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CPM Pricing Is To Blame For Bad eMail Marketing March 4, 2008

Posted by Elana Anderson in Customer Analytics, Database Marketing, Marketing Technology, Online Marketing.
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One of the issues I am currently working on is to understand what it takes email marketers to move beyond “fire and forget” (or “batch n’blast”, whatevah) marketing. I find that while marketers intellectually agree that more targeted, timely, and relevant email communications will be better received by customers and increase response, basic economics is a major barrier to progress in that direction. Why? Because email marketing is so darn cheap that every campaign delivers ROI – even if the campaign is totally untargeted (You ever wonder why spammers still spam? They make money doing it).

Relevance Isn’t Free

I’ve spoken with a few dozen email marketing leads from large companies and strong brands in recent months. Their hearts and minds are in the right place. Broadly speaking, they:

  • Are concerned about opt-outs, unsubscribes, and long-term engagement with their email programs.
  • View email as a tool to develop customer relationships.
  • Are working hard to employ tactics – like multi-layer targeting, segmentation, and event triggers – to improve the relevance of their communications.

Unfortunately, as these marketers strive to improve their email communications, they inevitably run into a series of challenges including:

  • Availability of timely, high quality data
  • Access to skills that know how to turn data into actionable information
  • Operational knowhow to automate data-driven processes

Wait… I’ve heard these problems before! In the 1990’s, when I worked with catalogers, financial services firms, and telcos to build some of the first big database marketing environments. Interactive marketers today sound just like big direct mail marketers did then.

Unfortunately, for the interactive marketing folks, the similarities stop there… Even though the highest percentage of upside from a marketing database typically derives from new streams of revenue, direct mail is so expensive that the mailers can justify a marketing database and a top-notch analytics team to help manage costs. Unfortunately, since email marketing is so cheap, interactive marketers can’t make the same argument.

Email Marketing Grew Up Out Of Advertising, Not Direct Marketing  

Email CPM (cost per message) pricing was borne out of mass advertising which has historically focused on how many eyeballs see a message. Take a huge list, send the same message to everyone, and pay volume pricing – the more you send, the cheaper it is. OK – perhaps this made sense in 1997 when email marketing was a novelty but, let’s be honest, this pricing model is totally out of whack with how marketers want, and need, to leverage email today.

To their credit, leading email marketing service providers (EMSPs like Responsys, e-Dialog, Epsilon, and Cheetahmail) have been actively working on the applications that they provide to deliver:

  • Access to a richer dataset.
  • Tools that support data slicing/dicing and more granular targeting.
  • Improved campaign design and management functionality like event detection, rule- based dynamic content and dialog campaigns, and improved campaign automation.

But, as these vendors work diligently to provide their clients with the tools that they need to deliver targeted, timely, and relevant communications, they consistently struggle with downward pressure on CPM rates (which, today, are fractions of a penny per message). Last week I spoke with the CEO of a leading EMSP who told me that no matter what pricing elements they propose, prospects consistently turn the pricing into a CPM calculation to compare competitive vendors.

The Cost Of Relevance

While I am all for generating healthy competition amongst vendors, companies need to understand that boosting the relevance and sophistication of their email programs comes at a cost. What are the major cost components?

  • Analytic data mart: A “data sandbox” that provides an area to explore data, profile subscribers, analyze behavior, and identify key pieces of data that can be leveraged to increase the success of your email programs.
  • Analytics team: You have a sandbox, you need people that know how to play in it, develop business hypotheses, predict results, etc.
  • Marketing database: Different from the analytic sandbox, this operational marketing database is a simplified data structure and only incorporates the data required to define, execute, manage, and measure current email programs.
  • Campaign management and automation tools: These tools sit atop the marketing database. Marketing users (or service provider staff) leverage the tools to define, automate, and execute campaigns.

Recognize that all of the things I note above can vary dramatically in cost and scope and can be achieved in different ways:

  • In partnership with an email service provider.
  • In partnership with other providers (e.g., database marketing services providers like Merkle or Epsilon).
  • If you have the in house skills, internally in your own shop with support from your IT group.
  • A combination of the above.

