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Phenomenally successful eBay is changing the face of retailing. Now it faces management challenges if it is to continue its success.
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.
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.