E-mail List Testing: Tactics to Try

Developing an effective e-mail prospecting program, especially amid today’s heightened sensitivity to spam, can be a tough proposition, even for the most experienced direct marketing expert.

To be sure, the raw numbers needed to justify large-scale, opt-in e-mail testing just haven’t been that great. In fact, some catalogers have given up on e-mail prospecting. But there are some trends in e-mail marketing that could make the sales channel more productive for mainstream catalogers.

First, a quick background of the e-mail list industry: At the height of the e-mail craze three years ago, there were many compiled and category-driven lists (i.e., consumers who chose specific categories of interest) on the market. There were no merge/purge or direct-response files on the market.

At first glance it would appear that very little has changed since then. While compiled e-mail files have grown, very few direct response files have come to market. In fact, a recent informal review done by Marketing Information Network found there are now more than 1,900 e-mail lists and a total non-deduped universe of more than 4 billion names. But out of all these names, only 10 lists were true direct-response e-mail files such as Rodale or Time Inc. The rest were compiled or category-driven opt-in files.

That said, you can get e-mail prospecting to work. To help explain, I’ll examine one hypothetical case study:

Company A is an outdoor-apparel cataloger with a well-designed Web site and a great deal of Internet experience, mainly in affiliate programs and cost-per-click search engines. It has an average online order of $80, and it needs a break-even gross cost per customer to continue with a program.

Company executives decide to test opt-in e-mail to generate new sales. They initially test a category-driven list with an Outdoor Apparel interest selection. They rent 10,000 names at a $45 CPM.

They have great HTML and text creative, but generate a click-through rate of only 0.75 percent and a click-to-conversion rate of 5 percent. In other words, they generate four orders, $120 in sales and pay $450 to get them — well above their acceptable cost.

Let’s look at some ways Company A can make use of new e-mail strategies to generate sales at an acceptable cost per customer.

Direct-response, Opt-in E-mail Files

Direct-response, opt-in e-mail files (that is, actual buyers’ or subscribers’ e-mail addresses) are starting to come to market. This is a key development, because the e-mail industry finally is beginning to evolve toward the proven direct mail model featuring traditional recency, frequency and monetary information along with testing opportunities.

While most of the files are comprised of publication subscribers, not catalog buyers, the quality of the data is an improvement over the multi-million-name compiled files of old. Also, there are great opportunities for dual e-mail/direct mail campaigns. Let’s see how this might affect Company A.

The catalog’s executives decide to give opt-in e-mail another try. They look at their direct mail history and discover one of their top publishing continuation lists has an e-mail file available. They test it by taking 10,000 names at a $150 CPM with a selection of Three Month Paid Direct to Publisher.

They use the same creative as in the e-mail campaign noted above, but this time they generate a 3-percent response rate and a click-to-conversion rate of 5 percent. They generate 15 orders, $1,200 in sales and pay $1,500 to get them.

While this still doesn’t meet their initial goals, if they negotiate the CPM down to $100, it would be a successful continuation.

Following are a few caveats about true direct response, opt-in e-mail files:

• Pricing still is high. Many list owners say the scarcity of direct response, opt-in e-mail files justifies a high CPM of $200 or more.

• Quantities are much less. Many of the large, compiled, opt-in e-mail files are in the millions, while opt-in files from publishers tend to be in the hundreds of thousands at the most.

• They’re still untested. While the idea of direct response files is interesting, it’s still an untested arena. Keep in mind that — as a general rule — direct mail will continue to outperform e-mail by a ratio of 10-to-1.

Modeling Opportunities

Catalogers have been using models to improve direct mail response for years. Recently, those who offer large, opt-in, e-mail databases have begun to develop modeling programs, too. This is an important step, because it gives direct marketers the same chance to refine raw information that they normally have with direct mail.

It’s particularly important for opt-in e-mail because the level of selectability on most e-mail lists generally is limited. Plus, as more direct mail response files come to market, the opportunities for pulling modeled e-mail and postal addresses will grow. Following is how this trend might play out.

Our hypothetical Company A supplies its best Internet buyers to Modeling Company X. They take 10,000 names from the top segment at a $175 CPM. The click-through rate is 2.5 percent, and the click-to-conversion rate is 5 percent. The cataloger generates 13 orders with total sales of $1,040, and has a list cost of $1,750.

Like direct mail, the CPM still is too high, although price negotiation could put costs more in line. The advantage for Company A, however, is that it has 100,000 additional names in that top tier, so it has true roll-out potential.

Here’s what to study before taking advantage of e-mail modeling opportunities:

• Quality of data. Modeling often is used as a catch-all to improve a low-quality file. But modeling e-mail lists may not improve the response rates enough to meet your customer-acquisition cost goals. After all, modeling e-mail is still a new concept.

• Modeling sophistication. Most modelers use techniques borrowed wholesale from direct mail. While applying direct marketing principles to e-mail makes sense, e-mail ultimately is a different medium that has its own set of rules.

Exchange Relationships

Many catalogers assumed that exchange relationships would develop quickly in the e-mail space. This just has not happened. The reason can be found in the non-anonymous character of the e-mail medium. An e-mail must have a header detailing its source. This squelches the competitive exchange of e-mail files.

But there are opportunities here, and again, they’re in the publishing world. Many catalogers already are developing e-mail exchange programs with appropriate niche publishers. Such exchanges certainly don’t look like typical postal exchanges. Often, the “exchange” is simply space at the end of a pre-existing communication — for example: “As a valued buyer of X, we thought you’d be interested in Y.”

Staying with the scenario mentioned earlier, Company A has a 100,000 name e-mail file and looks for an exchange partner. It finds a company that publishes magazines for enthusiasts of the outdoors. The publisher has 100,000 names and is interested in exchanging e-mail files.

The resulting campaign gets an 8-percent response rate and a 5-percent click-to-sale rate, with no list costs beyond pushing its partner’s message. Not bad!

The lesson: Given good file sizes, e-mail exchange makes economic sense. That said, you must keep the following in mind:

• Publishing vs. catalog. Because it can be difficult to get direct mail publishing files to work for catalogers, catalog companies have been slow to realize the opportunity here. Yet as is obvious from the numbers above, it’s worthwhile to actively pursue this type of relationship.

• Logistics. The biggest problem I’ve seen with e-mail exchanges has been simply getting the e-mail out the door. Because you’re sending your partner’s e-mail to your own housefile, your partner’s creative must fit with your e-mail service bureau’s creative specifications. Add in the task of tracking unsubscribes, and this type of campaign can be difficult to get started.

Nearly every catalog company I’ve spoken with says, “Opt-in e-mail just doesn’t work for catalogers.” And to be sure, kicking off a strong opt-in e-mail program can be a tough job. But the tips and trends listed above may prove that e-mail still can have a place in your online marketing mix.

Tim Neeld is an account manager at Peterborough, NH-based Millard Group, one of the nation’s leading providers in the direct response industry. He can be reached at (888) 238-2464, ext. 2353, or by e-mail: tneeld@millard.com.