E-Mail Marketing Survey

Why e-retailers are expanding their e-mail marketing

On the surface, e-mail marketing has a lot of strikes against it. There's the controversy over spam and the new regulations against it. There's the widely held belief that legitimate e-mail promotions are lost in a blizzard of illegitimate e-blasting and are therefore less effective than they once were. And a new Internet Retailer survey of e-retailers shows that the overwhelming majority online merchants--71% to be exact--attribute less than 10% of their retail web sales to the e-mail marketing they do.

Nonetheless, that same survey shows that 68% of e-retailers are doing more e-mail marketing this year than the year before and the majority of those surveyed believe e-mail marketing is as or more effective than other forms of web site marketing. The explanation for this dichotomy appears to be found in the fact that e-mail is seen as an extremely effective way of communicating with online shoppers, even if that communication does not result in a sale that can be attributed to an online sale. Furthermore, the low cost of e-mail marketing makes it an extremely "effective" sales generator measured in terms of return on investment, if not in absolute sales.

The survey is the second in a new series of web-based surveys on e-retailing that Internet Retailer is conducting in partnership with Web Surveyor, which provides the web-based survey solution used to conduct the surveys and tally the answers of all respondents. Participation in the e-mail marketing survey was offered in the first week of March to all 32,000 opt-in subscribers of IRNewsLink, Internet Retailer's daily e-mail newsletter. Fully 355 subscribers, or slightly more than 1% of IRN's subscriber base, spent the three minutes necessary to answer the survey's 15 questions and submit them. All individual responses to Internet Retailer's e-retail surveys are strictly confidential and are not distributed; only the summary results are published.

Those responding to the survey on e-mail marketing proportionately represent a broad cross section of the web-based retailing industry--and least on the basis of size--and as such the survey fairly reflects the prevailing attitudes on e-mail marketing held by all online merchants. Slightly more than 13% of respondents operate retail sites with more than $25 million in annual sales, 25% have annual online sales between $4 and $25 million, 17% between $1 and $3 million and the remaining 45% have web sales of under $1 million.

Despite the fact that their promotional e-mails must rise above an ever growing amount of spam to get noticed and despite their belief that e-mail marketing generates a small percentage of their online sales, the majority of those surveyed are stepping up their e-mail marketing this year for two related reasons: their retail web businesses and Internet customer bases are growing and e-mail offers perhaps the best means for communicating with online shoppers. Fully 38% of respondents who are expanding their e-mail marketing say they are doing so in response to the growth of their online retail businesses, and nearly the same percentage attribute their e-mail marketing expansion as an effort to establish a closer relationship with online shoppers.

The commitment to expanding e-mail marketing varies depending on the size of e-retail businesses that respondents oversee. Clearly, larger e-retailers are ramping up their e-mail programs faster than the smaller online merchants. For example, 82% of online merchants with annual web sales in excess of $25 million report they are expanding their e-mail marketing programs this year. That figure drops to about 60% for e-retailers with web sales under $3 million. And the number one reason provided by the bigger e-retailers for expanding e-mail marketing programs is the rapid growth of their retail web operations. By comparison, 46% of merchants with online sales under $1 million say their expansion of e-mail marketing is an effort to stay in closer touch with customers--making that easily the primary reason small e-retailers cite for their expansion of e-mail marketing.

Just as significant as the two main reasons given by e-retailers for the growth of their e-mail marketing programs are the reasons that are rarely cited for e-mail expansion. Only 2% of respondents who are e-mailing more this year give as their reason the desire to get noticed above the spam, and another 2% say they are e-mailing more because they are attempting to overcome declining response rates. And only 9% who are e-mailing more this year say they are doing so because e-mail is more effective than other methods of marketing their retail web sites.

The growth of spam and the legal risks of spamming are affecting those 13% of survey respondents who report that they have cut back their e-mail marketing this year. Among that group, about a third explain their e-mail cutbacks as a response to declining e-mail response rates that they attribute directly to the growth of spamming. And another 24% of those cutting back e-mail marketing this year report doing so out of fears of the legal risks associated with spamming.

