Targeted Email Campaigns Only Way to Recapture Email ROI

Though Kevin Hillstrom believes that the low variable cost is the real factor in the “killer ROI” that email affords multi-channel retailers, I would also mention that it’s low variable cost also contributes to the low amount of effort that retailers put into their email marketing. That is, retailers don’t put the money they should behind email because they view the low variable cost - and low marginal cost - as a license to spam. The way this manifests itself in the marketplace is that spending on email optimization technology trudges behind other technological spending like, say, search engine optimization (SE0).

In his article, “E-mail’s Killer ROI Less Lethal by the Year: DMA”, Ken Magill notes that spending on Internet marketing outstrips spending on email marketing by about 40 to 1 ($24.1 billion to $600 million). Now, a lot of this money is certainly spent on pay-per-click advertising. But much of it is also spent on tools that help companies figure out methods to better monetize their internet marketing dollar.

So why hasn’t the same technological effort gone into email? Email has reached its limits and is bursting at the seams as a batch-and-blast art. The DMA essentially says as much with its news that Email ROI is declining (from $48.34 per $1 spent in 2007, to $45.06 in 2008, and a projected $43.52 in 2009). Given that we all agree that email has a low cost, why is the ROI going down? Well, since consumer spending spurred by email is still going up ($28 billion in 2008 to $32.6 billion in 2009), this can only indicate that blame goes to one, or both, of the following:

1. Competition for the Inbox is growing faster than consumer spending.
2. Average order size from email marketing is going down.

This is precisely why email relevance is so important today and, as a corollary, why spending on email targeting technology is paramount. The only way that you’re going to send relevant emails to an email list of 500,000+ people in a cost-effective way is to use the right segmentation and recommendation technology. And this is the only way that marketing departments can recapture the waning email ROI.

It may seem counterintuitive, spending to boost ROI, but the only way to continually be opened, read, and clicked more than other vendors is to delight your customers by offering products they want to peruse and buy. Ultimately, this delight translates into trust for your brand and you can cut through competition in the Inbox simply by offering relevance.

Right now, as Chris mentioned last week in his piece on Segmentation, it seems like everyone tries to cut through the Inbox clutter with lower prices and free shipping. And these are the chief drivers of email clickthrough. However, these types of offers are also the reason that average order size is going down. Even when shipping is aspirational (e.g. Free Shipping for Orders Over $100), the cost of free shipping to the company often cuts deeply into the margin. Worse yet, it conditions your customers to accept nothing less than free shipping in the future, perennially pushing your average order size ever lower.

If retailers are willing to pay to understand which keywords they should target, why wouldn’t they be willing to pay for technology that tells them which email messages to send to which customers?

Tags: email ROI, Kevin Hillstrom, Relevance, SEO, Targeted Email

Add Personalized Product Recommendations to Your eCommerce Site

Istobe is a powerful recommendation engine that makes it easy to add recommendations to your eCommerce site. How powerful? Shoppers who click on Istobe recommendations spend 20-50% more than the average visitor.

This entry was posted on Monday, October 27th, 2008 at 2:49 pm and is filed under Customer Segmentation, Email Marketing, Personalized Email, Preserving Margins, Relevance, Targeted Email. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.