An Open Letter To E-Mail Marketers: Shopping Cart Abandoment E-Mail Campaigns

There appears to be some criticism about my view of shopping cart abandonment e-mail marketing programs.

So my fellow e-mail marketers, the vast majority of which act in an honest manner, marketing opt-in campaigns with integrity, let's consider the following:

Let's pretend that 100 customers abandon a shopping cart on Monday. On Tuesday, you send a targeted e-mail campaign, and you observe the following statistics:

• 30 customers click-through the e-mail campaign, 50% of those individuals buy something, meaning that 15% of the customers purchased because of the campaign.

So these are good numbers, right?! I mean, who in their right mind would ever complain about an e-mail campaign that delivers a 15% response rate?

One of the challenges of e-mail marketing is that e-mail marketers like you and I are used to measuring "positives". We are driven to measure positive outcomes. Our metrics are calibrated to highlight anything we do that is good.

But what about the 85% that did not purchase? What if we angered 25 of the 85 customers, and they don't ever come back and buy from us again, because of our marketing program? Are we measuring this important KPI? Probably not ... because it is truly hard to measure negatives, isn't it?

There are three things we can to do prove that shopping cart abandonment e-mail campaigns are good for us, and good for the customer.

1. Execute e-mail campaign mail/holdout groups. If 15 of 100 customers purchase in the shopping cart abandonment e-mail campaign, and 11 of 100 customers purchase in the holdout group, then we got an incremental 4 customers to purchase. 4 is still better than 0, right? But we do need to measure the incrementality of our marketing activities, don't we? We cannot take credit for orders that would have happened anyway.
   
2. Follow the mail/holdout group for a year. See if, at the end of twelve months (or even three months), the group that received these type of marketing campaigns spent any additional money. If so, good, it means that as a whole, the campaigns are working. But what if the groups have equal performance, when measured over the long-term? If this happens, then we are simply shifting demand, we're not actually creating demand.
3. Quickly identify customers who do not interact with these campaigns, and create a field in your database, so that we don't necessarily send these campaigns to that audience.

If any marketing campaign works, e-mail or otherwise, then we'll observe an improvement in at least one of the following metrics/KPIs:

• An increase in the annual customer retention rate, maybe from 44% to say 47%.
  
• An increase in the annual customer reactivation rate, maybe from 13% to say 15%.
  
• An increase in orders per retained/reactivated customer, from 2.25 to 2.35 as an example, measured annually.
  
• An increase in average order value, from $125 to maybe $132, measured annually.
  
• An increase in new customers, measured on an annual basis.
  
• An increase in customer profitability, measured on an annual basis.
  

As an e-mail marketing community, we need to demonstrate to others that shopping cart abandonment e-mail marketing programs increase one or all six of the metrics I just listed, while not angering other customers. Given the tools listed in this blog post, that's not hard to do, is it?

And guess what? The long-term testing is just as likely to prove that the value of this marketing program is more than what is illustrated by traditional metrics as it is likely to prove that the value is less. When you convert a customer to a purchase, their future value is significantly increased --- so the testing may show that this style of marketing is essential.

Let's have a balanced perspective ... marketing works positively for some, works negatively for others. The sum of the two can be measured via testing. This is what I'm advocating in the article --- summing the positive, negative, and incremental outcomes. To only focus on half of the metric set is misleading.

We can do this kind of testing!

Role Of A Channel: E-Mail

Your Channel Advisor creates a profile of each channel, determining the role each channel plays in your business. Let's look at an easy marketing channel like e-mail.

• Does The Channel Scale? The answer, undoubtedly, is no. For most businesses I work with, e-mail comprises somewhere between 2% and 10% of total annual sales ... usually closer to 2% than to 10%. You could really do a spectacular job of e-mail marketing, and you might increase sales a few percentage points. So this isn't going to be a channel that carries the freight. E-mail is a support channel, an important role, but a role of support.

• Does the channel do a good job of acquiring new customers? In most cases, the answer is no. The number of new customers from e-mail, on an annual basis, are generally under five percent of the total number of new customers ... and for many businesses, under two or three percent. This tells you that e-mail isn't a channel that you use to start new relationships (though it certainly could be if the right formula is discovered), and is probably not a channel you'd launch new businesses or product lines with. Your mileage may vary.
  

• Does the channel aid in profitable customer retention? Yes and no. E-mail doesn't dramatically move the annual customer retention metric --- without an e-mail marketing program, the retention rate might be 40%, with a program, maybe 44%. However, the channel has essentially no variable cost, so all the sales (if the channel isn't a discount/promo/free-shipping channel) flow through to profit at a high rate.

• Does the channel aid in customer service? Maybe a little bit, though certainly not in the way that folks use social media to solve consumer complaints. Because e-mail isn't a "human" channel, it fails many of the customer service tests that retail and call centers pass.
  

• Does the channel feed other channels? Yes, and other channels feed e-mail. Many businesses acquire e-mail addresses through their catalog channel and through their retail channel. So e-mail is utterly dependent upon those two channels for survival. However, e-mail feeds other channels. Retailers know that half of their e-mail generated sales happen in stores, so that's a big deal. And e-mail fuels paid search --- you send an e-mail marketing campaign to a customer, and the customer goes to Google to do some research. Google loves e-mail marketing! Finally, most catalogers know that up to half of their e-mail orders come from a customer who received a catalog in the past "x" days, so e-mail can feed the catalog channel. E-mail makes your online marketing executive look good! As a result, e-mail is an important link in the "channel chain".

• Does e-mail marketing generate profit? Oh yes! With essentially zero variable cost (don't give me that argument about the need to hire people to execute e-mail, all marketing channels have to hire people to get the work done), e-mail flows-through to profit at the best possible rate. I know of catalogers who break even on nearly all activities --- making all of their profit from e-mail marketing, even though e-mail marketing only represents ten percent of total annual sales.
  

• Does e-mail marketing educate customers? Yes again! In fact, if we're not using e-mail to educate customers, we're failing. E-mail marketing is maybe the most inexpensive way to teach customers about us. In many ways, we ruin e-mail marketing by trying to "sell" all of the time --- using our open rate and click through rate and conversion rate metrics to go to the lowest common denominator of free shipping and %-off promotions.

