E-Mail or Me-Mail?

SAN FRANCISCO (03/08/2000) - Back in the stone age of Internet marketing (like a year ago) MotherNature.com advertised mostly through banners and spent around $400 to acquire each customer.

Then, in fourth-quarter 1999, the online retailer of health supplements and vitamins changed its focus to e-mail - and its customer-acquisition cost dropped to $20. "It's Marketing 101," says Jeff Steinberg, MotherNature's chief marketing officer. "You've gotta use e-mails and you've gotta customize them."

E-commerce companies love e-mail, and for good reason.

Production costs are low; results are immediate. According to eMarketer, a research company in New York, e-mail advertising expenditures in the U.S. will jump from $97 million in 1999 to $2 billion by year-end 2003. EMarketer estimates that e-mail's share of total online ad spending in the U.S. will rise from 3 percent in 1999 to 15 percent by 2003.

But what really gets the marketers salivating is personalized e-mail. These are messages that consumers sign up to receive or that companies can target at customers based on their previous purchases. If plain-old e-mail marketing was last year's hot item, targeted e-mail is this year's must-have online strategy.

Steinberg says his targeted e-mail campaigns result in conversion rates four to five times higher than those of untargeted e-mail campaigns. He estimates that MotherNature's targeted campaigns led to sales of $250 for every 1,000 e-mail messages sent, while untargeted campaigns garnered less than $100 per thousand messages.

Others report similarly glowing numbers. According to Post Communications, an e-mail marketing services firm in San Francisco, targeted messaging brings an 8-percent greater click-through rate than untargeted e-mail messages. Not surprisingly, e-commerce companies are now scrambling to get customers to the altar with targeted e-mail. But it's not all champagne and rose petals.

Targeted e-mail marketing requires a much bigger investment than simply blasting out untargeted e-mail messages because it involves sophisticated databases and statistical modeling. "It costs a lot to initially develop a model and adapt it to the specifics of a company," says Ray Kaupp, VP of marketing and development at Digital Impact, a San Mateo, Calif.-based e-mail tailoring and delivery firm.

Targeted e-mail is also more prone to error. Sending a personalized message to the wrong person can ruin a relationship for life, Kaupp points out. So can a message that overloads a customer's computer. "Rich-media campaigns see an even greater click-through, but the cost there is the cost of losing your customer for good," he says. "You cannot afford to send an e-mail to their inbox they can't handle." In other words, don't e-mail someone a dancing monkey ad if it will crash their PC. They won't appreciate it. But as long as you choose the right words and format, experts agree that talking to your customers is not only good for sales but also good for name recognition.

"Any excuse to interact with your customer is healthy for your brand," says David Aaker, vice chairman of Prophet Brand Strategy, a branding consultancy with offices in San Francisco and New York. And targeted e-mail seems to be one of healthiest direct-marketing ways to build brand equity. To figure out where to aim targeted e-mail messages, companies can buy addresses from list brokers or from an opt-in loyalty program such as MyPoints or Coolsavings.com. Or they can acquire names directly from their site by hawking free e-mail newsletters to visitors.

Once a site builds a list of names, the real targeting can begin. MotherNature places users into various data "buckets" based on where they live, who they are and what they've purchased. MotherNature also divides the e-mail newsletter it sends to registered customers into various content sections. Everyone gets the same introduction and conclusion but the meat in the middle differs depending on what people have bought in the past and what MotherNature thinks they might buy in the future. "We noticed that people who buy St. John's wort would be likely to be interested in SAM-e," an antidepressant and anti-arthritis remedy, says Steinberg.

"So when we created a private-label version of SAM-e, not only did we e-mail our regular SAM-e buyers to tell them of the special deal, but we also collected the names of St. John's wort buyers so we could introduce them to the new product." It's not a new idea - watch what your customers buy and try to sell them something like it - but marketers agree that it's still one of the best ways to make a sale. "If we know that a customer likes Australian chardonnays, we'll try to get them interested in New Zealand sauvignon blancs," says Chris Fehrnstrom, senior VP of marketing for Wine.com, which sends out an e-mail message every other week to more than 200,000 customers.

Companies with large customer bases are especially interested in targeting.

Jeremy Hauser, research and analysis specialist at Lands' End, says his company honed its e-mail approach three months ago. "It used to be so primitive. We weren't even tracking the responses then." So Lands' End hired Responsys, which helps companies plan and execute campaigns, to lend a hand. "Rather than taking a shotgun approach, we needed to let customers be in charge of the interaction," Hauser says. Instead of signing up for a generic newsletter, customers can now choose how often they'll receive messages and tell the company whether they're primarily interested in men's, women's, children's, overstock or home products.

The e-mail messages that customers currently receive come with a link to products on the Lands' End site, but Hauser is already eagerly awaiting the next step: e-mail that lets customers purchase straight from the message.

"Instead of sending a link to our site, we'd like to show them a picture of the item," he says. "If we know you'd like a particular bathing suit, you should be able to see it and buy it right from the message. It's only months away for us." For others it's even closer.

RadicalMail, a Los Angeles company that specializes in streaming-content e-mail marketing, expects to roll out purchase-ready e-mail later this month. While some companies hire outsourcers to run their e-mail campaigns, others jealously guard their customers. "We don't believe in outsourcing anything that touches our customer - e-mail or customer call centers," says Chuck Dean, CTO of Cozone.com, an online computer store owned by CompUSA. "If you're outsourcing your e-mail you're missing opportunities to learn more about your customer."

Cozone currently uses products from e-marketing software firm Epiphany to target users based on their surfing behavior, but keeps customer data in house.

Other companies would rather rely on specialists to perform the crucial tasks of data mining and delivery. Tower Records works with Digital Impact in San Mateo, Calif., to target customers with offers that match their interests. For Tower, Digital Impact first splits up customers according to how often they shop, then subdivides them based on musical preference, says Russ Eisenman, Tower's online marketing manager.

He adds that the messages are tuned finely enough so that only a handful of individuals ever see the same offer. For all the enthusiasm for targeted e-mail, however, companies still don't plan to abandon general e-mail campaigns. "We have a broad product mix," says Katherine Grant, senior manager of Internet strategies at the Sharper Image. "It's not easy to categorize."

Though she acknowledges that targeting will play a large role in her marketing efforts in the future, she says she doesn't want to send e-mail that is overly refined; a message that's too focused risks missing out on impulse or crossover buys. "We hope to learn how to do effective targeted e-mails and I think the answer lies in the middle," says Cozone's Dean. "We can't get so specific that the offers aren't interesting. Just because we know someone has a complete hardware system doesn't mean we should only offer them cables." Pankaj Srivastava, manager of relationship marketing at golf retailer Chipshot.com, likens targeted e-mail marketing to going on a date.

"To establish a relationship you try to understand the other person and make them comfortable by providing enough about yourself," he says. "If the customer likes you, you go on a second date. Hopefully, eventually you get married."

Chipshot shapes its e-mail newsletter according to customers' interests. It sends out 10 or 12 different versions to 200,000 subscribers. "Eventually we hope to be sending out individual ones," Srivastava says.

Digital Impact boasts that it sent out 190 million e-mail messages in the fourth quarter of 1999 and that no two were alike. Technically true, perhaps, since each e-mail was "personalized" by its different address, if nothing else.

For most companies, true one-to-one e-mailing is still too time- and labor-intensive. But techniques will get more sophisticated and targeted e-mail will inevitably get more personal and more popular, as marketers struggle for attention amid the glut of e-mail messages cramming a customer's inbox. And then? Well, then the smart marketers will think of new ways to get noticed.

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