E-Mail Marketing Grows Up

Back in the late 1990s, high-flying Internet retailers anointed e-mail as a can’t-miss marketing tool. Far cheaper than direct mail or telemarketing, e-mail also provided marketers with the ability and agility to monitor response rates daily. They then used that information to fine tune offers on a moment’s notice to increase response rates further. Even more enticing was that retailers were able to compile highly targeted mailing lists from consumers visiting their web sites.

Seeing nothing but upside, Internet retailers pumped out e-mail marketing messages at a furious pace. Marketers sent 51 billion e-mail messages in 2001, according to the Winterberry Group. Those messages will grow to 240 billion in 2005. Along the way, marketers’ spending on e-mail services will more than double from $910 million in 2001 to $1.88 billion this year, then nearly double again to $3.52 billion in 2005, Winterberry projects.

Books, clothing, home furnishings, pet supplies—if it was being sold on the Internet, it was being pitched through e-mail. And the hype of e-mail and its low cost led many to ignore the merchandising and brand-building principles that are critical to marketing success. “Two years ago, they were just sending e-mail with not much thought,” says Scott C. Knoll, vice president and general manager, marketer solutions for New York-based DoubleClick Inc.

An example: a man who sought information about pants might have gotten bombarded with offers for women’s or children’s pants, in addition to promos for other merchandise on a site. This carpet bombing strategy not only annoyed consumers, but also degraded the retailer’s brand. Soon e-mail marketing messages had the stigma of spam, Internet parlance for junk, whether an individual piece deserved the label or not. Response rates and sales suffered accordingly.

More discipline

Three years later, Internet retailers have adopted a more disciplined approach to e-mail marketing. It’s still cheaper than other forms of direct marketing. But it’s not free and so smart retailers who want to survive are investing their marketing resources more wisely, analysts say. Many are using e-mail efforts to trumpet deals not just online but in their stores as well. And they’ve learned that there’s no voodoo to e-mail marketing; e-mail campaigns succeed for the same reasons that other marketing campaigns succeed—the right offer in the right language to the right prospects. “Better personalization and more customized messages are helping to boost response and click-through rates,” Knoll says. “Marketers are definitely becoming more sophisticated.”

After losing altitude throughout most of 2001 and early 2002, click-through rates for permission based e-mail rebounded during the third quarter of 2002. Total click-through rates averaged 6.1% for the period, up from 4.8% in the second quarter of 2002 and equal to the rate a year earlier, according to the latest figures from DoubleClick (see table). Open rates stayed flat during the third quarter at 37.3%.

Q3’s 6.1% rate and DoubleClick’s historical open rates are based on an unweighted average of all e-mail marketing messages. Late last year, DoubleClick began weighting the average to take into account that some marketers send 2 million messages and others send 20,000 and so can have vastly different click-through rates. On a weighted basis, the click-through rate was 8.5% in Q3, up from 7.5% in Q2.

DoubleClick also measures industry-specific click-through rates on a weighted basis. By that comparison, retailers’ e-mail messages lagged. Click-through rates for retail e-mail marketing reached 6.9%—a 13% improvement from 6.1% in Q2, but still below the average click-through rate. Consumer publications achieved the highest rate at 11.3%. Consumer products and services ranked second at 10%, followed by travel at 8.3%. Each category with the exception of travel posted an increase. Retailers can expect three purchases per thousand e-mails with an average order size of $101.55, according to DoubleClick. Costs can be as little as $5 per 1,000 messages. Retailers spend about $2 per direct mail piece and $8 for a catalog.

Not for new customers

Much of the problem in the lagging click-throughs is due to the glut of unsolicited mail. “There is a lot of e-mail sent from permission-based lists that is unsolicited,” says Adam Sarner, a CRM analyst, for Stamford, Conn.-based researchers Gartner Inc. “If retailers are more willing to make a mistake than to control frequency and content, they will never rise above the noise.”

So loud is the din from unsolicited mail that the medium has been rendered practically useless for acquiring customers. “E-mail campaigns to acquire new customers have pretty much been a disaster for us,” laments Richard Libby, chief marketing officer for Geerlings & Wade Inc., a Canton, Mass.-based retailer of fine wines. “We have found that if there is not an active affiliation with our brand, the mail is unlikely to get opened. We have had more success soliciting new accounts through offline marketing efforts.” Geerlings & Wade generates 10% to 15% of revenues from e-mail campaigns targeted at existing customers.

Another retailer, who wishes to remain anonymous, will not use e-mail marketing at all, fearing that some consumers’ negative perceptions about e-mail marketing will tarnish its brand. “E-mail is not a good tool for acquiring new customers,” Sarner says. “Consumers consider e-mail to be of a more personal nature. It’s not like seeing an ad on T.V. or a billboard that is aimed at attracting new customers.”

Further complicating matters for e-mail marketers are the growing popularity of software that filters out suspected junk mail before it reaches a consumer’s mailbox and the clamping of size limits on e-mail boxes.