• What is the exit strategy for e-mail marketing? Oh, this is a delicious question. Under what circumstances would you shut down your e-mail marketing program? If I asked 100 of you this question, I doubt more than 5 would say that e-mail marketing should be shut down, ever But please, be realistic. If your e-mail list was declining by fifteen percent a year, would you consider shutting the channel down? If productivity fell to $0.05 per e-mail (as many of you tell me is happening), would you just stop wasting time and give up, allocating resources elsewhere?
  

• What is your R&D strategy for e-mail marketing? This isn't as simple a question as "we're testing subject lines". Do you have an R&D strategy that includes completely ending your current version of "creative", scrapping it for something so new and different that you'd frighten your e-mail marketing manager? How about the 80% of e-mail subscribers who don't click on anything ever --- why keep doing the same thing over and over and over and over 104 times a year, might this represent an R&D opportunity --- you're certainly not risking any sales here?! Anyhow, every Channel Advisor has an R&D strategy for e-mail marketing, whether the e-mail marketing manager wants to honor it or not.

• Does e-mail marketing lend itself to in-house expertise or vendor expertise? Oh boy. OH BOY! The answer is yes. Your in-house staff know how to work with merchants, they know how to work with that pesky inventory manager who wants to keep dumping overstocked goods in a third-weekly e-mail campaign. Your in-house staff knows that the CFO is demanding a 5% sales increase NOW and therefore you have no choice but to add the third weekly e-mail campaign that the inventory manager is waiting to pounce on. But wait! Your vendor knows the best targeting algorithms. Your vendor knows more about getting the e-mail in the inbox than anybody. Your vendor knows the right days of the week to send e-mails, and knows how many is "too many". Your vendor might hurt sales by asking you to reduce frequency or to trim your e-mail marketing list. So you're best off going with both in-house and vendor expertise, in my opinion.

So what is the role of e-mail marketing? It appears that e-mail marketing is a support channel, one that marginally improves customer retention, fails to attract scalable amounts of new customers, and contributes a minority of sales that are usually very, VERY profitable. This channel educates customers, it interacts with catalog marketing and paid search, and it generates sales in other channels without directly getting credit for the sales. E-mail easily lends itself to significant R&D efforts with minimal impact on top-line sales.

Now, given this profile, how would you, the newly appointed Channel Advisor of your company, propose using e-mail marketing? How would you educate each and every employee in your company about the important (but support-level) role that e-mail marketing plays?

Your E-Mail And Catalog Contact Strategy, And Profit

If you read the multichannel marketing literature, you're unlikely to find any discussion about how marketing channels truly interact with each other.

And that's a shame, because the interactions are where all of the magic happens!

Folks who test different combinations of catalog mailings and e-mail campaigns observe interesting results.

Take a look at the table in this post. Seven different combinations of catalog mailings were tested against five different combinations of e-mail campaigns, yielding thirty-five different test groups.

What do the results tell us?

• The organic percentage can be directly calculated ... the $20.00 generated at 0 catalogs / 0 e-mails divided by the $99.00 generated at 24 catalogs / 52 e-mail campaigns. The organic percentage is 20.2%. This is soooooooooo important!! If this company does nothing, customers will still spend 20.2% of the volume they spend if all direct marketing activities are executed. For most catalogers and e-mail marketers, results are over-stated, because organic demand is being falsely attributed to marketing activities. Ask your co-op or database provider to calculate the organic percentage for you, or ask your database marketing expert to calculate this metric for you.
  

• Notice that demand does not increase in a linear manner. Each additional catalog, and each additional e-mail campaign yield an ever-decreasing amount of additional demand. This rate of diminishing returns is not well known in the direct marketing community, and causes direct marketers to significantly over-invest in marketing.

• Notice that e-mail is able to re-capture demand that is lost as catalog mailings are reduced. This "re-capture" is not well known in the direct marketing community, and causes direct marketers to significantly over-invest in catalog marketing.

• E-Mail marketing is actually very productive at small quantities ... thirteen contacts are much more productive, on a per-e-mail basis, than are fifty-two contacts.
  

• As catalogs and e-mail campaigns are increased, profit begins to shift. Notice that the most profitable combination is 12 catalogs and 52 e-mail campaigns. However, if you only delivered 26 e-mail campaigns, you need 16 catalogs to maximize profit, and if you don't execute e-mail marketing, you need 20 catalogs to maximize profitability.

• "Profit Shift" is a very important concept. As more and more "free" or "nearly free" marketing channels become available, the profitability of traditional, expensive marketing channels (like catalog marketing) becomes worse, requiring less investment in traditional, expensive marketing.

When e-mail marketing and catalog marketing collide, a rich array of insights become immediately apparent. All you have to do is set up tests to identify the insights!

E-Mail Marketing Gone Wild

If you don't subscribe to Chad White's Retail E-Mail Blog, you have an opportunity to learn more about e-mail marketing. Where else are you going to find out what the popular retailers are doing with their e-mail marketing programs?

During the past two weeks, I looked through his "subjectivity scanner", trying to calculate the percentage of e-mail subject lines that focus on price/discounts/sales/free-shipping/promotions. Here's what I found:

• 61% of the e-mail marketing messages focused on price, discounts, sale, free shipping, bogos, or promotions.
• 39% focused on merchandise, disproportionately skewed to L.L. Bean, Lands' End, and Williams Sonoma.

Folks, how do we ever expect our customers to take us seriously, when six in ten messages tell the customer NOT to pay full price? We get upset that Wall St. drank the easy money kool-aid, now take a look at our own behavior?

E-mail marketing is fundamentally broken. We are poisoning our customer files, teaching customers to never pay full price anywhere. Why should a customer pay full price from the catalog when they can wait for the perfect promotion from an e-mail campaign?

Merchants should be taking us to the woodshed for a good 'ole fashioned paddlin'. We're poisoning their products with our endless quest for inflated open rates, click-through rates, and conversion rates. Heck, why don't we simply offer the merchandise for free???!!!! That would drive the metrics in the right direction, wouldn't it?

Until we, as an industry, stop trying to get an easy buck all in the name of best practices and inflated metrics, we won't be viewed by peers or customers as offering a respected marketing channel.

