September 1, 2006, 12:00 AM

Delivering the (e-)mail

Small investments in e-mail marketing create big returns, reports the latest Internet Retailer survey.

Despite all the time and resources that retailers are pouring into their paid and natural search programs and the efforts they’re making in understanding new alternatives such as social networking, e-mail marketing continues to thrive.

E-mail remains a fundamental and highly productive marketing tool for almost all web retailers. In fact, 73% of chain retailers, catalogers, virtual merchants and consumer brand manufacturers taking part in Internet Retailer’s latest monthly survey-this one on e-mail marketing-spend 5% of their marketing budget or less on e-mail marketing, yet just over half of respondents, 50.6%, report that 6% or more of their sales come from e-mail marketing, with 25% saying the proportion is over 11%.

Growth ahead

Most web merchants participating in the research (57%) have opt-in lists of fewer than 50,000 names, while 24.3% have 51,000 to 400,000 names, 9.1% have 401,000 to 1 million names and 10% have more than 1 million. Virtually all of the merchants taking part in the survey-92.6%-expect to increase their opt-in lists. Retailers also anticipate conducting more frequent, but segmented, e-mail campaigns while controlling expenses and performing most services in-house.

The survey was e-mailed in early August to all subscribers of IRNewsLink, the magazine’s e-newsletter, and almost 400 responses were collected and analyzed by WebSurveyor Corp., which has partnered with Internet Retailer in a series of surveys on the e-retailing industry. The survey reveals that web merchants have very ambitious plans to increase both the size and scope of their e-mail marketing efforts. For instance, 18.4% expect to grow their opt-in lists by more than 50% within the next year, while another 25.1% will increase their lists by 16% to 50%.

Web merchants use e-mail to communicate frequent information updates and product promotions to their best customers-63.8% of retailers conduct up to three e-mail campaigns each month and another 25.2% conduct between four and eight campaigns. 62.8% also indicate that they’ve increased the frequency of e-mail campaigns in the past year.

E-mail marketing has been subject to spam-related problems in recent years. But despite having to deal with the CAN-Spam Act and tougher spam filters, the survey finds that web retailers in general are doing a good job in delivering messages and promotions that matter to their readers and shoppers. That observation is based on the fact that web retailers are reporting strong open and click-through rates, which, in turn, are leading to higher sales.

E-mail marketing consultants consider an open rate of about 20% and a click-through rate of 4% to 5% to be a highly effective e-mail campaign. 26.5% of participants in the survey report open rates of 20% or more (11.2% reported 20% to 25% while 15.3% said more than 25%), while another 11.8% report open rates of 16% to 19%. 14.6% report e-mail open rates of less than 5%, with only 6.2% with open rates of 1% or less.

Along with relatively high e-mail open rates, click-through averages are growing. 17% report e-mail click-through rates of 16% or more, while 28.9% report click-through rates of 6% to 15%.

Retailers devote substantial time and resources to developing e-mail marketing programs that generate higher sales and more conversions. Overall 20.2% of companies in the survey report e-mail sales conversion rates of 1% to 2%, compared with 26.5% with conversion averages of between 2.1% and 4%, 14% with conversion rates of between 4.1% and 10%, and 3.2% with sales conversion averages greater than 10%.

Conversion rates up

Sales conversation rates generated by e-mail marketing are also substantially higher than a year ago. For example, 28.3% report no change in their overall e-mail sales conversion rates. But 20.6% also indicate that sales conversions as a direct result of better e-mail marketing have improved by up to 5% in the past 12 months, with 7.2% reporting conversion increases of more than 10%.

In spite of the great measurability of e-mail marketing’s effectiveness and the focus on metrics, nearly one-fifth of respondents reported that they do not know how their e-mail marketing performs. 18.7% don’t know their open rates, 16.7% don’t know their click-through rates and 23.3% don’t know their conversion rates. And 29.6% don’t know if their conversion rate has changed in the past year.

E-mail marketing is seen by most web retailers as an internal operation that can be managed without outside help-55.9% of web retailers do not use a third-party e-mail service provider. Most online merchants also operate their e-mail marketing programs with minimal staff. 46% of companies dedicate only one part-time employee to coordinate and manage their e-mail marketing programs, compared with 29.7% with one full-time employee and 21.9% with 2 to 5 employees. 76.5% of retailers also have no plans to add to their e-mail marketing staffs in the next 12 months.

But even with limited staff, most web retailers are getting better campaign results and more sales as a direct result of doing better list management and using campaign analysis tools and web analytics to segment buyers. The Internet Retailer survey shows that the days of shotgun and random e-mail blast marketing are ending-at least for the web merchants who think of e-mail marketing as a sophisticated sales tool and as an excellent means to personalize a customer relationship. Today, the survey shows that 54.7% of web merchants segment their e-mail marketing lists and break down their opt-in names in various demographic categories.

Retailers can segment a customer base using demographics and geographic locations or they can use customer behavior and information gleaned from their web sites, stores or catalog operations. The goal of using segmented e-mail lists is to better understand buyer behavior and make each promotion or e-newsletter more relevant and personalized for each recipient.

49.1% of online retailers in the Internet Retailer survey segment their lists by repeat buyers and another 42.1% segment first-time buyers. 33% segment their lists by purchase frequency, followed by 19% that segment recipients by average ticket, 14.7% by age, 12.9% by sex and 12.3% by household income. 78% also list “other,” indicating that there are many ways to break down a customer file.

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