July 30, 2007

E-Mail Marketing Investment

An executive recently spoke the paraphrased sentence below, when talking about his e-mail marketing program.

"We measure the living daylights out of e-mail. But at the end of the day, it really doesn't move the needle a whole lot. All of our e-mail subscribers were prior catalog buyers, so incrementally, there's very little value to e-mail."

On the surface, it is easy to see how an executive can come to this conclusion.

Results from an e-mail campaign might look like this:
  • Open Rate = 22%.
  • Click-Through Rate = 31%.
  • Online Conversion Rate = 3.4%.
  • Average Order Size = $110.
  • Sales Per E-Mail = 0.22 * 0.31 * 0.034 * 110 = $0.255.
There are two numbers in this series of metrics that cause an executive to believe that e-mail doesn't "move the needle". One is hidden, one is obvious.
  • Hidden Number = Actual percentage of customers who purchase because the e-mail was sent to them.
    • Open Rate * Click-Through Rate * Conversion Rate
    • 0.22 * 0.31 * 0.034 = 0.002319.
    • 1 in 431 customers who received the e-mail purchased something.
  • Obvious Number = $0.255 per e-mail.
The hidden number is the most disappointing aspect of e-mail marketing. To think that, in this case, only one out of every 431 customers thought the e-mail was compelling enough to purchase something is a genuine failure of direct marketing.

Of course, e-mail marketing has different dynamics than other forms of marketing. Good marketers actively build a large list of e-mail addresses to market to.

If you are like some major multichannel retailers, and you have 3,000,000 e-mail addresses, you aren't disappointed in a $0.255 sales rate per e-mail. Why? Because $0.255 * 3,000,000 * 52 e-mail campaigns per year = $40,000,000 of annual sales volume.

Better yet, there is very little incremental cost associated with sending one additional e-mail. One might have to spend $8,000,000 mailing catalogs to generate $40,000,000 sales volume. One might only spend $400,000 to generate $40,000,000 volume via e-mail.

There is another important way to look at the value e-mail campaigns bring to an organization.

Let's assume that 1 in 431 customers respond to an e-mail, and let's assume that a brand sends 52 e-mail campaigns per year ... one per week. What percentage of e-mail subscribers will repurchase, annually, because of e-mail?
  • 1 - (1 - (1/431))^52 = 11%.
In other words, over the course of the year, 11% of the customers in a segment where only 1 in 431 respond to an average e-mail will purchase "because they received e-mail campaigns".

This becomes important, because the average online retailer has an annual repurchase rate that varies between 25% and 65%, usually leaning toward the lower half of that range.

If your testing shows that e-mail does not cannibalize organic orders or catalog orders or paid/natural search orders or store-driven orders, then the 11% figure is big.

(Added 7/30/2007 ... 12:53pm: It is also very likely that, of the 11% of the list purchasing via e-mail, that the vast majority of the responses are coming from a small subset of the 11% --- it is important to analyze these folks separately, as they are your e-mail evangelists).

Direct marketing is no longer the quaint world that Sears and Montgomery Ward and J.C. Penney and Spiegel and others crafted through the 1970s, that Lands' End and L.L. Bean were lauded for in the 1980s and early 1990s.

These days, direct marketing success is the sum of thousands of small efforts. Some efforts have bigger rewards (catalog). Some efforts have small individual rewards (e-mail) that add up to a reasonable amount of volume.

While we all realize we have to invest in e-mail, how we invest in e-mail is likely to change over the next decade.

Transaction-based e-mails based on a common template, offering the customer a percent off or free shipping, with tabs across the top outlining various merchandise departments are the norm in 2007. All of our efforts at implementing "best practices" yielded a glut of e-mail campaigns that look similar, with similar offers. Long-term, this will cause response rates to further erode.

Long-term, the e-mail campaign will have to offer the customer more than discounted merchandise already available via catalog marketing or online marketing or store marketing.

Long-term, the investment in e-mail marketing has to be in creativity. We have to be able to communicate why our brand matters. We have to tell stories. The customer doesn't need to learn that fall merchandise is available at a discount --- everybody has fall merchandise available at a discount. The customer wants to know why she should have a relationship with the brand sending the e-mail campaign.

Think about it ... when is the last time Microsoft Outlook "dinged", signaling that an e-mail arrived, and you looked to see who sent it, and said to yourself "Oh yeah, it is an e-mail from Ann Taylor, I can't wait to read it!"

The investment in e-mail has to change over the next decade ... from an investment in targeting and messaging and # of contacts to one of creativity and storytelling and engagement.


  1. I agree that creativity is the key to delivering more ROI for your email campaign. Specifically, I feel that creativity needs to come from the one feature of email marketing that direct mail or even bricks and mortar retail cannot match: Speed to market. Having come from a world of writing emails for leisure travel SBUs (in a prior life, as they say) I can tell you that the "hotter" the offer, the better. Tell readers why something is time sensitive and provide deadlines for responding if you want to see your impact on overall sales grow.

    In other words, the stories your email tells can be ones of both brand building (how we came to select these offerings and why we placed such a sizable order) and business building (and now, why we need to make room for other merchandise, so please respond now before we sell out).

  2. Yup, we do need to do something different with e-mail to capture "mindshare".


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