E-Mail Marketing: Fixed And Variable Costs, And Why They Matter

I'm sometimes criticized by the e-mail marketing community for my belief that e-mail marketing is essentially "free".  This audience points out that it takes human beings to create e-mail marketing campaigns, and those human beings cost money.

This audience is correct --- it does take human beings to create e-mail marketing campaigns, and it costs money to pay those human beings to execute the campaigns.  Please be advised, however, that all forms of marketing have fixed costs, costs proportionate to the effort to produce marketing.

Sometimes, however, we miss the subtle difference between fixed and variable costs.  This subtle difference causes other forms of marketing to be far more productive than e-mail marketing is.

Fixed costs are expenses that do not change, regardless whether you execute one or a hundred or ten million of some activity.  Your $54,000 a year e-mail marketing manager gets paid that sum of money, regardless whether the e-mail marketing list grows by one percent or ten percent.  Your computer, or the chair you sit in in your office, are fixed costs.

Variable costs are expenses that change as you increase or decrease marketing activity.  This is where e-mail marketing is fundamentally different from most forms of marketing.  When you send one catalog, you spend maybe $0.75.  When you send a million catalogs, you spend $750,000.  Now you have e-mail, where it costs maybe $0.003 to send one e-mail message.  When you send a million e-mail messages, you spend $3,000.  See the difference?  There is essentially no variable cost to e-mail marketing.

This is great, because it makes e-mail marketing affordable for anybody.

This is terrible, because it creates a giant disincentive to ever make e-mail a viable sales generation tool.

In 2008, the average cataloger might generate $3,000,000 demand if a million catalogs are mailed.

In 2008, the average e-mail marketer at a catalog brand might generate $400,000 demand if a million e-mail marketing messages are delivered.  Yuk!

When it costs a significant fee to do something, you work very carefully to make sure that you've done everything right (aka "best practices"), so that you get a suitable return on investment.  When something is close to free (aka e-mail marketing, on a variable cost basis), the discipline is different --- not bad, but different.

The best thing that could ever happen to e-mail marketing would be some sort of tax, a fee placed on each e-mail marketing message delivered to a customer.  

Let's say there was a five cent tax placed on every e-mail message sent to a customer, with the tax going to fund prosecution of spammers and for development of inexpensive nationwide high-speed wi-fi access (I know, I'm nuts, but play along).

As marketers, would we not completely re-think every e-mail marketing campaign we execute?  Would we not develop more complex segmentation strategies, or implement statistical ranking models?  Would we not develop numerous versions of each campaign, with targeted merchandise assorted for audiences that buy that merchandise?  Would we not explore trigger-based campaigns more thoroughly?  Would we not carefully study response to every link, or understand the relationship between response and heat maps?  Would we not measure profit, instead of measuring metrics like open rates and click-through rates?  Would we not integrate all of your systems to properly understand the impact of e-mail across channels? Would we not execute mail and holdout tests?

Variable costs completely change how we look at the business.  Until recently, direct marketing was all about variable costs --- the brands that were most profitable executed flawlessly, and knew exactly how to manage variable costs.

Now, direct marketing is a hybrid of fixed and variable costs.  Websites have a fixed component, catalogs are often highly variable in nature.  E-mail marketing is generally a fixed-cost business.  E-mail marketing could be so much better if it had a significant variable component --- variable costs demand discipline.  

And by the way, it is the same lack of a variable cost component that is killing social media.  Without an apparent variable cost for each post, or each comment, or each interaction, the overall quality of the discipline suffers.

E-Mail Cannibalization

Our industry doesn't talk a whole lot about e-mail cannibalization.

We do spend a lot of time talking about declining performance. Interestingly, performance declines can be correlated with increased campaign frequency.

Take a brand that used to send one e-mail campaign a month, generating $0.25 per e-mail delivered. Then they began sending one e-mail campaign a week, generating $0.19 per e-mail delivered. Then they began sending two e-mail campaigns per week, generating $0.13 per e-mail delivered.

An Executive might grumble about declining performance. It is the responsibility of the e-mail Marketing Director, however, to illustrate what is really happening. And we don't illustrate this with simple metrics like open rates and click-through rates and conversion rates.

A negative view of the world:

• E-mail campaigns used to generate $0.25 each.
• Then e-mail campaigns generated $0.19 each.
• Then e-mail campaigns generated $0.13 each.

A positive view of the world:

• E-mail marketing used to yield $0.25 of demand per customer per month.
• Then e-mail marketing generated $0.75 of demand per customer per month.
• Then e-mail marketing generated $1.04 of demand per customer per month.

Because of the non-existent cost of e-mail marketing, it is ok to look at demand per customer per month as an appropriate metric. As long as opt-out rates don't consume incremental demand, this is an acceptable way to view the business.

Now let's get back to the volume we observed.

As contacts increase, volume increases at a decreasing rate. This is a classic relationship. Some call it cannibalization --- each additional e-mail eats away at the productivity of existing e-mail campaigns. Others view this as diminishing returns. Either way, the concept is the same.

In the old school world of catalog marketing, cannibalization was critical to understand, because the incremental demand didn't offset the cost of delivering a catalog.

With e-mail, your cannibalization costs are based on customer frustration --- how many contacts until you no longer get enough revenue to offset the folks who opt-out of your campaigns? You can answer this by executing simple contact strategy tests.

E-Mail Marketing: Discounts And Promotions

I recently reviewed a profit and loss statement for a marketer that conducts e-mail marketing programs. This marketer offered significant savings on the items offered in the e-mail marketing campaigns. This marketer offered the savings in every campaign!

When asked why the marketer discounted the merchandise so significantly, the marketer showed me a profit and loss statement that looked something like this:

	Up To 60% Off	No Promotions
E-Mails Delivered	100000	100000
Click-Through Rate	6.30%	3.40%
Conversion Rate	6.90%	4.70%
Total Response Rate	0.43%	0.16%
Total Orders	435	160
Average Order Size	$165	$160
Demand	$71,726	$25,568
Net Sales	$57,380	$20,454
Gross Margin	$31,559	$11,250
Less Marketing Cost	$500	$500
Less Discounts	$14,345	$0
Less Pick/Pack/Ship	$6,599	$2,352
Variable Operating Profit	$10,115	$8,398
Profit As A % Of Net Sales	17.6%	41.1%
Ad/Discount To Sales Ratio	25.9%	2.4%
Profit Per Order	$23.27	$52.55
Profit Per E-Mail Delivered	$0.10	$0.08

The marketer told me that, by offering the promotions, response to e-mail marketing campaigns was almost three times better than when full-priced e-mail marketing campaigns were delivered to the customer. Furthermore, profit was a full twenty percent better when significant discounts were offered.

