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?

Speaking of Omnichannel Theory

Have you ever purchased something from Apple? Apple are Visual Merchandising experts. You might buy a lightning cable and you instead...