Overview

An e-commerce marketing strategy often involves communicating with customers and potential customers via email. Email distribution lists are put together using methods like online and offline signups and in-person solicitations. In some cases, email lists may be purchased from specialized vendors. The objective of these efforts is to put together high-quality lists, with accurate names and addresses, that are finely targeted to reach a clientele that may be interested in your products and services.

Once a distribution list is generated, a marketing campaign is designed to include text and visuals that will appeal to the target demographic. The subject lines need to be thoughtfully composed in order to encourage users to open the email and interact with its content. Links are included in the body of the message to lead customers back to the website. The URLs for such links should includetracking parameters(Links to an external site.)

to allow Google Analytics to track a user back to this specific campaign and message. Marketers also choose the number of blasts (separate mailings) to be included in the campaign, along with the timing of each blast.

Once an email campaign is designed, marketers choose a distribution service. Smaller firms might do so internally, but specialized third-party services like Mail Chimp are available for more sophisticated campaigns. Distribution services may charge a per-campaign initial set-up cost (a fixed cost) and a "pay as you go" charge per email sent out.

Marketers carefully assess the cost effectiveness and returns on each campaign to ensure that each marketing dollar is well-spent. Several metrics are used to measure the effectiveness of campaigns.

Email Marketing Metrics

The first metric that needs to be tracked pertains to the quality of the distribution list. A high-quality list will have accurate and current email addresses; however, realistically, a percentage of messages are likely to be undeliverable because of wrongly entered addresses or defunct email services. Thedelivery ratemeasures the quality of the database:

delivery rate %= (numberof emails delivered100)/number of emails sent

delivery rate %= (numberof emails delivered100)/number of emails sent

Once emails are delivered to a potential customer, a fraction of them will be opened. Emails with poorly designed subject lines or messages targeted to uninterested customers may not be opened. Therefore, theopen rateimplicates both design elements and campaign targeting:

open rate %= (number of emails opened100)/number of emails delivered

open rate %= (number of emails opened100)/number of emails delivered

Data for calculating the delivery and open rates are available from the email server.

Once the email is opened and its content viewed, a fraction of customers may decide to click on the URL included in the text. The customer's choice to click on a URL (or not) depends on the trustworthiness of the vendor, the quality and relevance of the message, and the targeting of the campaign (all of the message's features). The click-through rate (CTR) measures customer choice. Email campaigns often measure two CTRs: a click-to-open rate and a click-to-delivery rate.

click-to-open rate % = number of URL clicks/number of emails opened

click-to-delivery rate % = number of URL clicks/number of emails delivered

Both are considered CTRs, but they are calculated differently. The CTR may be measured as a fraction of emails opened or a fraction of emails delivered. Be sure to look up how CTR is defined by your firm or campaign and use the appropriate definition.

Each person who clicks on a URL in an email campaign becomes a visitor to your website. Once a visitor reaches your site, data on their subsequent interactions are collected by your website's web analytics provider. Metrics such as bounce rate, conversion rate, and average order value (AOV) are calculated for each visitor, but the tracking parameters included in the URL allow thesourceof this traffic (the email campaign) to be tracked and attributed.

Problem 1

Public radio station WPSU is running a membership drive aiming to get listeners to sign up as members for a $25 annual subscription. As a reward for signing up, WPSU provides a coffee mug as a souvenir, which costs $7 plus a mailing fee of $1.

An email campaign using Mail Chimp has an initial set-up cost of $10,000 and a pay-as-you-go price of $0.03 per email. It receives a delivery rate of 90%, a click-to-delivery rate of 20% (remember that this is the CTR as a fraction of deliveries), and a conversion rate of 25%. If 5,000 emails were sent, calculate the email campaign's profitability. What do you infer about the cost effectiveness of the campaign at the scale initially chosen for it (5,000 emails)? What is the minimum scale (number of emails to be sent) for the campaign to break even?

Problem 2 (Optional)

The previous problem made the unrealistic assumption that campaign metrics such as the delivery rate, the click-to-delivery rate, and the conversion rate will remain unchanged with the scale of the campaign. However, as more addresses are included in a campaign, the quality of the database will decrease because the chances of clerical and targeting errors are likely to increase, meaning that associated metrics are likely to become worse with an increasing scale.

To account for this, recalculate the metrics using the same data as in Problem 1, except for the click-to-delivery rate, which changes based on the scale of the campaign according to the following equation:

click to delivery %=20% (10.00001)?

click to delivery %=20% (1-0.00001)N

For example, when you send out 1,000 emails, the click-to-delivery rate falls to19.8%, or0.2 (10.00001)1,000=0.20.99=0.198.W

19.8%, or0.2 (1-0.00001)1,000=0.20.99=0.198.When the scale increases to 5,000, the click-to-delivery rate falls to19%, or0.2 (10.00001)5,000=0.20.95=0.19

19%, or0.2 (1-0.00001)5,000=0.20.95=0.19.

With this new (and more realistic) assumption, calculate the new breakeven scale for the email campaign. As before, make an Excel graph and locate the breakeven level.