How E-mail Marketing Works

Exactly how do you define e-mail marketing? Although it's essentially any e-mail a company sends out to people, there are a few approaches to it. E-mail marketing can be:

All of these are the electronic equivalent to sending out direct mail to customer's mailboxes, writing and sending out a regularly published newsletter with updates and useful information or paying for advertisement space in a newspaper or magazine.

One popular example of e-mail marketing is the type of membership service offered by booksellers like Borders and Barnes and Nobles. When customers sign up for a member card, for instance, a company typically asks them to write down their e-mail address on the application form. The company records all of these addresses, and when a big sale or a special in-store reading by a best-selling author approaches, e-mails are sent to the members. These e-mails might include special coupons or list the newest available products -- whatever's included, the point is to get as many people into the stores as possible and continue using their services.

How is a newsletter different from a one-time promotional e-mail? One example we can look at is that of an independent record store. Because of online music stores like iTunes and the ease and simplicity of MP3s, many record stores selling CDs or vinyl are struggling to make ends meet. Some are trying new tactics to keep customers interested, and convincing loyal customers to sign up for periodic e-newsletters can inform people about new releases, special store-only digital downloads, in-store performances and big sales.

So how do companies send out their e-mails, and how do they know whether the e-mails they're sending out are making a difference? To learn about e-mail marketing software and services, read the next page.

Companies need to put their product information in front of people in order to sell them, and the first step after crafting the message is to find an audience. A business will usually use e-mail marketing lists, collections of identities and e-mail addresses that act as sales leads. There are also specific e-mail marketing services -- some companies exist simply to find customers willing to receive promotional material and organize their information into those lists, and businesses will pay them for this service. (People's names, addresses or additional information can't just be cherry-picked from any location. There is also the issue of permission, which we'll talk about in the next section.)

On top of the fact that e-mail marketing saves money and resources spent on paper and the use of the post office system, there are several reasons companies use it as a major source of advertising. E-mail marketing lets a company send a message directly to customers -- instead of waiting and hoping someone will stumble across a Web site, sending out e-mails puts the information right up front and can lead to direct sales if there's a link to an online store.

E-mail marketing is also very easily tracked and analyzed. Once a business sends an e-mail, special e-mail marketing software programs can record important statistics. An open rate, for example, measures how many people successfully received and clicked open a specific promotional e-mail instead of deleting it. A click-through rate, on the other hand, gives the percentage of people who actually clicked on links offered in the e-mail and used a particular Web site or opened a specific coupon.

While e-mail marketing has many advantages for companies trying to reach a broad audience, there are some downfalls. One of the biggest issues that determines whether an e-mail marketing campaign is successful or not is the concept of permission -- and there's even a law that sets guidelines for companies. To learn about when an e-mail crosses that gray line and becomes spam, read the next page.

Let's say you've developed a new energy drink you're excited about, and you want people to get excited about it and buy it. After writing a quick, flashy paragraph about the drink and typing out a vague subject line, you search the Web for as many e-mail addresses as you can find -- the more people who receive your message, the more potential you have at making more money. Sounds easy, right? Unfortunately, not only will people probably identify your message as spam or an e-mail marketing scam and delete it, you might even be breaking the law.

One of the most important concepts in e-mail marketing is that of permission -- a business must receive a customer's authorization before sending out any promotional e-mails. If a person receives an e-mail from a business that he never requested, chances are that e-mail is considered spam. There are some guidelines that help companies create effective marketing campaigns, and some countries even have laws that define spam and prohibit businesses from sending it.

The United States, for example, has the CAN-SPAM Act of 2003 (Controlling the Assault of Non-Solicited Pornography and Marketing Act). The act has four basic requirements:

If a business is ever convicted of any of these offenses, it could be fined as much as $11,000, and its e-mail capabilities could be blocked and its Web site shut down. On top of all of that, sending out spam usually tarnishes a company's reputati­on.

It's not the same everywhere, however, and the American act has many detractors, especially in relation to the opt-out method, which some people regard a free pass to send out spam anyway. Most European countries, for instance, have an opt-in method instead of an opt-out one. These techniques are usually used on a business's Web site -- when a customer buys a product, he'll have the opportunity to check a box that informs the company whether or not he'd like to receive more related information.

For lots more information on marketing and communication technology, see the next page.