Trade CPM for a Performance-Based Ad Pricing Structure

Increasingly, online marketers are turning away from traditional modes of Internet advertising, such as banner bars purchased on a cost-per-thousand basis, and are moving to advertising based more on performance.

Industry analysts project that the rapidly expanding portion of the fast-growing online advertising market will be performance-based marketing, rising to more than 50 percent of a $22.2 billion market in 2004, from 15 percent of $2.8 billion in total expenditures in 1999.

While the banner bar industry is moving slowly to adopt performance-based pricing models, one part of the business — e-mail — is already positioned to capture the lion’s share of the new market.

E-mail advertising is the performance-based marketing mechanism of choice. Because of its unique qualities — such as the ability to deliver a complex message in rich media and the ability to personalize each message using data derived with permission from each recipient — e-mail offers the potential to fetch response rates far in excess of the typical banner bar campaign. However, there are a few key rules to follow, because even the best-intentioned e-mail campaign can come in under par — or, worse, can damage your brand — if it is not carried out correctly.

The following five rules are an essential framework for helping consumers achieve their goals:

Privacy. Make sure the e-mail service you use has made a strong privacy pledge to the consumers enrolled in it. Companies, for instance, should assure their customers that they will not reveal personal information to a third party without a customer’s express permission. Most consumers take this very seriously, and you should, too.

Relevance. With a strong privacy pledge in place, consumers will be more willing to share personal information with you — by filling out a demographic profile and sharing basic or even more detailed behavioral data. Such data lets you target messages according to members’ interests. Online consumers appreciate relevant offers as much as they are frustrated by unrelated ones. In an age of information overload, the more targeted you can be, the better.

Control and churn. Before selecting an e-mail delivery service, ask yourself: Does the service allow the consumer to control the experience by, for instance, controlling the content of ads through a personal profile or the volume of e-mail sent to him? Does the service give consumers a clear way to opt out of mailings? Giving the online consumer more control over the direct marketing relationship is a sure way to build strong relationships.

Consumers who feel they do not control the service will more likely view the information as spam (unsolicited commercial e-mail), which can hurt your brand. Make it easy for consumers to adjust their personal profiles to solicit only relevant offers, and make it easy to opt out. Allowing consumers to participate in this way creates a “warm and fuzzy” feeling, which translates into a higher response rate for advertisers. In other words, look for marketing partners with strong member relationships, not just list brokers.

Brand strength. Protect your brand in an e-mail campaign by making sure you keep good company. Are you associated with strong brands like Sprint and Nordstrom in the consumer’s e-mail box, or are you joining get-rich-quick schemes and Florida real estate offers? An atmosphere of trust grows in the light of strong brands. Take advantage of it.

Engaging interface/personalization. Lastly, keep in mind that e-mail is no longer just a text message with lots of mysterious code. For instance, send e-mail in HTML form (with all the bells and whistles of today’s Web pages) and personalize the message with each member’s name and any other relevant information, in accordance with your program. These interactive techniques can increase your brand presence substantially, which translates into higher general awareness and higher response rates.

E-mail can be an enormously powerful and cost-effective medium — a piece of targeted, HTML-enhanced e-mail costs less than the price of a postage stamp, yet it delivers results much more often than offline direct mail. And responses start piling up in a matter of hours, as opposed to days or weeks in the physical world. But effective e-mail advertising requires direct marketers to play by a new set of rules — many of which are listed above.

If the e-mail marketing service you use is not playing by the new rules, you should seriously consider it a major risk to your brand. If it is playing by the rules, then you will, without a doubt, enjoy stronger response rates, a higher return on investment and, best of all, a better relationship with your customers.

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