Which way to proceed depends on a number of factors that I will be happy to address in future posts. But, the key point is… If you don’t do these things somewhere, you will not be able to improve the relevance and sophistication of your email programs.

Is eMail Doomed As A High Quality Relationship Marketing Channel?

Ultimately, I am trying to help email marketers build a business that will help them increase the revenues and longevity of the email channel. That case requires investment in improved data capture, data integration and management, and data analysis capabilities – all of which cost money. Email marketing specialists with deep knowledge of the channel are in a great position to offer these capabilities, but these vendors are stymied by CPM pricing. What will it take to truly move email marketing beyond its position as just another “mass advertising” channel?

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Comments»

1. CPM Pricing Will Ultimately Put EMSPs Out Of Business « NxtERA Marketing Blog - March 5, 2008

[...] Bronto, CPM rates, Email Marketing, marketing database, segmentation, targeting trackback After my tirade yesterday against volume-based CPM pricing in the email marketing sector, I was disappointed to see [...]

2. Akin Arikan - March 12, 2008

Hi Elana,

Good point about the cheap price of blasting email that makes it more difficult to argue that a marketing database and targeting efforts should be applied. But aside from the cost of sending email, would you think that there is an opportunity cost to blasting unwelcome email? The loss of attention may follow. As soon as a recipient marks the sender as spam all future attempts to communicate land in the spam folder for this person.

I suppose that a marketer would only perceive this as an opportunity cost however if they believe in the scarcity of customers ( i.e. Peppers & Rogers point with their previous book). If the marketer however believes that there is an endless sea of opportunities, then the cost of losing any amount of opportunities would be seen as negligible.

And in Internet marketing, maybe marketers have been right to think that there have been many more customers to acquire (except at the big brands).

Thanks for the detailed insights.

3. Elana Anderson - March 13, 2008

Akin,
Thanks for your comment. I absolutely agree that there is an opportunity cost to blasting unwelcome email! Unfortunately, no one has quantified that cost. I’ve been talking with tons of email marketers recently and asking this question of everyone I can find trying to root out a business case. And, without cold hard proof of opportunity cost associated with bad email, bad email will continue to be pervasive — because it’s the path of least resistance (easier and cheaper) and because email teams are understaffed and underfunded to behave differently.

I would love to see more leadership from the EMSPs and other marketing technology vendors on this front. For example, most of the measurement reports provided by the vendors only offer campaign analysis not cross-campaign analysis or (dare I suggest it) customer analysis. Yet, the data is (or darn well should be) resident in their systems to support this analysis. By trending metrics like engagement with the email program over time, service providers could help their clients start to understand the impact (positive and negative) of email. Another opportunity for leadership is in the area of testing. It’s nice to see emailers leveraging tools like A/B testing and multivariate testing, but these testing tactics are still specific to a campaign. For many emarketers, the idea of control group holdouts to help understand the ROI is still a pretty foreign concept. And, again, few of the providers provide the functionality or imbedded methodology in their tools to help emarketers move forward.

Best,
Elana

4. Jon Miller - March 20, 2008

Elana — Perhaps the problem with email and EMSPs is that the focus is too narrow.

As you point out, the only way to make email relevant is with a good marketing database, triggers and event detection, dialog marketing capabilities, and campaign management and automation tools. Those items describe the beginnings of a complete relationship marketing solution, of which email marketing is just a channel. Maybe it’s time for email providers to evolve into relationship marketing providers.

5. Matt - July 8, 2008

Hi Elana,
Bronto has taken CPM email to a new low introducing ‘use your capacity or lose it’ pricing model.

Bronto customers that pay quarterly are now faced with a cellphone-like contract where if your ‘email minutes’ are not used in that quarter, they expire like bad produce.

The ramifications are for customers to send more messages in order to not lose their email minutes. This is bad business.

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