We talk a lot about testing, and for good reason. As data-driven email marketers, we know that testing is one of the most critical aspects of running high performing email campaigns.
As important as testing is to the success of your email marketing, most of the public advice available is either vague (“You should test”) or too specific for most marketers in a given niche, with little in the way of actionable takeaways (“we tested this one very specific thing, and here’s what happened”).
Here on MarketTraq Software’s OnTraq blog, we try and provide a logical middle ground – a way to show the importance of testing email campaigns AND a how-to so you can repeat the tests for yourself AND useful and detailed examples from our work so you can see it in action. So without further ado, we move into today’s topic: Testing promotional offers with email.
Using promotional incentives in your email messaging can be a driver for overall results. The trick for email marketers is to at once create an incentive that has a high value for the intended recipient and at the same time is low enough in cost to maintain a positive ROI for the incentive over the course of the average customer lifetime.
Please note above: we specifically mentioned customer lifetime value because an offer can have a negative immediate ROI and still have a positive ROI when examined over the length of the customer lifetime. For example, giving out $100 gift certificate for people who subscribe to a $30/month service might seem like a losing proposition. The immediate ROI is -$70:
ROI = P$n – C$n (revenue impact x additional units – Cost of Goods Delivered x all units)
ROI = $30 – $100, assuming a 100% conversion rate so we can drop the n
ROI = -$70
However if the average customer maintains a paid membership for 12 months, the equation changes and the overall ROI becomes:
ROI = ($30 x 12) – $100
ROI = +$360
Looking at just the immediate ROI can lead to a suboptimal email campaign and could seriously hurt long-term marketing goals.
Another important factor to consider when planning an incentive-based email campaign is something our friends at Marketing Experiments like to call Perceived Value Differential (or PVD for short).
In short, PVD is the difference between what a subscriber perceives to be the value of an offer, compared to the actual cost of that offer. So in the above example, the PVD would be 0. Unless the customer placed an additional “intangible” value on the gift card (for instance, if it was to their favorite store and they mentally adjusted the value up to account for this intangible benefit), or you got a discount on purchasing the gift cards (for example, if you got them for 15% off for buying in bulk), the two values are perfectly aligned: $100 Perceived Value – $100 Actual Cost.
On the other hand, if the incentive is something like a consumer product or a service (like free shipping), the perceived value and the cost might be radically different. As marketingexperiments.com points out, the higher the PVD, the more likely an offer is to resonate with your subscribers and return a positive ROI.
Seeing It In Action
Last holiday season, Ruth’s Chris Steak House approached us to help them boost holiday gift card sales. As anyone working in the hospitality industry (or with hospitality clients) knows, many restaurants rely on an influx of gift card sales around the holidays to create a buffer of liquidity for the upcoming year.
Ruth’s Chris had long been using an incentive to encourage holiday gift-card sales:
10% back (in the form of a gift card) for orders over $250.
Unfortunately, this offer was under-performing with two critical demographics: gift card buyers who had purchased once and then not again, and gift card buyers who had purchased but did not spend enough to hit the offer threshold.
We hypothesized that we could increase the ROI on the marketing campaign by making the offer a little richer for customers, 20% back on orders of $200 or more.
Segmenting for Optimization
Critical to this experiment was making sure we targeted the correct segments with the new and improved offer. Instead of testing it against the full subscriber list, we specifically aimed our tests at the two segments mentioned above, and kept the standard order for other customers.
This is important because the goal with any incentive, as mentioned at the very beginning, is to balance the cost of the offer compared to the return it generates. Customers who had already responded positively to the standard offer were likely to respond better to the new, richer offer, however that would likely noticeably shrink the ROI on the campaign.
Remember that part of any incentive optimization and testing process is understanding that different segments of your email list will respond to different offers, and identifying where you need to focus to have the strongest results.
The results of our tests confirmed our hypothesis. The median order size among subscribers who had only bought once, and not again more than doubled, and the average order size was almost four times what it had been in 2009.
For customers that were purchasing, but not hitting the offer threshold, the results were even more impressive. Total orders in the experimental group were up by 353% and the mean order size was 128% higher than the baseline. That’s an impact.
It’s simple really: Testing pays great dividends. So test, optimize, and test again. Whether you work as an in-house email marketer or part of an agency, it might be difficult to convince stakeholders (your boss or your client) to spend the money on setting up incentive testing experiments, with objectives ranging from “why should we spend money on campaigns that might not work?” to “if you think this will be a better offer, why don’t we just go with your gut and roll it out?”. It is your job as a marketer to bat away these objections, and we hope this blog post might help you do that.
Good luck, and email smarter!