Finishing up the series on email, this column addresses the important issue of calculating the right direct-response offer and also considers issues of email clients and outsourcing.
People use different types of software programs to download their email. These programs are called “clients.” Some people just use a Web browser to get their email off a site, like email.com; others use special email programs, like Eudora or Microsoft Outlook. Some clients can see certain types of advertisements while others cannot. Two major distinctions exist among clients: those that can or cannot display HTML (Weblike) messages, and those that can or cannot display rich media messages.
To date, rich media ads have performed very poorly. (Very few email-users’ clients can support rich media formats.) HTML ads have more of a following online.
The HTML ads, when they can be seen, generally prove more effective. The extra dimensions provided by the graphical format allow for more compelling creative. There will always be people, however, who also need to see a text version of an email ad. About 15 percent of email users currently cannot see HTML messages, with a good many of them coming from the pool of AOL users who are forced to use a relatively unsophisticated email client. Taking advantage of the best of both worlds entails producing both types of creative and using a list that divvies itself up based on the addressee’s specified preferences.
HTML ads also have the advantage of allowing for better tracking. Since the images that come with the email generally get served off of a banner server, we can determine what elements the addressees wind up interacting with.
Calculating the Proper Offer
Before delving into the math part of the equation, the planner needs to look at some of the more subjective information to help determine a good offer. The following pieces of information, if available, should be put together:
- To what offer has this type of audience responded in the past?
- What do we know about cross-selling products within the client’s existing customer base?
- What assumptions may we draw about demographic, lifestyle, and behavioral information for this target?
- How price-sensitive has the audience appeared in past direct-response campaigns?
- Does the client’s brand image allow for price discounting?
Often, the best offers are ones that employ related products and services rather than a price cut, coupon, or discount. But, that said, some of the best response rates with email campaigns do come from pricing offers.
The math looks simple at first: The maximum profitable discount offer (MPDO) equals the profit margin of one transaction minus the cost per action (CPA). Things get slightly more complex as we flesh that equation out.
It turns out that the CPA is dependent on the offer. The better the offer, the lower the effective CPA will be (unless, of course, your campaign is based on a prenegotiated CPA rate).
In other words, the better price you offer, the more people will respond to your offer, effectively generating additional transactions for the same media cost. Employing simple algebra won’t get us very far, because it sets up a chicken-and-the-egg issue of trying to determine the offer by using a variable that depends on the offer. Were we to attempt to figure this out mathematically, we would have to roll out integrals from calculus. But, even aside from scaring off the majority of readers, that isn’t very practical. In the real world, our variables are so uncertain that the answers the calculus equations give us are not very definitive. Variables like the price sensitivity of specific target groups just aren’t precise enough to make the calculus equations worthwhile. (Whew…)
The best way to figure out the optimal offer is to employ the first equation in a couple of precampaign tests. Here’s an example:
- The Belfast Doghouse Company (BDC) sends emails to known dog owners offering a $20 discount off its $1,000 doghouse for a cost of $600. For each doghouse it sells with this offer, BDC makes a gross profit of $380 after the discount. BDC spends $100,000 to reach 1,000 people by email ($100 CPM). This offer generates 100 sales, “earning” the company a loss of $62,000 after it takes into account the $100,000 it spent on the email list.
- BDC has faith in email, however, and decides to conduct two additional experiments to see if there is a combination of offers that might turn a profit.
- It first tries to reduce the offer to save costs and offer a $10 discount with the same media plan. But, because of the lesser offer, only 50 people purchase, causing an even worse loss of $80,500.
- It then tries the opposite tack, offering a $100 discount on the doghouses. With the same media plan, it finds that 350 people purchase doghouses. Even though the margin is smaller now, BDC makes a breakthrough in sales that finally puts it in the profitable column: $5,000 in the black.
This type of experimentation with offers will be necessary. And the offers will frequently find different degrees of receptivity, depending on the very particular email list that’s used.
Once again, email marketers must remember not to throw the branding baby out with the direct-response bath water. Remember that every time someone sees one of these offers, a brand impression is registered. This can be good or bad, depending on how faithful the creative sticks to the client’s desired brand attributes.
Most email campaigns will result in a transaction rate of about 4 percent, plus or minus 2 percent. The results depend heavily on the product category; the existing brand; the message; the offer; and, of course, the quality of the email list.
In-House Versus Outsourced
All of this analysis can be quite daunting, especially if it’s done across many different smaller lists with media deals that differ significantly. Some agencies and advertisers choose to conduct these campaigns and this type of analysis within their own walls. There’s certainly a good argument for doing this, as the iterative process itself teaches the company about its market, brand, and pricing structures.
But it can be very overwhelming to a staff already dedicated to other marketing tasks. Companies seeking a little help with the data organization and campaign execution can purchase software and services from companies such as L-Soft, EmailFactory, MessageMedia, MailKing, Roving, and Responsys.
Advertisers and agencies seeking more scalable help and additional staff resources can deal with companies such as FloNetwork, Accucast, Digital Impact, e2 Communications, and Post Communications/Netcentives.