A recent, widely discussed research release by Gartner’s G2 research unit has prompted many in the industry to speculate that direct email marketing will soon “overthrow” direct postal mail as the preferred direct marketing vehicle, for both customer acquisition and retention objectives.

According to this picture, direct email marketing - which involves the delivery of standalone text, HTML or Rich Media ads to permission-based email lists - will continue to be amongst the most cost-efficient means of customer acquisition and retention available. Furthermore, many expect that the future availability of more accurate, richer subscriber data, larger and more highly-targetable email lists, multi-list de-duplication capabilities, improved subscriber segmentation technologies, and the like will lead to further, incremental increases in direct email marketing ROI.

In the very near term, this picture is probably correct. However, in the slightly longer term (between two and three years out), we believe this picture will prove quite wrong, and that those companies that fail to appropriately evolve their use of email as a marketing tool, away from a reliance on this picture, will be at a significant strategic and competitive disadvantage.

The continuing exponential growth of unsolicited commercial email (SPAM), widely anticipated significant year-over-year increases in the number of permission-based emails each Internet user receives daily, a demonstrated, growing trend amongst email users to use dedicated email accounts to receive permission-based commercial email, and a host of related factors will place significant downward pressures on email open rates, and hence email ad clickthrough and conversion rates.

Though sizeable anecdotal evidence gathered by avant|marketer suggests that open and clickthrough rates for permission-based direct email campaigns have already decreased significantly (and that the cost of making a sale via such campaigns has increased roughly proportionately) within the last three to four years, it would appear that these changes have not yet been sufficiently large to erode ROI and necessitate a shift in strategy, for most companies - either on the acquisition or retention front. (To speak of specific numbers, we believe that the average clickthrough rate on acquisition-oriented direct email campaigns has probably fallen from a historical high of 15-25%, to a current historical low of around 2%.)

Nonetheless, two to three years out, the basic economics of email marketing for customer acquisition and retention will be quite different from what they are today. In general, we believe, direct email marketing is unlikely to continue as a worthwhile, profitable strategy for most companies.

To be sure, permission will continue as the de facto standard for email marketing on both the acquisition and retention sides of the equation, for the foreseeable future. However, within the next two to three years, permission alone will prove not to be sufficient - as it once was, and largely still is - to ensure adequate user responsiveness and positive campaign ROI. Indeed, there are already signs that permission, by itself, is losing its value: Research executed by IMT Strategies in 2001 demonstrates that 39% of recipients of permission-based email either delete it outright (2%), are annoyed by it (7%), or feel indifferent towards it (30%).

As permission pioneer, Rosalind Resnick, Founder and former CEO of permission email marketing bellwether, NetCreations, summarized the point for avant|marketer in a recent interview, “permission has become so mainstream now that while in the past there was a real difference between acquisition email lists harvested from newsgroups and permission-based lists, being permission-based is no longer the differentiator it used to be for either the marketer or the user.”

In the future, only permission-based email campaigns that are able to achieve a high degree of “inbox visibility” will provide marketers with worthwhile positive ROI both on the retention and acquisition fronts.

Although email marketers and agencies will find it tempting to conclude that improved inbox visibility can be attained through the implementation of known best practices that relate to the crafting of email subject lines, and the like, strategies based on this type of thinking will at best prove to yield short-term gains, and will ultimately be myopic.

Achieving sustained inbox visibility and positive email marketing ROI will require a much deeper change in the strategies companies and agencies pursue with regards to email marketing. Those companies that develop the competencies and relationships to implement strategies that insulate them from the above shifts in market dynamics, at an early stage, will ultimately achieve a real competitive advantage.

What are the strategies that will prove successful?

On the acquisition front, we believe that only directly anticipated email communications will provide a vehicle for worthwhile positive ROI.

By-and-large, standalone direct email acquisition messages are not anticipated by the recipient to arrive at any specific time. Furthermore, in most cases, the recipient is neither able to anticipate with any precision the nature of the offer that will be made through an acquisition-oriented direct email marketing message, nor anticipate the company that will make that offer. Thus, for these reasons, the acquisition-oriented direct email has an inherently low degree of inbox visibility; a degree of visibility that is likely only to materially worsen as inbox clutter increases (no doubt, to the detriment of open, clickthrough, and conversion rates). Fundamentally, this situation can’t be repaired.

In order to be successful in the short long term, companies and agencies must move away from this form of acquisition email marketing toward forms of acquisition email marketing that can be directly anticipated by the recipient. One of the principal strategies that should be pursued is to shift to conducting acquisition email marketing campaigns via permission-based email newsletters. We believe that top-tier email newsletters will be relatively (though only relatively) immune to growing inbox visibility problems, because their arrival (on a daily, weekly, etc. basis) is anticipated by recipients, as is their specific content. What must be recognized by marketers is that the competencies involved in crafting email newsletter-based acquisition campaigns differ markedly from those involved in running campaigns via direct email marketing lists. Therefore, companies and agencies must hone the requisite skills early.