The marketer told me that "... we've built an e-mail file of customers who now demand discounts and promotions. They simply won't buy from us unless we do this."

So I ask you, the knowledgeable direct marketer, if the situation this brand is in is good for the brand? I mean, we see profit and loss statements like this all the time, so it seems like it would be a "best practice" to offer heavy discounts and promotions, right?

One thing that rings consistently true in Multichannel Forensics projects is that full-price customers will buy discounted merchandise, but discount customers aren't thrilled about paying full-price for merchandise. If that holds true for most brands, then this e-mail marketing best practice can alter the composition of the customer file.

Is altering the composition of the customer file a good thing? Do our practices alter the long-term trajectory of the brands we work for without management fully understanding what we are doing?

Your thoughts?

E-Mail Marketing And Geography: Multichannel Opportunities

In e-mail marketing, we obsess about simply getting a marketing message to first arrive in the inbox of a customer, then to get the image to render properly. Assuming we can accomplish these challenging issues, we focus on the offer and subject line text, trying to maximize click-through and conversion rates.

Seldom do we tailor the message based on geography.

This is a map of the greater Seattle metropolitan area. Green zip codes are those that perform best for this brand, while yellow zip codes perform worst.

The magic of e-mail marketing is that separate messages can be created, based on geography.

The customer who lives in Easton, sixty miles southeast of downtown Seattle in the Cascade Mountains, is not likely to shop in your store --- heck, in winter, this customer simply cannot get across the mountain pass. Why advertise a store message to this customer?

Conversely, the customer living in Belltown has close to a thousand shopping opportunities within ten miles of her home, and can easily walk to several hundred stores. How might the marketing message be different for this customer than for the customer living in Easton?

What about the customer living in Bremerton, just ten miles west of Seattle ... but a two hour trip due to the wait to get on to a ferry to get to Seattle? Maybe buy online / pickup in store is an option, given that this customer works in Seattle?

Zip code data is FREE! You maintain the information for every customer who purchases from your online and phone channels, and in many cases, you have this data for retail purchasers as well.

Each zip code can be classified across different dimensions.

• Urban, Suburban or Rural.
• High Spending, Average Spending, Low Spending Zip Codes.
• Distance From Closest Store.
• Store Preference.
• Channel Preference: Phone, Website, Store

E-Mail marketing strategy is crafted for each categorization. You're likely to see a ten or twenty percent increase in e-mail marketing performance based on versions of e-mail campaigns targeted to customers having different zip code characteristics.

E-Mail Marketing Gurus: Your Thoughts On Williams Sonoma

The e-mail marketing blogosphere has been buzzing lately, suggesting that we minimize campaign based blasts in favor of targeted, relevant, personalized messages that the customer eagerly anticipates. Sounds good to me!

And then a few weeks ago, Williams Sonoma mentioned that they have eighteen million opt-in e-mail addresses, across all of their brands.

So my question to all of us who share a belief in relevant, targeted e-mail marketing is this: How would we accomplish this feat for eighteen million unique customers who have multiple relationships and multiple e-mail addresses across multiple brands and multiple channels and multiple stated preferences?

And if we can answer the question effectively, how do we do this when we don't have the systems infrastructure to do what we want to do? It's really easy to blast big brands for their silly practices. How would we solve the problem when faced with real life constraints?

Discuss.

E-Mail Marketing And Customers Who Return A Lot Of Merchandise

Sometimes, our instant access to metrics cause us to screw up.

This happens to most of us.

1. We execute an e-mail campaign on a Tuesday morning at 9:00am.
2. By 10:27am, we have a forecast for how well the e-mail campaign will perform. We know open rates (or render rates as the experts now say), click-through rates, and conversion rates. We may even know $ per e-mail.

Three weeks later, twenty percent of the customers who purchased from the e-mail campaign returned their merchandise for a refund.

Did the e-mail marketing campaign work?

One of the things we can do is identify customers who are "high returners". I've done this analysis for many companies. Typically, a small subset of the audience (maybe 1% to 5% of your twelve month buyer file) are responsible for a disproportionate amount of returns.

An easy way to address this problem is to identify customers with a high return rate, and see if those customers will have a high return rate in the future. If so, you run a profit and loss statement on future sales. You talk to your folks in finance, folks who know the actual cost to process each item returned to a company.

At Eddie Bauer, we knew that if a customer had ordered at least three times in the past, and returned two-thirds or more of the merchandise she purchased, she would be unprofitable to market to in the future.

In e-mail marketing, this one is a slam dunk! You simply create a suppression list for this tiny subset of the customer file, and don't send e-mail marketing campaigns to this segment.

And then you bask in the glow of the increase in profit you obtain because of your strategy.

You are likely to see a drop in your metrics --- high returns customers are typically your most active customers --- they open e-mails, they click-through to the website, they buy stuff. And given your returns policy, you should let them buy stuff. However, there is no rule that says you must also market to the customer. So generate additional profit for your company. Stop e-mailing customers who return too much merchandise!

Micro-Channel Challenges: E-Mail

Attention E-Mail Marketers!! Next time you see your business intelligence or data mining or SAS programming expert cookin' up a bag of microwave popcorn (preferably buttered), ask them to profile your e-mail marketing list for you.

Keep your analysis simple. Take twelve month buyers, and split them into three groups ... those without an e-mail address, inactive e-mail subscribers, and active e-mail subscribers.

Pay attention to the trends:

• Urban, Suburban, and Rural Customers. Customers have different preferences. The rural e-mail subscriber might respond to free shipping promotions. The urban e-mail subscriber might appear to never respond, because she visits stores after receiving an e-mail campaign.

