The Economics of SPAM and Why it is Making Your Metrics Irrelevant

January 30, 2012  |   Marketing   |     |   0 Comment

We have all noticed the explosion of SPAM since we started using email. The CAN-SPAM act slowed SPAM for a little while, but not long. In fact, the most aggressive emails we get seem to be the ones we want, Groupon Offers, Living Social deals and, most pertinent to our discussion, those that showcase content within our particular field of expertise. Direct marketers get an array of email focused around different marketing tactics, or the new webinar released by the DMA. Some of us are engaged in these emails, though I suspect many of us keep receiving them out of guilt, or some need to “keep in touch” with our profession without really doing so.

Why do we send and receive so many emails? Because the economics of email favor more interaction. The incremental cost of sending an additional email could be $0.10, $0.05 or even  nothing if you pay a set subscription price for your email platform. The return on investment for email marketing is therefore extremely high. Just 1 response in 100, or even 1 response in 10,000, may mean a positive return on investment. Even in a demand generation campaign where 1 interaction only correlates to a 10% increase in the likelihood to buy, with a product price of $20,000, that 10% likelihood equals $2,000. Therefore, if you pay $0.10 per email (which is high), then you might be willing to send 20,000 emails to get that 1 interaction, for an awful 0.005% response rate.

Do not take this article as an excuse to start spamming your prospects, because while 0.005% may be acceptable from a business standpoint, it seems morally unjustifiable. But it does illuminate the curious economics of email marketing, where incentives always point to more email rather than less. And this means email from everyone. You didn’t think that you were the only one emailing your prospects, did you? If an email recipient is properly researching different solutions to his problem, he probably receives emails from all your competitors as well. That means that, even if you maximize the response rates for emails your prospects receive, they will still receive too many emails than optimal because competitors are doing the same.

That means, to maximize response rates to your emails (clickthrus, downloads, webinar attendees, direct sales), you may need to send more or less email. Say, for example, that prospects decide who to choose by the perceived level of engagement from a prospective vendor. You send email once per two weeks while your competitor is sending emails every day. That difference in engagement may lead your customer to believe that the competitor has more supporting material, and thus better products. But what if one of your prospects just cannot stand the aggressive communication? Then your competitor’s email series will turn him off, and you may end up with the sale.

You may be thinking, “But I don’t know what my competitors are doing.” And you won’t. Even if you signed up to receive every email they send, the combination of activity-driven triggers on a competitor’s site means that there is no way you can figure out how they approach various prospect segments in your market.

So you’re stuck. You and your competitors send more than enough emails to your prospects, knowing full well that you are competing for his attention. That is the economics of spam, and it is leading marketers to the sort of anecdotal judgments about email marketing that should have been long banished by more effective analytical tools.

There is an answer, and that is to survey your prospects and customers. After nurturing prospects and customers for a certain period of time, ask them questions about which other competitors they considered, and who else they are receiving email from. Conceptualize your demand generation strategy so that you can divide it into attributes, allowing prospects and customers to score those attributes vs. competitive marketing programs. You will notice differences — in scores by competitor considered, between customers vs. prospects, from segment to segment, etc. All these variations will point you towards your own competitive advantages that your marketing should showcase, and the weaknesses you can work to improve.

Market research is somewhat more subjective than measuring exact response rates, or correlating views of certain content to direct sales. But in sacrificing objectivity, you will start to look at metrics that really matter instead of those metrics which are just available. It is always better to find inexact answers to pertinent questions, than exact questions to irrelevant answers. And with ever more email being sent by more and more companies, simple clickthru and conversion rates are becoming less relevant every year.

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