February 15, 2007

6 In 10 E-Mail Campaigns Compete On Price?

Chad White must not have a lot of free time.

Host of the popular RetailEmail blog, Chad does the work we don't have time to do --- he subscribes to most business-to-consumer e-mail programs, then shares what he observes with his audience.

Chad compiles many of the e-mail campaigns in a feature called the "Subjectivity Scanner". He lists the subject line of each e-mail campaign he chooses to feature in this section.

I analyzed the subject lines from October 2006 and February 2007. I purposely omitted November, December and January, months that are highly promotional in nature.

Within the e-mail campaigns Chad listed for us, any time I saw the word SALE, % OFF, FREE SHIPPING, GIFT, or any other variation of a price promotion, I categorized the e-mail campaign as "Competing on Price".

After compiling the results, 59% of February E-Mail campaigns, and 58% of October E-Mail campaigns "Competed on Price".

Did we cause customers to demand rock-bottom prices, or are we simply responding to the fact that customers won't purchase online unless there is a huge incentive to do so? In our modern era of commerce, do we simply have nothing better to offer the customer than a low price?

Of course, I don't have the answers to those questions. I can share why business leaders continue to feed us discounted merchandise.

The table below illustrates possible outcomes of an e-mail test, comparing a normal e-mail campaign to one where the business offers 20% off all merchandise purchased by the customer.

As you can see, the promotion significantly improves open and click-through rates, causing at least thirty percent more customers to visit the website. In total, two-thirds more sales are generated.

And you need this level of sales increase to offset the discount you give to the customer. In this example, profit is very similar in both groups.

If you are a business leader, you can look good, and drive a huge increase in sales, at the same level of profit. Or, you can maintain your integrity, and fight your way through sales decreases. Either way, profitability could be similar.

Chad's data indicates that most business leaders decide to grow net sales. As a result, they have to offer promotions. When this is done over and over again, year after year, the business attracts a customer file that expects a deal. In essence, the customer is trained to expect something for nothing. Re-wiring customer expectations becomes very, very challenging.

Time for your thoughts. Pretend you are an executive. Are you willing to reduce your e-mail campaign productivity by forty percent, in order to build a long-term customer file that is willing to pay full price for your merchandise?

E-Mail Productivity: Regular Message Verses Off-Price

Regular 20% Off

E-Mail E-Mail

E-Mails Delivered
100,000 100,000
Open Rate
23.0% 28.0%
Click-Through Rate
35.0% 39.0%

Website Visitors
8,050 10,920
Conversion Rate
2.0% 2.6%
Average Order Size
$200.00 $185.00

Total Demand
$32,200 $52,525
Net Sales 85.0% $27,370 $44,646
Gross Margin 45.0% $12,317 $20,091
Less E-Mail Cost $0.003 $300 $300
Less Promo Cost 13.0% $0 $5,804
Less Pick/Pack/Ship 11.0% $3,011 $4,911
Variable Profit
$9,006 $9,076

1 comment:

  1. Actually, I just don't get much sleep. (I wish I had more free time.) Anyway, while I only publish select subject lines in my Subjectivity Scanner, I think your analysis is probably very accurate. If anything, I probably exclude some of the more straightforward percent-off subject lines in favor of more creative ones, so an even higher percentage of emails are banging the price drum.

    -Chad White


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