December 06, 2018

Email Marketing and Discounts

It comes up over and over again.

The email marketing team wants to maximize open rates (not profit, mind you, open rates). How does one do that? Great merchandise? Well, sometimes. More often, of course, is that the marketing team will apply discounts / promotions - or will be directed by Management / Merchandising to apply discounts / promotions.

Soon thereafter, the process is institutionalized - an in-house best practice. Worse, customers learn that the process is institutionalized.

Here are some results from a recent project, featuring the preferred historical channel used by customers - measuring how much demand will be tied to a discount in the next year:
  • 23% = Print / Catalogs.
  • 30% = Online / All Other.
  • 46% = Email Marketing.
  • 26% = Search.
  • 33% = Online Customer Assistance.
Look at customers who spend the majority of their money via email marketing ... their rate of discounting next year is at 46% - compare that to print . catalogs, which are at 23%.

Say your average discount is 30%. Say your cost of goods is 40%.


Gross Margin Dollars via Print / Catalogs per $100:
  • Full Price = $100 - $100*0.40 = $60.00.
  • Discounting at 30% off = $70 - $100*0.40 = $30.00.
  • Weighted Average = 0.77*$60 + 0.23*$30 = $53.10.

Gross Margin Dollars via Email per $100.
  • Full Price = $100 - $100*0.40 = $60.00.
  • Discounting at 30% off = $70 - $100*0.40 = $30.00.
  • Weighted Average = 0.54*$60 + 0.46*$30 = $46.20.

Gross Margin Dollars via All Other Online Activity per $100.
  • Full Price = $100 - $100*0.40 = $60.00.
  • Discounting at 30% off = $70 - $100*0.40 = $30.00.
  • Weighted Average = 0.70*$60 + 0.30*$30 = $51.00.

In this case, you lose $6.90 for every $100 in email demand (vs. print/catalog demand). You lose $4.80 for every $100 in all other online activities.

If you give the email subscriber your best discounts/promotions, don't be surprised if the customer becomes trained to use email marketing ... not because it is a good channel ... but because that's where the discounts / promotions are found. Now you've got to work 7% harder just to get back to break-even.


P.S.:  Here's an example of a marketing team running a promotion and causing problems (click here). I've made huge mistakes in my career, so everybody is going to have problems from time to time. One of the challenges I'm seeing in 2018 is the inability of a generation of Digital Leaders to think three steps ahead in the offline world. It'll get fixed, often via bad experiences.

Email Marketing and Discounts

It comes up over and over again. The email marketing team wants to maximize open rates (not profit, mind you, open rates). How does one...