• Merchandise Preference. E-mail subscribers typically prefer a different merchandise assortment than non e-mail subscribers. You're likely to find that active e-mail subscribers are hyper-loyal to a subset of your merchandise assortment. Brand marketing individuals sometimes wish to use e-mail to communicate a holistic marketing message, whereas the profile might indicate that various e-mail / merchandise combinations represent vital "micro-channels" to customers.

• Advertising Micro-Channels. Do e-mail subscribers and active e-mail customers purchase using e-mail in combination with catalog marketing, direct marketing, search marketing, or any other kind of marketing? If the answer is yes, your multichannel expert may be right in seeking to align all marketing activities across the company.

• Future Channels. One of the unintended consequences of multichannel marketing occurs when one form of marketing (e-mail marketing) is effective, causing the customer to switch channels. Most of the Multichannel Forensics projects I work on suggest that customers are much more likely to switch channels than they are to become loyal multichannel shoppers. See if your e-mail marketing activities shift customer behavior. If e-mail marketing causes a shift to a lower-value channel, re-visit the purpose of e-mail marketing.
  

Multichannel Forensics: An E-Mail Example

Please click on the image to enlarge it.

I recently read a statement about a multichannel brand ... the statement sounded something like this:

"We boast an e-mail marketing file of over 2,000,000 addresses."

What does that really mean? Is it good to boast an e-mail marketing file of over 2,000,000 addresses?

How do I judge the importance of that number?

Ultimately, I want a healthy e-mail marketing file, not a big e-mail marketing file.

I want my e-mail file to exhibit at least two characteristics.

1. E-Mail recipients click-through content in an e-mail, and visit my website. At least I know these individuals are "active", or "engaged".
   
2. If the customer clicks-through to the website, the customer buys something.

Even more important, I want to know the long-term impact of these two activities. For instance, what is the long-term value of a customer who clicks-through an e-mail campaign, visiting a website, but chooses not to purchase anything?

Enter Multichannel Forensics.

The image at the start of this post features the behavior of an e-mail list of 2,000,000 names, but only looks at the names that are "active". In other words, we only look at folks who click-through e-mail campaigns, and those who purchase merchandise. This audience is considerably smaller, around 150,000 names. Your mileage may vary!

The free two-channel Multichannel Forensics spreadsheet can be used to analyze these cases.

In the example in this post, I can measure the five-year value of 1,000 e-mail customers who clicked-through to the website due to an e-mail campaign, but didn't buy anything last year. Here is what 1,000 clickers in 2007 are forecast to do over the next five years:

• Year 1: 480 Clickers-Only, 120 Purchasers, $30,000 sales.
• Year 2: 254 Clickers-Only, 118 Purchasers, $31,478 sales.
• Year 3: 145 Clickers-Only, 90 Purchasers, $24,404 sales.
• Year 4: 87 Clickers-Only, 63 Purchasers, $17,125 sales.
• Year 5: 54 Clickers-Only, 42 Purchasers, $11,512 sales.

Notice that there is long-term value in a customer who only clicked on campaigns last year, but didn't purchase anything. However, the value of this "clicker" decreases over time.

See, e-mail marketers view everything in the short-term ... a 22.4% open rate, a 6.3% click-through rate, a 3.9% conversion rate ... everything is measured within forty-eight hours, measured in repeated campaigns. There's no context in this type of measurement, there's just measurement!

What if I told you that each customer who clicked-through an e-mail campaign in 2007, but chose not to purchase anything, was worth $123 sales over the next five years?

Would you re-think the importance of getting your e-mail customer base actively involved in your campaigns? Mind you, they don't have to buy anything over the next forty-eight hours. Instead, they simply have to at least click-through one campaign in the next twelve months.

Multichannel Forensics are good to use when you're trying to make a case to truly invest in a smart e-mail marketing strategy, one that goes beyond 20% off your next order or buy-one-get-one-free, one that goes beyond free shipping, one that actually encourages engagement. Clicks are one way of measuring engagement, and engagement (as demonstrated here) yields tangible, long-term, quantifiable sales and profit.

If you're an e-mail marketer, it is a good time to challenge your e-mail vendor to help you move beyond short-term, campaign-based outcomes of $0.09 per e-mail. Partner with your e-mail vendor, or even your favorite e-mail blogger! Start using Multichannel Forensics (or any other analytical tool that demonstrates the long-term strategic impact of short-term decisions, by no means is Multichannel Forensics the only tool) to validate the long-term benefits of your craft, to get the funding you need to improve your e-mail marketing program.

Theoretical Catalog Circulation And E-Mail Question

Catalog circulation is a beautiful blend of art and science.

When you send a catalog that costs $0.80, you must generate a suitable return on investment. In other words, short-term plus long-term profit must exceed this huge cost threshold, or you cannot afford to mail the catalog. Out of necessity, the catalog circulation manager must be scientific, must be rigorous, must focus on every tiny detail.

E-Mail marketers never had to deal with this challenge, given that the discipline, on a variable cost basis, is close to free. The cost structure encourages vastly different behavior. The e-mail marketer can be much less rigorous, and yet be far more successful than the catalog circulation expert.

Take the example of an e-mail opt-in subscriber who failed to interact with any of the past forty weekly e-mail campaigns your company chose to send to this customer.

E-mail marketers, please make a case for whether this customer should or should not receive next week's e-mail campaign (which has essentially no variable cost associated with it), given that the customer chose to ignore the past forty campaigns, and that the customer gave you no inclination that the customer does not want to see future campaigns.

Using E-Mail For Sale And Clearance

When business misses expectations, catalogers have long enjoyed printing additional "clearance" catalogs ... 48 or 72 or 96 page offerings with significantly marked-down merchandise.



For instance, if business is missing expectations by 15%, a clearance catalog will quickly make up much of the business shortfall.



So here's a question for my loyal e-mail marketers. If you don't have access to print advertising, and your business is missing expectations by 15% (across all of your product lines), how would you use e-mail to make up the kind of volume that a 72 page catalog, with 420 items, typically moves?

