Disparities Between Guessing and Knowing

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The Internet is the perfect medium for direct marketing, and e-mail is the delivery mechanism that makes it work.

E-mail done right is personal, immediate, compelling and action-ready - the ideal tool to drive response for online marketers. But unless you incorporate response tracking into your e-mail campaigns, you will be guessing about what drove your response.

Traditional measurement is limited. Direct marketing nearly always contains a call-to-action: visit the Web site, request additional information or buy an offered product. At the simplest level, it's possible to track response to your e-mail campaign by looking at incremental results during the time period immediately after the mailing. Since around 85 percent of the response to an e-mail offer is received within the first 48 hours, it's a safe bet that any lift you see during this time can be attributed to the campaign.

Distinct URLs allow accurate tracking. Virtually all e-mail software today supports the inclusion of hyperlinks that allow the recipient to navigate directly to a specific location on your Web site. This means that you can use existing Web-traffic logging systems to measure response. Simply include a distinct set of URLs for the different offers in the e-mail, then track the number of clicks on each URL to calculate the various response rates.

Another useful technique is to determine your most effective offer by employing split-stream testing on a subset of your e-mail list. For example, a pricing test to measure the relative effectiveness of "$3.99 each" vs. "two for $7.98" can be accomplished by creating two different e-mails with unique URLs. Send each to a random sample of 1,000 recipients and measure the number of clicks on each offer. Because the response to e-mail is so immediate, you can test on Monday, know on Tuesday and mail the full list on Wednesday.

Have you ever wondered how many people opened your direct mail piece? With HTML e-mail, you actually can measure the open rate. HTML e-mail typically contains requests for images to be displayed on the recipient's screen. These images are delivered from an HTTP server, but not until the e-mail is opened. By measuring the number of HTTP requests at your server for a specific image contained only in your e-mail campaign, you can infer the number of e-mails that were opened.

Response at the individual level. When you combine database marketing techniques with e-mail campaigns, you gain powerful insight into each customer's preferences and behavior. Individual tracking is typically accomplished by including a unique customer ID in the hyperlink in each e-mail. When the recipient clicks on this hyperlink, a record is written into the response database as the click is directed to the appropriate offer on your Web site.

Over time, this response data forms an increasingly accurate picture of the type of offers most relevant to each customer. And when combined with the individual's transaction history, the resulting database can be the foundation of the most accurate predictive models available. At Tower Records, for example, individual preferences and behavior are used to deliver unique, relevant e-mail offers to each customer. Because customer response is used to drive subsequent personalization efforts, the e-mail campaigns get better and better. Tower saw its response rate increase from 4.9 percent to 14.9 percent over a 10-week period.

Measuring return on investment. With the tracking capabilities of the Internet, you are now able to tie revenue and profitability directly to the marketing efforts that generated them. Unique individual hyperlinks in your e-mail marketing campaigns allow you to track response all the way through purchase.

The ROI calculation is simple: divide the net profit generated by the campaign by the costs of creating and delivering it. For example, let's assume you have an average order value of $60 and a gross profit margin of 40 percent, or $24 per order. If you sent 100,000 e-mails at 5 cents each, the campaign cost you $5,000. A typical response rate of 10 percent means that 10,000 people clicked on the offer. If 5 percent of these responders convert to purchasers, you have 500 new orders. That's an incremental gross profit of 500 times $24, or $12,000 - subtract the $5,000 cost of the campaign to arrive at a $7,000 net profit. The ROI for this campaign is $7,000 divided by $5,000, or 140 percent.

Double-digit response rates and triple-digit ROIs are not at all unusual for e-mail campaigns done right. The economics of e-mail, by eliminating the postage and production costs of traditional direct marketing, are driving explosive growth in the medium. And the ability to track every aspect of the campaign at the individual level means that now, you can know what works.

Ray Kaupp is vice president of marketing at Digital Impact, San Mateo, CA. His e-mail address is Rkaupp@digitalimpact.com.

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