Other key findings from the survey include the following:

• E-mail is as or more effective than other forms of marketing retail web sites, but the measure of effectiveness is not necessarily online sales. E-mail appears to be seen by e-retailers as an extremely effective way of maintaining a relationship with their web-based customers. A striking 49% of respondents say e-mail marketing is more effective than other forms of marketing of web sites; only 27% say it's less effective.
• E-Mail marketing is not a significant web sales generator for most e-retailers. The perception of e-retailers that e-mail marketing is highly effective would seem to indicate that their e-mail marketing programs contribute a high percentage of their online sales. Curiously, the respondents to the survey say otherwise. Fully 57% report that e-mail marketing accounts for less than 10% of their online sales, while just under 10% say it accounts for 25% of web sales. By comparison, about one-third of all respondents to last month's Internet Retailer survey on search engine marketing attributed 30% or more of their web sales to SEM.
• Will more e-mailing improve online sales? E-mail's contribution to online sales does increase fairly significantly for e-retailers who mail much more frequently than most. For example, online merchants who blast more than one e-mail a week to their customers attribute more of their sales to e-mail marketing. Fully 56% of this group report that e-mail marketing generates between 10% and 25% of their web-based retail sales. That percentage response declines steadily for e-retailing groups which mail less frequently and drops all the way down to 15% for online merchants which e-mail their customers less than once a month. These results, however, are not compelling enough to contradict the overall perception that e-mailing appears to be more effective in maintaining relationships with customers through communication than it is a direct generator of sales, and they suggest that more frequent e-mail marketing probably will not achieve for e-retailers the sales generation they get from SEM.
• The perceived effectiveness of e-mail marketing may be related to its cost. In addition to e-mail's effectiveness in enhancing customer relationships, another factor may well explain the dichotomy between the high overall effectiveness rating given to e-mail marketing and its perceived low sales generating potential: it's cheap to undertake. E-retailers can spend thousands on SEM, but e-mails can be sent out for next to nothing. In fact, 71% of respondents say they spend less than 10% of the marketing budgets of their e-retail business on e-mail marketing.
• Higher e-mailing frequency is linked to higher response rates. Nearly 45% of respondents report that they send promotional e-mails out at the rate of only one per month or less. Yet, e-retailers who blast promotional messages more frequently than that also report much higher response rates (percentage of e-mail messages that are clicked on by recipients) than less frequent mailers. For example, nearly 40% of e-retailers who send out more than one e-mail promotion per week report response rates of 5% or more. By comparison, only 18% of online merchants who use e-mail marketing less than once a month hit response rates of 5% or higher. However, the most effective e-mailing frequency may be two to three times per month. Exactly half of survey respondents in that group say they experience e-mail response rates of 5% or higher.
• Higher response rates also mean higher conversion rates. E-retailers who mail more frequently and thereby achieve higher response rates also report higher conversion rates (the percentage of opened e-mail promotions that generate a sale). Nearly 75% of respondents who report response rates of less than 1% also report conversion rates of under 2%. Conversely, more than 70% of e-retailers who report response rates in excess of 3% to their e-mail campaigns also report conversion rates of 3% or higher. Thus, while other marketing methods may generate more overall web sales, the key to maximizing the sales potential of e-mail marketing appears to be doing it more frequently.
• l Response rates are increasing, not declining. It might stand to reason that the growth in both legitimate and illegal e-mail marketing is leading to a general deterioration in response rates to e-mail programs. According to respondents to the survey, the opposite is true. Almost 45% of respondents to the survey say the response rates to their e-mail marketing campaigns are climbing; only 16% report a downward trend. The rest say response rates are holding steady. Furthermore, the trend in improving response rates is evident across all e-mail frequency groupings--from the more than weekly to the less than monthly.
• Most e-retailers mail strictly to in-house e-mail lists. The low cost of e-mail marketing is in part the result that e-retailers rarely rent lists from outside brokers or list owners, preferring instead to mail exclusively to the in-house e-mail lists consisting of their own customers. An overwhelming majority (88%) of respondents say they do not use outside lists in the e-mail marketing of their retail web sites, and this percentage did not vary significantly according to the size of the respondent's online business. The renting of lists that takes place in the b2b marketing world appears not to be a factor in the retail e-commerce industry.

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