You Decide: The E-Mail Marketing Budget

This might represent the marketing budget for a multichannel cataloger:

Marketing Budget (Dollars in 000s)
Profit = Variable Profit, Before Fixed Costs
	Annual	Total	Total
	Budget	Demand	Profit	ROI
Catalog Marketing	$10,000	$37,500	$3,125	31.3%
E-Mail Marketing	$1,000	$10,400	$2,640	264.0%
Search Marketing	$3,500	$14,000	$1,400	40.0%
Online Marketing	$2,000	$6,500	$275	13.8%
Total Marketing	$16,500	$68,400	$7,440	45.1%

Let's assume that the e-mail marketing program is reasonably basic in nature. In other words, the customer can opt-in on the website, or if the customer purchases online, the customer is automatically opted-in to the e-mail program, and can elect to opt-out at any time.

The e-mail marketing program has 1,000,000 addresses. The company does not execute targeted campaigns (i..e. unique creative to different customers with different interests), executes a weekly campaign to all 1,000,000 addresses, and generates on average $0.20 per e-mail. The program typically offers free shipping as a purchase incentive.

The company has tested targeted versions of e-mail campaigns, observing a 35% increase in productivity.

Here's the question, folks. So many e-mail marketers feel that e-mail does not get its fair share of marketing dollars. In this case, what should the e-mail marketing investment be, what are the tactics this company should employ, and what is the expected increase in demand and profit (profit = 0.35 * demand - marketing cost)? Please let my readers know what you would do, how much you would spend, and what the financial benefit would be to this company.

E-Mail ROI: Again

The e-mail community is on a mission to prove it is "right".

The community continues to use the "ROI" metric as a way to shoot down paid search, portal advertising, shopping comparison sites, affiliates, and catalog marketers.

ROI is typically measured as the "profit dollars obtained in a campaign divided by the marketing cost to execute the campaign".

E-mail depends upon two very important metrics --- one dramatically working in its favor, one dramatically working against e-mail.

After factoring in staffing levels (which may be comparable for online advertising, catalog advertising, e-mail and search marketing), the incremental cost to do e-mail marketing is low --- almost zero.

By default, this yields a ridiculously high and meaningless "ROI" metric --- the metric e-mail advocates use to defend investment in e-mail ROI.

The metric working against e-mail is sales per contact. E-mail is awful at generating sales volume per contact. Catalogs and paid search are great at generating sales volume per contact/click.

The table below illustrates this fact:

Return On Investment: Marketing Tactics
	Catalog	E-Mail	Paid Search
Demand	$4,000,000	$400,000	$4,000,000
Net Sales	$3,200,000	$320,000	$3,200,000
Gross Margin	$1,600,000	$160,000	$1,600,000
Less Adv. Cost	$1,000,000	$1,200	$1,000,000
Less Pick/Pack/Ship	$384,000	$32,000	$384,000
Variable Operating Profit	$216,000	$126,800	$216,000
Profit As A % Of Sales	6.8%	39.6%	6.8%
ROI	21.6%	10566.7%	21.6%
Circulation / Search Clicks	1,500,000	2,000,000	3,000,000
$ per Contact	$2.67	$0.20	$1.33
Orders	40,000	4,000	40,000
Cost per Order	$25.00	$3.33	$25.00

The dynamics of cataloging and search marketing are very different than the dynamics of e-mail marketing. You never hear e-mail advocates talk about a $0.20 demand per e-mail delivered. Nope. E-mail advocates scan a profit and loss statement like this, pick out the two metrics that look the best (ROI and Cost per Order), and then beat up folks who work on other marketing tactics.

Chief Marketing Officers are pressured to drive sales now --- or they lose their job. It's hard to drive sales at $0.20 per contact, when paid search and cataloging drive so much more volume than e-mail marketing.

Dive in head-first, and do your best to maximize all marketing activities. You should have a great e-mail program, using best practices and targeting strategies and personalization to maximize ROI. It is absolutely worth the effort!

Just listen with a grain of salt when you read the research reports and vendor marketing articles that tell you that e-mail has the best ROI, articles and reports that beat up others to justify investment in e-mail marketing.

Look at the net sales and profit dollars generated by each marketing activity, and let those metrics speak for themselves. E-mail will be able to stand on its own merits.

Why Do You Connect With Certain Articles, And Not With Others?

Maybe you noticed that I've been experimenting with a lot of different topics over the past two weeks.

It's always interesting to see which articles cause you to visit my site.

The results are indexed, here's what you like:

• Index = 100: E-Mail Marketing Quiz, Sale vs. Full-Price.
• Index = 80: Measuring Multichannel Results.
• Index = 68: E-Mail Productivity, Is It Waning?
  
• Index = 64: Looking For A Few Good Men And Women.
• Index = 56: Sale!
  
• Index = 40: E-Mail Marketing Challenge: Assigning Customers To Versions.
• Index = 15: Catalog Profitability.

You seem to like reading about e-mail marketing, multichannel measurement, and topics that relate to sale merchandise. It's always been this way.

The two articles that will make you the most money are the two ranked at the very bottom of the list (assigning customers to versions, and catalog profitability). These are areas where I make my living, for crying out loud! People pay me money to capitalize on these topics.

Why is it that you are least interested in the articles that make your business the most money? Just curious.

E-Mail Marketing Quiz: Full-Price Campaigns, Or Promotional Campaigns?

You are the e-mail Executive at a multichannel brand.

You run a series of tests, measuring how promotions work against an e-mail merchandising strategy offering customers compelling merchandise at full price.

At the end of your series of tests, here is what you learned:

No Promotions:

• % Of Delivered E-Mails With Clicks = 3%.
• % Of Clicks Converting To A Purchase = 2%.
• Purchasers Per 100,000 E-Mails Delivered = 60.
  
• Average Order Size = $100.
• Demand Per E-Mail = 0.03 * 0.02 * 100 = $0.06.
• Profit Per E-Mail = $0.018.

With Promotions (like 20% off your order of $100 or more):

• % Of Delivered E-Mails With Clicks = 5%.
• % Of Clicks Converting To A Purchase = 3.5%.
• Purchasers Per 100,000 E-Mails Delivered = 175.
  
• Average Order Size = $110.
• Demand Per E-Mail = 0.05 * 0.035 * 110 = $0.1925.
• Profit Per E-Mail = $0.026.

Clearly, customers respond to promotions.

Your Chief Merchant and Chief Marketing Officer do not want to make your business "promotional" in nature.

Promotions hurt the gross margin. Your Chief Merchant receives a healthy bonus if gross margin percentage is very high.

