There’s a reason consumers are flooded with emails offering two-for-one discounts, free shipping, and 30 percent off—research suggests the deals work, perhaps even better than intended.
Stanford’s Navdeep Sahni, Chicago Booth’s Pradeep K. Chintagunta, and Booth PhD candidate Dan Zou measure the economic impact of 70 targeted email promotions conducted by a large online ticket-resale platform from July 2009 through December 2011. The researchers observe a causal link between email discount offers and consumer spending on the website: on average, customers who opted in and randomly received email promotions, such as free shipping or price discounts, spent $3.03 more during the promotion than buyers who opted in but, because of the experiment’s conditions, didn’t receive offers. That represents an increase of 37 percent.
Only about 10 percent of the spending increase came through offer redemptions. The balance came from people who didn’t redeem offers but still bought more from the site, which suggests targeted emails have effects beyond price discounts, says Zou.
The effects carried over to products and categories that weren’t being promoted. In the data the researchers looked at, purchases of Major League Baseball tickets increased significantly even when no discount offers were made for MLB events. The effects extended to the week after the promotions ended, too. Spending increased, on average, by $1.55 per purchase in the seven-day period after an offer expired.
Email advertising is “the workhorse of most marketers’ toolkits,” according to a Forrester analyst quoted in Ad Age last November. And it’s cheaper than search and banner ads. The amount spent on email promotions is expected to grow to $3.1 billion in 2019, just 3 percent of the total spend on digital advertising.
Sahni, Chintagunta, and Zou’s research offers another reason email marketing pays: firms can gain from targeted promotions as a form of free advertising for all the firm’s products, and even see increased revenue without having to issue the associated discounts—which means companies are getting their own good deals.
Navdeep Sahni, Dan Zou, and Pradeep K. Chintagunta, “Effects of Targeted Promotions: Evidence from Field Experiments,” Working paper, November 2014.
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