Time to update our definition of ‘expensive’ in the world of warm vs cold marketing
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The Response Rate Tracker builds upon a raft of work that Jicmail has conducted in the effectiveness space over the last few years.
“Acquiring a new customer is five times more expensive than retaining an old one!”
Source: Every customer loyalty / UX / martech presentation in the last 20 years.
It’s a marketing trope that has certainly done the rounds over the years, and one that’s been debunked on several occasions. Critics point to the now well out-of-date research on which the finding originates, along with methodological issues that fail to acknowledge customer-lifetime-value. This has resulted in an oft-used stick used to unfairly beat acquisition-based marketing with.
The academic research is pretty conclusive. From Field and Binet’s work with the IPA’s Effectiveness Databank, to Sharp and Romaniuk’s How Brands Grow, it’s pretty well accepted that growing existing customer loyalty alone will not be enough to sustain business growth in the long run. The balance of acquisition and retention budgets are a matter of some debate, but what is clear is that terming one as more expensive than the other can create a misleading picture of effectiveness that isn’t particularly helpful when marketers are trying to get budget sign off in these challenging times.
That said, there is a matter of semantics at play here. If we are to get very literal about the definition of “expensive” and think about it purely in terms of an immediate cost-per-acquisition (CPA) metric i.e. the campaign spend (broadly media and creative costs) required to acquire a conversion, then new data from Jicmail (the Joint Industry Currency for Mail) shows that the old trope largely holds up.
In fact, data from our inaugural Response Rate Tracker tells us that CPAs from cold, direct-mail campaigns, tasked with shifting the dial on sales among non-customers, are typically eight times higher than warm direct mailings targeting existing customers.
In addition, the Response Rate Tracker (which is based on performance data from over one thousand anonymised campaigns submitted to Jicmail by six key industry players) tells us that the average response rate for a warm mailing is 10.9% vs 1% for a cold mailing. ROI figures come in at 13.5 and 4.4 respectively.
The intention behind publishing these benchmarks is not to knock acquisition-based marketing, but rather to provide planners and measurement practitioners with credible campaign-centric normative data from which campaign KPIs can be set and performance measurement can be contextualised. These benchmarks are designed as a starting point when setting campaign targets — a baseline which should be iterated upon using a myriad of unique campaign, brand, audience and market information.
In a world in which marketers should become increasingly comfortable with a “both-ism” approach (as Mark Ritson calls it) to marketing strategy, the Response Rate tracker is designed to bring greater rigour to both acquisition and retention based strategies when planning ad mail campaigns. The fact that warm direct mail response rates are eleven times higher than cold mailings, points to the importance of using first party data as effectively as possible when third-party-cookie targeting techniques are on their way out (a point which draws further consideration when balancing out paid vs owned media strategies).
A cold response rate of 1% on the other hand is a broadly favourably figure when compared to response rate benchmarks in the digital space which are often sub 1%.
The Response Rate Tracker builds upon a raft of work that Jicmail has conducted in the effectiveness space over the last few years. It directly answers challenges related to the need for transparency between advertiser and agency when establishing measurement frameworks and campaign KPIs laid out in the DMA/Jicmail Mind the Measurement Gap white paper; while, at the same time, contextualising the results of test-and-learn efforts that are still sorely lacking in the industry.
This first wave of Response Rate Tracker data is heavily retail-sector focused — something that Jicmail is hoping to address in the future with a broader pool of contributors providing data across other sectors and mail types (for example Door Drops and Partially Addressed Mail).
If you’d like to join our current pool of contributors (Join The Dots, Epsilon Abacus, Sagacity, DBS Data, The Letterbox Consultancy and Ginger Black Analytics), then get in touch with Jicmail today.
Ian Gibbs is director of data leadership and learning.