Direct marketers aren't ready to use e-mail — yet

November 23, 2001

Pity the poor direct marketer.

The generally sour economy is one problem. And the continuing crisis in the nation's mail system is another, making people wary of opening unsolicited or strange-looking letters.

Unfortunately, those letters are the lifeblood of many a direct marketer's customer-acquisition campaign. As a result, an industry that was already hurting before Sept. 11 is in deepening trouble.

In response, some in the industry have been holding back on their mailings, at least temporarily. At the suggestion of the Direct Marketing Association, which held its 84th annual convention last month in Chicago, others have announced plans to alter their mail packaging to make it appear less threatening -- by using windowed envelopes, for example, and including clear return addresses. Still others wonder whether they should, at last, turn from regular mail to e-mail as a means to obtain new customers.

The answer is probably not, at least not yet.

"I don't see people switching to e-mail," said Robert Wientzen, the chief executive of the Direct Marketing Association. "I tell people that it's coming, but nothing is as ubiquitous as the regular mail. It's still the most effective medium we have."

Wientzen's comment reflects the consensus among direct marketers. E-mail has its advantages -- incredibly low costs, for one -- but it remains relatively ineffective as a way to generate new sales leads, which are traditionally garnered from mass mailings to consumers whose names appear on mailing lists that marketers rent from list brokers or other sources.

Why doesn't cold e-mail work? Many people dislike direct mail of any kind, routinely discarding it unopened. But an even greater percentage of recipients seem to loathe its Internet equivalent, disparagingly called spam. These consumers routinely delete unsolicited messages without even reading them. Add to that a relative paucity of available e-mail address lists, containing far fewer names than traditional mailing lists.

As a result, e-mail acquisition mailings yield relatively low response rates compared with regular mail and actually can cost much more for each lead generated.

Jim Nail, online marketing and advertising analyst at Forrester Research in Cambridge, Mass., says e-mail lists are often priced unrealistically high. "People who own e-mail lists have this delusion that their lists are worth $100 to $150" per 1,000 names, he said. "They should be charging $30 to $40."

Rates vary, of course, both online and off, depending on a number of variables such as the nature and cost of the product to be promoted. Sellers of higher-priced products are able to pay far more to acquire customers than vendors of cheaper wares can justify. Still, list costs are higher for e-mail than for regular mail across the board, according to Jared Blank, an analyst for Jupiter Media Metrix. Although market realities have lately pushed rates downward, they "are still too high," he said.

In a recent report, Jupiter found that although the average cost of renting an e-mail list has declined to $125 per 1,000 names from $200 last year, the response rate was such that total cost of acquiring one customer through e-mail rose to $125 from $114 last year.

That is much more than the average industrywide cost through ordinary mail -- $66 a customer last year, according to Jupiter, including production and postage as well as the cost of renting the mailing list, which averaged $110 per 1,000 names.

The trend is directly traceable to jaded consumers who delete unsolicited e-mail messages with more dispatch now than before, Blank said, a trend that most people say will only accelerate.

So, beyond the obvious -- better lists at lower rates -- what can the industry do to make e-mail marketing work better?

Some believe that the answer is to transform acquisition e-mail into permission e-mail. In a technical sense, that is already happening: When consumers agree to receive e-mail from one company, they are often agreeing to accept it from others who may rent a list with their names on it as well. That does not mean, though, that consumers will read what they get, because e-mail from unfamiliar companies still looks like spam in the in box, with or without permission.

Better to get direct permission from people who are not yet customers. To do that, marketers have to "incentivize them," said Jonathan Jackson, senior analyst for online marketing at eMarketer Inc. That means giving them something they want, he said, and advertising it in banners, in other Internet ads and even in print ads with a company's Internet address prominently displayed. Prospects will then presumably go to the site and opt in to receive e-mail.

According to Gideon Sasson, executive vice president of the active trader group at Charles Schwab Inc., the technique works. His company does "a bunch of things" to generate leads, including buying lists, but also "introducing offers to prospects" on its Web site. To entice non-customers who view the site, Schwab also offers a number of features, including a daily e-mail summary sent to customers that tells them exactly what happened to their stocks that day.

"People love it," he said of the feature, called My Closing Summary. And it gets them in as customers, ready to receive more e-mail from Schwab.

Which, of course, is exactly the point.