Your Chief Marketing Officer hates promotions, because she has been charged with growing a full-price brand.

Fortunately, the decision is yours. You are accountable for the e-mail marketing program, and you receive a healthy bonus if you grow e-mail demand, year-over-year.

Do you go with a low-response, full-price strategy? Or do you go with a promotional strategy that makes you look good, but fails to build partnerships with other executives? Do you "split the difference"?

E-Mail Campaign Management And Data

The vendor community has many suggestions for improving e-mail marketing campaign performance.

Data plays an important role in determining which version of an e-mail campaign a customer should receive. There are several different attributes that should be considered.

• Lifetime Purchase History. This is often the most important attribute in determining which version of an e-mail campaign a customer should receive. Marketers will categorize purchases by merchandise division, and use the merchandise divisions to determine which version of a e-mail campaign a customer receives.

• Most Recent Purchase. In many instances, what a customer purchased five years ago no longer has relevance to what a customer will purchase tomorrow. Consider giving more weight to recent orders, giving less weight to older orders. Some marketers give purchases in the past three months a weight of 1.00, purchases 4-12 months ago a weight of 0.50, purchases 13-24 months ago a weight of 0.25, and all older purchases a weight of 0.125. If you have a statistician, you'll delight her with the task of assigning these weights!

• Clickstream Data. What a customer looked at, especially in the past month, can be very relevant to determining which version of an e-mail a customer receives. Some marketers use shopping cart data, others categorize items viewed by merchandise division.

• User Preferences. At Nordstrom, we asked customers what type of e-mail the customer wants (mens, womens, petites, plus-size, sale, etc.). We balanced preferences with purchases, weighting each differently when determining which version of an e-mail a customer received.

• Demographics And Lifestyle Attributes. Traditional marketers like these factors. It can be easy to conceptualize a campaign for a 35-44 year old woman who owns a Lexus SUV. These attributes are often less powerful than the purchase history of a customer.

If you ever want to unite your marketing teams over a single idea, e-mail marketing is one place to do that. To execute an exceptional e-mail marketing program, with many targeted versions of an e-mail sent to different customers during one campaign, you'll want to leverage these folks:

• Catalog Marketers, who have excellent experience determining "who" receives versions of a catalog.
• Database Marketers, who have integrated data from all channels to provide a complete view of the customer.
• Web Analytics Gurus, who can help summarize clickstream data for the Database Marketing team.
• E-Mail Marketers, who oversee the entire process, are accountable for the end result, and manage vendor relationships, and understand the promotions/subject-line/template stuff that makes e-mail campaigns tick.
  
• Traditional Marketers can help with the creative presentation most likely to be effective with customers.
• Online Producers need to put the merchandise on the website, and make sure that landing pages work properly.

Sometimes all of the data nuances can become overwhelming. Performance can still be improved by simplifying the number of data dimensions, or by reducing the number of versions. Your e-mail delivery vendor may have the resources to help you with version assignment, if your budget provides you these opportunities.

Don't expect miracles from targeted e-mail versions. In reality, you have limited data for eighty percent of your e-mail file, so you won't do a great job of targeting to these folks. Among the top twenty percent of your e-mail file, these folks are so productive that many different versions of an e-mail campaign can work. If you can get a fifteen to thirty-five percent improvement in total campaign performance by targeting, you're well on your way to success.

The Reminder E-Mail

It's 5:47am. I'm walking my dog, a dog that wants to investigate every newspaper lying in every driveway.

Each newspaper was wrapped with an advertisement from a large retailer. The ad tells the newspaper reader to eagerly anticipate a catalog that will be mailed to select customers in the near future.

This reminds me of all the e-mail campaigns you see, campaigns reminding the customer that an important catalog is going to be mailed in the near future.

Pundits sometimes like these e-mail campaigns, suggesting they provide an effective 1-2 punch in generating response. They call these "integrated multichannel marketing campaigns".

I'll grant you that these campaigns probably work.

But what does this say about you, the humble employee?

What, exactly, are you "selling"?

You are selling the customer the dream that better advertising is coming soon.

It may be in the best interest of the customer, and it probably is in the best interest of the brand, to execute these multi-step advertising campaigns.

But how do you, the employee, benefit from telling your co-workers and your customers that better advertising is coming soon?

E-mail will always be a second-class citizen in the minds of employees and customers when it is used to communicate that better advertising is coming soon. The employees executing these campaigns deserve better. These employees need to work on campaigns that are as close to selling directly to the customer as possible.

E-Mail Marketing Investment

An executive recently spoke the paraphrased sentence below, when talking about his e-mail marketing program.

"We measure the living daylights out of e-mail. But at the end of the day, it really doesn't move the needle a whole lot. All of our e-mail subscribers were prior catalog buyers, so incrementally, there's very little value to e-mail."

On the surface, it is easy to see how an executive can come to this conclusion.

Results from an e-mail campaign might look like this:

• Open Rate = 22%.
• Click-Through Rate = 31%.
• Online Conversion Rate = 3.4%.
• Average Order Size = $110.
• Sales Per E-Mail = 0.22 * 0.31 * 0.034 * 110 = $0.255.

There are two numbers in this series of metrics that cause an executive to believe that e-mail doesn't "move the needle". One is hidden, one is obvious.

• Hidden Number = Actual percentage of customers who purchase because the e-mail was sent to them.
• Open Rate * Click-Through Rate * Conversion Rate
• 0.22 * 0.31 * 0.034 = 0.002319.
• 1 in 431 customers who received the e-mail purchased something.
• Obvious Number = $0.255 per e-mail.

The hidden number is the most disappointing aspect of e-mail marketing. To think that, in this case, only one out of every 431 customers thought the e-mail was compelling enough to purchase something is a genuine failure of direct marketing.

Of course, e-mail marketing has different dynamics than other forms of marketing. Good marketers actively build a large list of e-mail addresses to market to.

If you are like some major multichannel retailers, and you have 3,000,000 e-mail addresses, you aren't disappointed in a $0.255 sales rate per e-mail. Why? Because $0.255 * 3,000,000 * 52 e-mail campaigns per year = $40,000,000 of annual sales volume.

