Understand the power of email numbers

If you’re measuring email effectiveness based on online sales, you’re only getting part of the picture. To understand the campaign impact, here are the metrics to consider.

Email can be a very powerful customer communication tool, more personal than any television or print advertisement could ever hope to be. Email can build the brand, provide information, maintain relationships and loyalty, and help customers make direct contact with the marketer. Besides enabling online purchases, email can also drive traffic to retail stores and help boost catalog sales.

Unfortunately, many companies and their management have not realized what a powerful tool they have, in large part because they do not know how to measure email effectiveness. In fact, in many companies, the email marketing budget is based only on the level of email-induced online sales. This is a mistake.

Despite rapid growth in broadband internet usage, online sales are still only about 3 percent of total retail sales. This number is unlikely to remain in single digits for much longer. What is a much bigger number, however, is the use of online marketing to drive traffic to offline outlets. eMarketer.com estimates that in 2008, web-influenced retail sales will be $635 billion, while retail e-commerce sales will be only $158 billion. The site reports that more than 70 percent of all internet users research the web before making a significant offline purchase. The implication: Email should be measured not just on its impact on web e-commerce sales, but also on its ability to affect and produce massive offline traffic and sales.

How is the impact of sales from television measured? It isn’t, not in any specific or meaningful way. When a television ad is broadcast, no one knows who is watching it or what they do after they watch it. Did they pick up a phone and call? Did they go to a website? Did they get in their car to drive to a mall? Or were they out in the kitchen making a sandwich when the ad was shown? Who knows? Only in the first instance (making a phone call) do we have proof that the ad worked.

Contrast this scenario with what happens when an email is delivered. We know if the email was opened, and we also know who opened it. We know if she clicked on any link to get more information, and we know if she ordered a product online. But email does far more than this. When she orders, we send her a confirmation. When we are ready to ship, we tell her the order is on its way, and we provide her with a tracking number. After she has received it, we ask her to rate the product, and we put the rating on our website. These transaction emails build relationships and loyalty.

How else can email help our customer (when television cannot)? We can give her a coupon that she can use at a local store, and we can tell her where that store is with a map. The coupon is personalized so we know that she used it, and that it came from a specific email. We send her greetings on her birthday. We remind her about her friends’ birthdays using information that she has provided. If she is going to take a flight, we give her a chance to check in and print her boarding pass before leaving for the airport.

We use an email to ask her to provide her preferences. Does she want to receive future emails, how often and featuring what types of information? As a result, we will modify what we send to her, targeting our messages to what she wants. Can you do that with television ads?

A television ad can only feature a couple of products within a 30-second spot. An email, through links, can provide access to every one of the thousands of products that we offer. She can look them up, view them, find out if we have the sizes and colors she wants, and order them — or go to a nearby store to get them right away. And if she does this, we can prove it. A good email effectiveness report today shows this kind of information every month:

When we send a catalog, we also send an email: “Look in your mailbox for our catalog this week.” Emails like these have been proven to increase catalog sales by about 18 percent over just sending the catalog unannounced. If she comes to our store and tells the clerk her home phone, we can bring up her complete record on the point-of-sale screen and learn that she is a Gold customer who gets certain privileges. Indirect sales occur when a customer buys one of our products from Wal-Mart or some other retailer. We can get her to register her purchase (receiving points or other benefits) so we can learn the full impact of our emails on her purchasing history with us.

This kind of report is very powerful. But even this report does not show the relationship-building effect of email. Retailers typically lose 40 percent or more of their customers every year. They buy once and disappear. With email, we can track those who subscribe and set up a series of loyalty-building communications. If she stops opening our emails or buying at our stores, we will know. We can send her an email and ask what’s wrong. Many defecting subscribers can be saved as customers in this way.

Adding it all up, we can estimate the lifetime value of every email subscriber — measuring her lifetime value based on sales from all channels — and taking action to see that she continues to be happy with our communications, and continues as a loyal customer.

So how should you determine the budget that you spend on email marketing? Many companies do this based only on online sales, which for an offline retailer represents 10 percent or less of the real bottom-line impact of email marketing. By using this measurement, companies are short-changing one of the most effective marketing tools that they have. They continue to spend big bucks on television and print, which are very good ways to build awareness but not so good at building relationships and loyalty.

Putting a few simple key initiatives in place can help change that perspective. First, provide a monthly report from marketing that uses factual numbers to estimate the true impact of email marketing on total sales — not just on online sales. Second, insist that the email marketing staff exploit the full potential of emails — not just batch and blast, but sending triggered event emails, determining customer preferences and profiles, and creating interactive HTML emails that make reading them an adventure, and exploiting the full potential of transactional emails. When the company has determined the full potential of emails for their bottom line, they can develop an email marketing budget that does justice to this powerful marketing method.

Arthur Middleton Hughes is Vice President of The Database Marketing Institute that does research and consulting for e-mail and database marketing companies. He would love to hear about your problems. Perhaps he could help.  He can be reached at Arthur.hughes@dbmarketing.com or 954 767 4558. His new book Strategic Database Marketing 4^th Edition is due out from McGraw-Hill in 2011.

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