Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
Talk is cheap, but e-mail may be cheaper. At just pennies per message, e-retailers can tout their products whenever they want. The danger is that they’ll want to tout all the time. In fact, the temptation to overload customers is so great that the founder of one the Web’s largest e-mail marketing firms routinely tells his clients: “Ask not what you can say to your customers but what your customers want to hear from you.”
“It’s a mentality most marketers don’t bring to the table,” maintains Hans Peter Brondmo, chairman of Post Communications, San Francisco. “If you e-mail less frequently, but with a higher level of relevancy, you will rise above the clutter. If not, you become part of the clutter.”
E-mail is already at avalanche proportions. Jupiter Communications, New York, estimates that 335 million messages traveled the Web every day last year. That works out to be 1,315 messages per user for the year. By 2002, Jupiter puts the volume at 576 million daily messages-or 1,604 per recipient per year. Forrester Research Inc. pegs the number higher, estimating that online marketers will send more than 200 billion e-mails by 2004. Today’s e-mail tally already outnumbers snail mail. The U.S. Postal Service says it delivers an average of 24 pieces of mail per household every week, giving each home 1,248 pieces annually.
And it could get worse for consumers. Nearly all online retailers use some type of e-mail program, with many devoting 10% or more of their marketing budgets to e-mail marketing. According to Forrester, e-retailers plan to triple e-mail spending by 2004, flooding more than $3.2 billion into outsourced companies.
Like physical mailboxes clogged with sweepstakes, one-time offers and envelopes disguised to look “urgent,” e-mail risks losing its edge under the weight of so much clutter. At the end of 1998, according to Jupiter, about one-third of consumers ignored e-mail messages from unfamiliar parties. Laws governing unrequested solicitations have restrained all but the most unscrupulous spammers, which is why Web merchants typically send e-mail only to registered customers who have opted to receive newsletters and special promotions. But Jupiter analyst Michelle Slack says even requested messages can become too much. “Two times a month and no more than once per week is acceptable,” she adds. “Keep it relevant, and see whether customers are taking advantage of your offers.”
PlanetRx is doing just that, breaking its customer base into a series of special interest clubs that focus on relevancy. Vitamin club members, for instance, receive e-mails containing special offers for nutritional supplements and related products, along with news and community events targeted at customers with an interest in vitamins.
The online drug store’s segmented approach grew out of an e-mail program begun more than two years ago for registered customers. The messages combine product promotions with news, health tips and announcements regarding discussion groups and special events.
PlanetRx creates and designs its
e-mails in house. Its service provider, Digital Impact, does the rest, sending the messages to the right customer segments, tracking how many are opened, following click-through rates, and issuing reports on actual transactions that result.
“When we send out an e-mail, we can directly attribute how much traffic and sales correlate to it,” says Jay O’Connor, former vice president of marketing for PlanetRx, South San Francisco, Calif. “Tracking codes tell us how many orders were generated. What we can’t do is track whether people are actually reading the messages they open.”
However, persistence brings results. Though O’Connor would not reveal specifics, he acknowledges that a sizable percentage of customers registered at PlanetRx have never purchased anything. With each wave of e-mail, the number of first-time buyers edges up. “It’s not any single e-mail that makes or breaks the relationship,” he says. “It’s the ongoing effect on consumer behavior, purchases and satisfaction. Even if customers aren’t purchasing anything, the fact that they are visiting the site and reading e-mails says they are still good prospects.”
Cheaper than direct mail
A good prospect is worth nurturing. Brondmo estimates that e-retailers spend $40 to $100 to acquire each new customer. E-mails designed to keep them coming back generally tack on 1 cent to 25 cents per message, including delivery and program management features. By contrast, direct mail can cost $1 to $2 per piece, once you factor in production costs and postage.
Industry experts also confirm that e-mail response rates out-perform direct mail, generally falling between 5 and 15%, versus 1% average with direct mail. In addition, 80% of e-mail responses come within two days after they’re sent, while direct mail replies often trickle in over the course of six to eight weeks .
Post Communications charges its customers by the account-not per e-mail-using a formula that varies with the size of the list, the program’s design and format, whether e-mails are sent in HTML or plain text format, and how replies are tracked. Monthly fees run from $5,000 to $100,000, says Brondmo. On top of that, clients pay a one-time setup fee that ranges from $5,000 to $250,000 for designing the program and building the database.
But measuring the success of these investments in e-mail isn’t always clear cut. “Response rates and success rates are based on different metrics,” says Anne Marie Burgoyne, director of client services at Digital Impact, San Mateo, Calif. “It’s not just about whether people bought what was in the e-mail, but whether the e-mail was a good vehicle to the site. As much as anything, e-mail is about branding.”
Maybe that’s why apparel retailer, Landsend.com doesn’t track e-mail response rates at all and doesn’t intend to start. “Customers will tell us if they like something or not,” says Jeremy Hauser, a research analyst at the Dodgeville, Wis., com-pany. “From there, we determine how we should format future messages.”