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?

5 comments:

  1. really interesting stuff Kevin...when I was looking at internet marketing (for a while with an old website of mine)came across many voracious email marketers - one in particular had broken "world records" for marketing reputed to have made $80,000 in a matter of days...Ewen Chia...you've probably had an email from him!
    Interestingly, if you check offers of many email marketers they not only offer discounts but make them "time-sensitive": in other words putting a time limit on the discount...
    I suppose the majority of people like a bargain or should that be a "perceived bargain" and will take action if the discount is limited in some way "only while stocks last" "hurry, sales ends today" "strictly limited to the first 50 customers" etc...
    regards
    Aka H
    www.sitetrackingforum.com

    ReplyDelete
  2. Thanks for the comment!

    ReplyDelete
  3. No experience to pass on, but I think the topic is fascinating and underexplored by the email marketing community. It's relatively "easy" to put discounts in email and "harder" to come up with more sophisticated messages.

    So I wonder how often discounts are a deliberate strategy and how often simply the easiest way to get an email out the door that people respond to.

    MarketingSherpa just published a new case study on one company's email-based membership renewal campaigns. Quote:

    "They ignored the lure of a discount or other promotional freebie. Indeed, incentivizing would have run the risk of devaluing the prestige of professional membership..."

    ReplyDelete
  4. Aka H4:30 AM

    my feeling is that there are different markets/consumer profiles - some would in fact be offended or feel there intelligence had been insulted by discounting - not exactly very classy...if you are looking to buy a Jaguar and feel that aligns with your personal values/image your not exactly going to jump at a "common" brand car just because it is discounted...Might sound a little snobbish but to buy on impulse or to give in to impulsive techniques can be seen as self-degrading or embarrassing and therefore time-sensitive ploys can actually be a turn-off...Does this make sense?...I know advertisers subdivide and pitch for different markets...
    Moreover, cut-throat marketing seems to compete with quality all the time...in my daytime field (building) price does not always determine whether you get the job...customer care also matters! thank goodness for that!
    regards,
    Aka H
    www.sitetrackingforum.com

    ReplyDelete
  5. just visited your blog Mark, looks very interesting...reference to John Donne with a twist love it!
    indeed no man is an iland!
    regards
    Aka H

    ReplyDelete

Note: Only a member of this blog may post a comment.

Gliebers Dresses: We're Not Gonna Do That!

Yes, this is fiction. But you don't have anything better to do today than read something like this ... it's the middle of July fo...