thing over and over and over and over 104 times a year, might this represent an R&D opportunity --- you're certainly not risking any sales here?! Anyhow, every Channel Advisor has an R&D strategy for e-mail marketing, whether the e-mail marketing manager wants to honor it or not.
  • Does e-mail marketing lend itself to in-house expertise or vendor expertise? Oh boy. OH BOY! The answer is yes. Your in-house staff know how to work with merchants, they know how to work with that pesky inventory manager who wants to keep dumping overstocked goods in a third-weekly e-mail campaign. Your in-house staff knows that the CFO is demanding a 5% sales increase NOW and therefore you have no choice but to add the third weekly e-mail campaign that the inventory manager is waiting to pounce on. But wait! Your vendor knows the best targeting algorithms. Your vendor knows more about getting the e-mail in the inbox than anybody. Your vendor knows the right days of the week to send e-mails, and knows how many is "too many". Your vendor might hurt sales by asking you to reduce frequency or to trim your e-mail marketing list. So you're best off going with both in-house and vendor expertise, in my opinion.
So what is the role of e-mail marketing? It appears that e-mail marketing is a support channel, one that marginally improves customer retention, fails to attract scalable amounts of new customers, and contributes a minority of sales that are usually very, VERY profitable. This channel educates customers, it interacts with catalog marketing and paid search, and it generates sales in other channels without directly getting credit for the sales. E-mail easily lends itself to significant R&D efforts with minimal impact on top-line sales.

Now, given this profile, how would you, the newly appointed Channel Advisor of your company, propose using e-mail marketing? How would you educate each and every employee in your company about the important (but support-level) role that e-mail marketing plays?