E-Mail or Direct Mail? A Retailer’s Perspective

As a recovering dot-comer, I recall when e-mail was the greatest form of communication both on an acquisition and a retention front, at least at an Internet pure play company. My team had every type of segment or bucket imaginable and dozens of weekly e-mails based on purchase behavior.

It was customer relationship management before there were millions of companies claiming to be leading-edge solutions. And, more importantly, it worked. We weeded out less desirable, bottom-of-the-pyramid customers and focused the bulk of our marketing dollars on our valuable top-tier customers. And then the bust came. But the advanced personalized segmenting and messaging knowledge that I — and many former dot-comers — gained never left.

Back at a brick-and-mortar retailer, I now find challenges with e-mail marketing. I’m a marketing professional with a top West Coast specialty sporting goods chain. We have an Internet retail site in which our brand name is licensed to an organization specializing in sporting goods retailers. They handle inventory, fulfillment, front end, back end and customer service for the top 10 sporting goods retailers in the nation. Though excellent from a cost perspective, it’s a bit of a disconnect for our customers. But the cost of setting up the technology alone outweighs the slight mismatch of offerings between in-store and online.

My company caters to a high-income consumer. Most of this group is in a slightly older age bracket at 40-59. There may be a greater preference for paper mail over e-mail in this bracket over a younger segment. In a recent focus group held by my company, we found this to be the case amongst the older age bracket. A recent increase in spam was mentioned by 13.6 percent of respondents.

One main reason for preference of paper over e-mail was that the quality of message in the paper mail had improved. Three mailings before this focus group, we increased the amount of pages by 50 percent in each of our pieces and increased the weight of the paper. Such a slight change may have favorably altered the perception of the quality of our direct mail pieces in the mind of our customer. This same improvement is difficult to get across via e-mail other than by design or copy quality. We are testing this further to see whether the change in communication preference is because of a change in quality of the paper mailing or a shift away from e-mail.

An age group is one segment to track, but also key to marketing in sporting goods is to track preference of sport and identify potential additional sports these groups may participate in based on analyzing our database as a whole. Within each segment, there are crossovers into other segments. Who would have thought a long-distance runner also likes to fish? We’ve identified that one of the best customers to target through segmentation is in the preseason baseball crowd. This segment actually goes from sport to sport as the year progresses, from baseball to football to basketball and back again. As this crowd ages, and their children grow, this segment moves onto new sports activities.

When targeting, I can look at a sample base of customers who buy baseball equipment and look at factors that positively correlate, either between other items purchased, other sports, age, income, and so on. I can then look at my own database and pick these criteria as well as supplement with list buys that fit the same criteria. Our National Change of Address records are updated on a timely basis. When it comes to e-mail, the lists become outdated very quickly. According to a recent survey, 30 percent of consumers switch their e-mail addresses at least once yearly. In my own database in just six months, I’ve seen an alarming trend: 32 percent of my e-mail database customers have changed e-mail addresses versus just 1.8 percent of my mailing addresses. I’ve tried appending e-mails but have found that, compared with NCOA costs, I do not come ahead on my ROI. According to Rapp Collins Worldwide, the cost of NCOA is $1.25-$2/M versus 14-24 cents per e-mail append, depending on quantity. According to the U.S. Postal Service, the NCOA match rate last year was only 4.1 percent. For every 1 million names, there were only 41,000 moves. It’s a lot easier for a consumer to change an e-mail than to move. Also, the savings from running an NCOA are significant compared with an e-mail append. An e-mail that hard fails, meaning the e-mail is returned as an address no longer in service, does not have a cost associated with it. For every direct mail piece that does not reach a customer, there is an opportunity cost that is lost.

We take our database and analyze sport or activity interest codes that have a positive relationship with other sports or activities. An adult age 40-59 with a child in the household age 10-14 in our database has a positive relationship with sports such as hiking, camping and skiing, but a negative relationship with scuba diving, snowboarding and fishing. From these relationships, I am able to quickly define additional list buys needed to supplement the mailing. If I want to add an e-mail campaign to the project, I find the e-mail append efforts yield very few responses.