Better yet, there is very little incremental cost associated with sending one additional e-mail. One might have to spend $8,000,000 mailing catalogs to generate $40,000,000 sales volume. One might only spend $400,000 to generate $40,000,000 volume via e-mail.

There is another important way to look at the value e-mail campaigns bring to an organization.

Let's assume that 1 in 431 customers respond to an e-mail, and let's assume that a brand sends 52 e-mail campaigns per year ... one per week. What percentage of e-mail subscribers will repurchase, annually, because of e-mail?

• 1 - (1 - (1/431))^52 = 11%.

In other words, over the course of the year, 11% of the customers in a segment where only 1 in 431 respond to an average e-mail will purchase "because they received e-mail campaigns".

This becomes important, because the average online retailer has an annual repurchase rate that varies between 25% and 65%, usually leaning toward the lower half of that range.

If your testing shows that e-mail does not cannibalize organic orders or catalog orders or paid/natural search orders or store-driven orders, then the 11% figure is big.

(Added 7/30/2007 ... 12:53pm: It is also very likely that, of the 11% of the list purchasing via e-mail, that the vast majority of the responses are coming from a small subset of the 11% --- it is important to analyze these folks separately, as they are your e-mail evangelists).

Direct marketing is no longer the quaint world that Sears and Montgomery Ward and J.C. Penney and Spiegel and others crafted through the 1970s, that Lands' End and L.L. Bean were lauded for in the 1980s and early 1990s.

These days, direct marketing success is the sum of thousands of small efforts. Some efforts have bigger rewards (catalog). Some efforts have small individual rewards (e-mail) that add up to a reasonable amount of volume.

While we all realize we have to invest in e-mail, how we invest in e-mail is likely to change over the next decade.

Transaction-based e-mails based on a common template, offering the customer a percent off or free shipping, with tabs across the top outlining various merchandise departments are the norm in 2007. All of our efforts at implementing "best practices" yielded a glut of e-mail campaigns that look similar, with similar offers. Long-term, this will cause response rates to further erode.

Long-term, the e-mail campaign will have to offer the customer more than discounted merchandise already available via catalog marketing or online marketing or store marketing.

Long-term, the investment in e-mail marketing has to be in creativity. We have to be able to communicate why our brand matters. We have to tell stories. The customer doesn't need to learn that fall merchandise is available at a discount --- everybody has fall merchandise available at a discount. The customer wants to know why she should have a relationship with the brand sending the e-mail campaign.

Think about it ... when is the last time Microsoft Outlook "dinged", signaling that an e-mail arrived, and you looked to see who sent it, and said to yourself "Oh yeah, it is an e-mail from Ann Taylor, I can't wait to read it!"

The investment in e-mail has to change over the next decade ... from an investment in targeting and messaging and # of contacts to one of creativity and storytelling and engagement.

Vice President of Business Intelligence And New Business Development, American Girl

A fundamental shift in the job requirements of analytical individuals is occurring across Corporate America. The shift is not positive for E-Mail Marketers, Catalog Circulation Marketers, Online Marketers, Business Intelligence Analysts, and Web Analytics staff.

Read this job description, found on the Marketing Sherpa Job Board, for a VP of Business Intelligence and New Business Development at American Girl.

This position proactively leads the identification and development of actionable consumer insights, market and competitive understanding. This person will translate information gained through the Analytics Services and Consumer Insights areas into actionable implications and assist in the application of these insights into the American Girl strategic plan. Requirements: *Bachelor's degree, Master's degree (MBA) preferred *Minimum of 10 years of experience working in Consumer Products Industry to include Consumer Research and Analytical Services or significant experience in consulting with a major consulting firm. *Direct Marketing Analytics experience at a multi-channel company preferred *Experience contributing to the strategic planning process preferred *Familiarity with multiple channels of distribution, with special emphasis on direct mail and branded retail preferred *Significant P&L experience preferred *Consulting for a major consulting firm preferred.

Notice how this position focuses on using the insights of the Analytical Services and Consumer Insights areas. Notice that this person will come from the Consumer Products Industry, or will have Consulting experience from a major consulting firm (preferred).

In the past five years, our zeal to be "multichannel marketers" caused us to scatter in a dozen different directions --- all honing our skills in different specialties, becoming experts at a tiny fraction of what matters to our customers. We failed to develop a global view of our business. Our leaders don't have confidence in having a web analytics expert do anything else than study web analytics. Our leaders don't believe the e-mail marketer can also drive a social media plan, or can manage television advertising campaigns.

To thank us for diving headfirst into a niche, becoming a subject matter expert, our companies are looking to hire leaders who know how to position eight varieties of Cheerios among potential customers, or know how to articulate opportunities to what is know as individuals in the "C-Level Suite".

If you're an individual working at a catalog, online, retail or multichannel organization, and you have less than ten years of corporate experience, this is a really good time to change course.

Instead of being the expert at working with CheetahMail to get e-mails delivered through AOL, or being the expert at getting CoreMetrics to help you accurately measure the effectiveness of various landing pages, or being the catalog circulation expert who measures the LTV of Abacus-sourced new names --- become the person who is the expert at knowing how EVERYTHING FITS TOGETHER, telling a story that helps executives know what they need to do to be successful.

Right now, your business leaders don't believe in you. They believe in a person who knows how to build a business plan for Cool Ranch Doritos, who knows how to speak to executives. This is the third job description of this nature I've run across over the past four months.

One person, working a division that is now being led by one of these "newly qualified leaders", told me that the new leader (with qualifications similar to this job description) communicated that the circulation folks "knew nothing of actual customer behavior".

Ouch.

It's time to stop talking about RFM, HTML vs. Text, Black-Lists, SEO, PPC, CGM, DMPC, Conversion Rate or Landing Pages.

It's time to stop talking about subject line testing as a "strategy".

It's time to stop talking about paid search as a "strategy".

It's time to stop talking about getting e-mails through GMail as a "strategy".

It's time to stop talking about working with Abacus or Millard/Mokrynski as a "strategy".

It's time to actually create actionable business strategies that merchants and executives understand, and can act upon. More important, it's time for us to be able to articulate our strategies in a way that executives and merchants understand.

If we fail to do this, the folks who manage the "Twinkies" brand will do this for us. I've been impacted by this evolution in job description. I don't want for you to be impacted.

Your thoughts?