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.

2 comments:

  1. Anonymous9:07 AM

    Why do I keep hearing about the "nonexistent" costs of email marketing? Granted, the costs can be really, really low, and seem nonexistent in comparison to many other marketing instruments. However, the concept folks, graphic designer, html progammer, sender, ESP, etc. all cost money. If you're continuously testing and improving (as you should be), there's even more time (=money) being invested in the email marketing program. My point? For most companies, if an email program is being done well/right, then you can get to the point where incremental demand is being consumed by the cost of executing campaigns. Sending more messages just because they're "free" can be very costly over time, even before taking into account the value of the customers you drive away with inbox abuse.

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  2. Anonymous --- those costs are called fixed costs. Every company has those costs for every activity they perform.

    Catalog marketers have those costs to produce the pages. PPC/Search marketers have similar costs. Radio and television and newspaper advertising require people to get things done.

    So, all forms of advertising have fixed costs.

    Now let's look at variable costs, the costs associated with putting the marketing out there.

    It costs maybe $0.50 to $0.75 to get a catalog in the hands of a customer.

    It costs under a penny to get an e-mail in the hands of a customer.

    All marketing has fixed costs. On a variable cost basis, e-mail is essentially free. It is a completely different marketing discipline than marketing that costs real money.

    When something costs you a dollar to put in the mail, or $100,000 to get on television, you think very carefully about how you spend the money.

    When the variable cost to deliver an e-mail is under a penny, you don't think hard.

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