My last campaign yielded less than 0.5 percent out of 500,000 contact records.

There’s the incentive or coupon offer itself. With direct mail, I can assign each customer a redemption barcode and an offer specific to the segment in which they fall. With e-mail, I can try to assign a barcode, but we fall victim to “bargain/coupon” sites, which do nothing but spider, meaning search and “grab” the Internet for coupons. Between September 2004 and March 2005, coupon sites posted 87 percent of the coupons I sent out.

Even some of our customers are quick to post their coupon on one of these Web sites. As a specialty retailer, there’s a high focus on customer service, and we do not turn away the lucky recipients of these coupons. The only issue with this is that the mass public obtaining these coupons dilutes the offer, which was intended for a particular segment. One would argue that a mailed coupon could just as easily be copied and distributed. This is true. However, we find that the photocopied coupons we receive are less than a dozen per mailing vs. the hundreds we received from an e-mail effort.

It is also increasingly difficult to find safe sources for e-mail appending. Even the best, most control-oriented services can fall prey to spam accusations. Even a best-intentioned consumer is quick to report spam. It is easy for recipients to quickly report a company with just one click. A company can be blocked by hundreds of ISPs and IP addresses overnight. This, in turn, can create a lot of paperwork to unblock the hundreds of addresses you’ll be instantly blocked from e-mailing. As the act is new and relatively unregulated, it is very difficult to unblock a company.

It is almost not worth it these days to e-mail. In one instance, a customer who opted in to receive our e-mails on three occasions reported an e-mail he received from my company as spam. It took just one click to create a lot of work for the ASP. Because we keep records of all opt ins, both on paper and online, the ASP was able to quickly resolve this issue. With an e-mail append, there’s no record of an opt in on the company side other than what the append company provides. This opens a greater chance that, even if there was a prior relationship with the customer, they may file a spam report. The customer may simply not want e-mail as a preferred method and thus report the communication as spam versus opting out.

Many will argue that as you convert a customer’s communication preference to e-mail, you save money. I have not found this to be the case for several reasons.

There’s the cost of going with a good e-mail service – one that can resolve customer spam complaints and carefully track opt outs and past communication as well as merge/purge new results with contact records.

E-mail append fees are much higher than NCOA charges when comparing the number of times a consumer changes an e-mail address versus a move of household address.

There’s a cost for non-targeted couponing, meaning receipt of coupons not intended for a specific customer base. On one recent mailing, the cost of non-targeted coupons redeemed, based on one barcode redeemed multiple times (a clear indication of a Web posting), was above $25,000. A small amount in theory, but over a year of campaigns, it can exceed $1.3 million.

E-mail will remain a key part of every campaign we do. Though appending may not be cost-effective compared with a simple NCOA, customers do come in to our retail stores and request e-mail as a form of communication. Statistics by age show the younger segment in our database (think snowboarder) considers e-mail their preferred method of communication.

The breakdown of customers with e-mail as the preferred communication vehicle is: 36 percent, 18-24; 23 percent, 25-34; 16 percent, 35-49; and 12 percent, 50-plus. The remaining 13 percent are 14-17, and we choose not to e-mail this segment. Opt ins for e-mail via a simple comment card in-store come in at a rate of 1 percent per month. From the drop-off rate in e-mail addresses of 32 percent over just six months, one can see it is difficult to increase an e-mail database from this effort alone. If the Internet portion of our retail was not outsourced, the database would likely grow at a greater rate from order-related opt ins. As this is not the case for every retailer, some may find better success and ROI with e-mail campaigns over direct mail.

So, e-mail or direct mail? It depends on your customer base. Look at your database and ask your customers what they prefer. Permission is the best way to ensure customers get the communication in the format that will best generate results. For many retailers, e-mail is most likely an effective tool for prospecting, targeting and segmenting.

For my company, the cost and time to aggressively grow an e-mail database outweighs classic paper direct mail marketing.

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