Changing the subject

Consumers like e-mail filters, which deposit messages into a dead file based on key words in a subject line. Such e-mail filters are fast becoming a staple of Internet service providers. “ISPs are also getting more sophisticated in parsing out e-mail they suspect to be spam,” says Peter Cobb, vice president of marketing for Greenwood Colo.-based eBags.com.

One of the ways eBags, which has a list of more than 1.2 million customer-provided e-mail addresses, is attempting to get past e-mail filters is by developing new call-to-action phrases for subject lines. Phrases such as “Savings You’ll Love” and “Good News You Can Use” are replacing such stalwarts as “Order Now” and “Receive Free Shipping.” Those phrases contain words that activate e-mail filters. The company is also avoiding the use of exclamation points and dollars signs, two more trigger points for e-mail filters.

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In addition, ISPs are imposing smaller mail boxes on customers to avoid adding storage capacity and those limits are increasing e-mail bounce-back rates.

Bounce-back rates hit 12.6% during the second quarter of 2002, the highest level since DoubleClick began tracking the data in 2001. While the rate declined to 11.2% the following quarter, industry experts don’t expect continued relief.

But even the most enticing subject line in a permission-based e-mail means little to consumers if it comes from a source they do not respect. Analysts recommend that retailers earn respect by controlling the frequency of their mailings. “The subject pertains to the relevance of the offer, but people aren’t going to open e-mail that comes from a source that blasts them with messages, no matter how relevant the offer,” says John Rizzi, president and CEO of e-Dialog, a Lexington, Mass.-based e-mail marketing firm. “You want to send relevant messages at a frequency at which the customer wants to hear from you.”

Determining that frequency is simple, he says: Just ask and then ask again down the road in case preferences change. “We ask customers for their preferences all the time,” Rizzi says. “The hard part is segmenting your list to manage the splits in frequency requested by the individual. It requires a real commitment.”

Another way in which retailers’ e-mail marketing is becoming more sophisticated is in driving customers to make offline purchases. Retailers are discovering that customers don’t necessarily prefer to buy online in response to an e-mail promotion. In fact, that is the major use to which some retailers put e-mail marketing. “The main purpose of our e-mail marketing is to drive more people into the stores,” says Steve Lambert, manager of e-commerce for The Men’s Wearhouse Inc. “We offer a limited selection on the web site and we really want people to go to the stores to see everything we carry.”

Tracking conversions

The Men’s Wearhouse just began e-mail marketing and has not tracked effectiveness yet. But housewares retailer Crate & Barrel experienced a 50% jump in sales last summer during the week it sent an e-mail promoting a multi-week furniture sale at retail outlets, according to DoubleClick, which coordinated the e-mail campaign. DoubleClick argues for the effectiveness of e-mail by noting that sales were not as robust the weeks before and after the e-mail effort, when the company used offline media to promote the event.

Crate & Barrel was able to track the lift through a bar coded coupon embedded in the e-mail, which could be printed for use at the store. E-mails were sent only to customers in ZIP codes near Crate & Barrel stores. The messages also included a link to a page within the retailer’s web site that previewed the merchandise on sale.

“E-mail coupons are good marketing devices, but their effectiveness really depends on the ease of access to a store,” Gartner’s Sarner says. “But accurately tracking the conversion rate is tough.”

E-mail and catalogs

Without a coupon or like tracking device, retailers must capture the name of a customer making an offline purchase to verify that the customer received an e-mail. Cross referencing the name of a customer who pays by credit card and check to the e-mail marketing list is a non-intrusive solution, analysts say. Cash customers can be asked whether they are responding to a specific promotion at the time of purchase, but they don’t always give an accurate response or sales agents may forget to ask.

In an interesting twist on using e-mail to promote shopping in another channel, eBags launched a catalog in November and tested e-mail marketing as a way to drive catalog sales. One portion of its target audience received only the catalog while another received both the catalog and an e-mail promoting the catalog. A third control group received only a general eBags promotional e-mail. While he won’t reveal details, Cobb says: “The e-mail-plus-catalog strategy does very well.”

In this case, eBags was able to measure the effectiveness of the two channels working together. But that is not always the case. “We use e-mail in conjunction with direct mail and catalogs, so it’s hard to correctly track which marketing channel prompted the sale,” says Geerlings & Wade’s Libby. “A lot of times, it’s a combination of messages and the mood of the customer when a message is received that determine the sales channel.”

As an example of how fuzzy the lines can become, Geerlings & Wade uses e-mail to promote an upcoming catalog but then also to promote wines that have been added to its offerings after the catalog was printed.

Just as retailers are becoming more channel agnostic about whether customers buy online or offline, they are also becoming more open to using a combination of online and offline marketing. “E-mail is part of the marketing mix, not the ultimate customer communications experience,” says Cobb. After years of spinning their wheels with e-mail marketing, Internet retailers are getting that message.

Peter Lucas is a Chicago-based freelance business journalist.