We fully expect that as soon as within the next year, hard data will demonstrate that customer acquisition costs associated with email newsletter acquisition campaigns (based on effective CPMs) are materially lower than those associated with acquisition-oriented direct email efforts. We also believe that tactics such as the segmentation of email newsletter databases, and event-triggered direct email campaigns (i.e. campaigns whose launch is contingent upon user actions, such as clickthroughs, within email newsletters) will be used routinely by smart marketers in the near future, to further decrease acquisition costs and increase overall campaign ROI. We urge companies and agencies to begin to utilize these tactics, immediately.

Another key strategy for email-driven customer acquisition that we believe will prove successful over the long term is the use of transactional banners, such as those made by Point•Roll, to gather email addresses of individuals interested in very particular products, so that information and offers on those particular products can be delivered immediately to these individuals. Such (what we like to refer to as) “micro email campaigns” overcome the inbox visibility problem, and can be used to move prospects who have shown a clear, immediate interest in a particular product through the sales cycle at a very rapid pace, for a very low cost.

On the retention front, we believe that the inbox visibility problem is, as in the acquisition case, the critical problem that marketers will face within the next two to three years, and will be the major source of decreasing ROI in direct email initiatives.

The unprecedented low cost, however, of delivering campaigns to email housefile lists will probably prevent most retention-oriented direct email initiatives from achieving an actual negative ROI, for the foreseeable future. Nonetheless, email marketers who continue to use standard direct email strategies for customer retention will no doubt experience sharply declining ROI for their efforts, over the next two to three years. In fact, we believe, it is very likely that within this timeframe many companies’ direct email-based retention initiatives will end up delivering ROI so poor that such initiatives will be abandoned altogether. This fact will only partially be caused by decreasing inbox visibility due to external factors, but also will be due to list burnout caused by over-emailing to email housefile lists.

In lieu of direct email marketing, what email retention strategies should be pursued?

Our first recommendation is that companies move quickly to develop company email newsletters in place of investing in direct email strategies. If possible, companies should work toward converting existing email houseflies into permission-based house email newsletter lists. Aside from enabling companies to achieve a much higher degree of inbox visibility for the aforementioned reasons, because email newsletters are delivered on a regular basis (daily, weekly, etc.), email newsletters can also enable companies to automatically regulate outbound commercial email volume, thereby helping companies to avert list burnout through over-emailing.

Though little research has yet been done on the impacts of email marketing on brand awareness, purchase intent, and related branding metrics, it is extremely likely that the impact of email on such metrics is, for the positive or negative, very substantial. We believe that once such research is done and becomes available, it will clearly show that the email newsletter, as opposed to direct email, is the single email marketing vehicle that has the most impact on brand metrics, as such. Companies with best-in-class email newsletters will, therefore, be handsomely rewarded on the branding front, too.

As in the acquisition case, we recommend that retention-oriented email newsletters be used in conjunction with event-triggered email marketing strategies. As in the case of acquisition emails, personalized retention campaigns should be designed to auto-launch based on specific user actions (e.g. clicking on a particular link) that take place within email newsletters. Advanced email newsletter database segmentation should also be pursued (i.e. newsletter databases should be segmented so that different newsletter subscribers receive different content and offers, as appropriate).

While for data integration reasons it would be impractical to pursue this in the case of acquisition campaigns, retention email marketers can also pursue launching event-triggered retention campaigns that are triggered by events (e.g. whitepaper downloads) that happen at the company web site. As an example of this type of event-triggered campaign, Ford might seek to auto-deliver a special manufacturer’s rebate for the Ford Explorer to all individuals in Ford’s permission email database that access a certain Ford Explorer web page on the Ford site between certain dates. Certainly, in many cases, such strategies would be prohibitively costly to pursue. And, of course, we do not mean to suggest that marketers pursue such strategies on a “global” basis, but instead strategically, in limited cases.

The retention email marketer must also look to customer service emails, order confirmation emails, and all such “incidental” email communications as targeted cross-sell and up-sell opportunities. Most such emails are directly anticipated by customers, and therefore are generally likely to be resistant to growing inbox visibility issues. All such emails should be branded, with company brand imagery, wherever possible, to capitalize on the branding benefits that can be derived from these communications.

Finally, we believe that web usability expert, Jakob Nielsen’s concept of Request Marketing should be realized wherever possible. According to Request Marketing, as explained by Nielsen in a recent avant|marketer interview, companies should begin to gather permission from their customers not for the broad, open-ended purpose of sending customers information on “new products and services,” and the like, but for sending them information on the availability of highly specific products and services - products and services so specific to the interest of the consumer at hand, that that customer is likely to purchase them as soon as they are available from the company. For example, a company might ask a customer that has purchased a book by Stephen King if they would like to receive a notice via email when Stephen King’s next book arrives and is available for purchase.

In essence, Request Marketing is the retention equivalent of the previously mentioned strategy of using transactional banners to gather permission-based email addresses of prospects that have an immediate interest in a very specific product.

We have little doubt that email will remain one of the cheapest available tools for customer acquisition and retention for some time to come. However, as a rule, unlike the days of yesteryear, this will only hold true for companies and agencies that are able to successfully adapt their strategies to the quietly shifting currents that underpin the email marketing space.

Ajay Segal is Managing Editor of avant|marketer. He may be reached at . Click on “Send Input” (below) to send us your publishable input on this article.