The following article comes from the upcoming book “What Works (and What Doesn’t Work) in Database Marketing” (McGraw-Hill), which is scheduled to be published in January.
A name and address with the matching e-mail and permission to use it can be a valuable commodity, much more valuable than a simple name and address. There are many reasons:
o It is far cheaper to send e-mail communications than direct mail.
o Since e-mail is so cheap and fast, you can undertake many communications that you simply could not do with direct mail.
o Using e-mail, you can build close relationships that you could not do with direct mail or phone. As a result, the e-mail will add to the retention rate of certain customers, which adds directly to their lifetime value.
o E-mail can be used in viral marketing. You can get customers to write to each other, passing your message to other people that you don’t know.
o E-mail’s speed lets you send messages that could not be sent by any other medium. Airlines, for example, send weekly messages about the availability of unsold seats at rock-bottom prices. These messages could not be sent by mail because of the time or by phone because of the cost and the annoyance factor.
To determine the annual value of a direct mail and e-mail name, you factor in the value for a regular promotion, low-cost-item promotion, last-minute special, retention messages, follow-up messages, viral marketing and newsletter.
In this article, I will explore the basis for the first three valuations plus the newsletter. In a subsequent article, I will explain how the other values are derived.
Regular promotions. Message for message, e-mail is cheaper to send. The response rate to direct mail is higher than that of e-mail. This will normally be true, though not always. The higher cost of direct mail swamps the improved response rate, giving the profit per name of e-mail a 60 percent lift. At eight promotions, your e-mails are worth $1.28 per year, or 48 cents more than with a simple name and address.
Low-cost-item promotion. Many items simply cannot be promoted profitably by direct mail. One is music CDs, which sell for about $20 each. The profit to a company selling a $20 item directly is probably on the order of $8 per item.
Direct mail is a loser so no one would try it. Each e-mail name results in found money.
Last-minute specials. Certain companies have last-minute specials. These include airlines, trains, hotels, rental cars, cruise lines, live theater, sporting events and concerts – any company that sells something that disappears if not used. It also applies to retail stores having a sale that ends in a very few days. These things cannot be sent by regular mail because it is too slow.
A last-minute special is pure profit. The seats are going empty. It costs very little to let people sit in them. Even at a very low response rate, the profits are substantial, and the annual value of a name is considerable.
Newsletters. E-mail newsletters have become popular. They save a lot of money. They often get a good response rate. Newsletters result in increased retention, sales and loyalty. They are usually worth the effort if you can put something into them that your customers want to read.
The numbers for your company may differ from these, but the computation methods don’t. All direct marketers should do this kind of analysis to determine the value of their e-mail names.
Once you know this value, work to capture customer e-mail names and the permission to use them.