No Spam Intended

By Bill Stoneman

Amid experiments with e-mail marketing, providers must remain alert to customer dislike of unsolicited messages.

As a financial institution manager involved in e-mail marketing, Jeff Heinzelman is working in an area where the potential seems huge. Online customers tend toward the affluent side, while message distribution costs are negligible compared with traditional advertising and direct mail. That would seem to give Heinzelman a bright green light to reach out and touch customers online.

But instead of charging after clients, the vice president of Internet delivery for Hibernia Corp. is approaching them on tiptoe. New Orleans-based Hibernia, like many of its peers, sends marketing e-mail only to customers who have agreed to receive such messages. The bank also makes it easy for customers to remove themselves from the mailing list. "We don't want this effort to be construed as 'spamming,'" says Heinzelman, using the common slang for unsolicited e-mail.

Heinzelman's cautious approach is shared across the financial services industry. Recognizing customer distaste for unsolicited messages, providers are proceeding gingerly with online marketing queries. And initial results are modest. In the early going at Hibernia, online customer response rates have approximated the notoriously low levels typically seen in direct mail.

Still, so great is the potential of this tool that Hibernia and myriad other institutions are forging ahead. Though about 60% of consumers responding to a recent survey by Forrester Research Corp. said they delete most e-mail ads without opening them, about half of survey respondents said they wouldn't summarily delete e-mail sent by their bank, even if the message was sent without their prior consent. This receptivity to bank e-mails exceeded that of catalog companies, retailers, credit card companies and airlines.

The entrée is evident, therefore, but it must be used with care. With spam being broadly reviled among online users, bank e-mail marketers must be conscientious about asking permission from customers first, even though that isn't required by law. "Consumers are happy to receive e-mail — if they have a relationship with the company and if they agree to receive it," says Jim Nail, a senior research analyst with Cambridge, Mass.-based Forrester.

It's also important to avoid the shotgun approach. The effectiveness of a marketing message hinges on its relevance to target customers, so providers need to spend time ascertaining, for example, which customers might be interested in a new credit card, before issuing online card solicitations. They should also try to embed other benefits in online messages, such as alerts when balances fall below a certain level, bills are due or interest rates have reached some specified target.

"The critical mistake that companies make is looking at e-mail as a cheap way to get exposure," Nail says. "As an economic decision, that's probably right. But as a marketing decision, that's absolutely wrong."

Quick Response

E-mail, like the telephone and traditional mail, lets businesses communicate directly with both established customers and prospects. That alone makes it worth considering for many businesses. To the extent that companies can identify the best prospects for particular products or services, e-mail marketing is potentially more effective than campaigns that rely on mass-media advertising.

Online initiatives, for example, can compress the campaign testing cycle, since results can be measured and adjustments made in a matter of days instead of weeks or months. "Within a few hours, you start to get responses," says Chris Olin, director of products at Kana Inc., Menlo Park, Calif., a company that provides e-mail management systems to banks. "Within a week, you pretty much know how well the campaign performed."

Along with sales messages, e-mail can provide meaningful services, which solidifies relationships. Bank One Card Services, for example, sends alerts to customers who want to know their bills are coming due. Catherine Corrigan, first vice president for interactive channels, says customers with an e-mail relationship appear to be more profitable than average, by virtue of carrying higher balances or using their cards more actively. She concedes, however, that the exact cause and effect remains unclear.

Finally, e-mail has a major efficiency advantage over telemarketing and direct mail. There's no printing, postage or people manning phone banks, for example. Small wonder, then, that non-bank businesses have jumped on the bandwagon, often with some success. Burlington, Vt.-based Gardeners Supply Inc., for example, a catalog seller of backyard accouterments, has been using e-mail since 1997. "It's become a vital part of our business," says director of e-commerce Jeff Govini.

Gardeners Supply, which mails 28 million catalogs annually, sends e-mail about once a week to 400,000 addresses it has collected from people who gave their permission to be included on the list. Govini declines to provide sales figures, but describes e-mail marketing as a profitable and efficient way to respond quickly to market trends.

Such examples have provoked sufficient interest among banks to get some of them to test the waters. In many cases, however, the initiatives are modest and led by various small units within the bank, says Christopher Moreira, a senior product manager with e-mail management vendor WebTone Technologies Inc. in Atlanta.

Forrester's January 2003 consumer survey showed that only 24% of respondents had signed up to receive e-mail marketing from financial services companies (banks and brokerages), compared with 48% from retailers, 47% from manufacturers and 33% from news and information companies.

Credit card units have often led the charge. Bank One Card Services, for example, has been using e-mail for about three years. The Wilmington, Del.-based company, formerly known as First USA, directs card offers via the online channel to members or customers of co-brand and affinity partners, as well as to customers of other business units under the parent Bank One Corp. umbrella. By contrast, the Chicago-based company's consumer and commercial bank uses e-mail for outbound marketing only "very modestly," according to a spokesman.

National City Corp.'s credit card unit likewise offers established customers special promotions via e-mail to encourage more active use of its cards. Response over the past year and a half has been about the same as with similar offers made through direct mail, says Michael Fox, a vice president and marketing manager at the Cleveland-based company.

But National City's card unit, intending to move cautiously, has yet to begin e-mail marketing to the company's banking customers. "We're open to exploring it," Fox says, though no plans are in the works. Other National City units have engaged in limited e-mail marketing, "on a project-by-project basis," according to a company spokesman.

List Challenge

Retail banking organizations are generally more cautious because of concern that customers will lump them in with some of the more unsavory marketers that are contributing to the spam problem. Forrester Research estimates that certain segments of online consumers receive an average of 110 unsolicited e-mails each week, although less than 40% use a spam filter on their primary account.

Against that backdrop, "We're conservative in sales, marketing and servicing," says Meheriar Hasan, senior vice president and head of online sales and marketing in the Internet services group at Wells Fargo & Co. in San Francisco.

For Wells Fargo, that means emphasizing cross-selling to established customers over prospecting for new customers. It also means making sure intended recipients of e-mail actually want to receive the electronic messages by asking for their permission first. "This is one medium that's being severely abused by the market," Hasan says.

Bank executives widely perceive that the penalty for annoying consumers with unwanted e-mail is greater than the penalty for annoying them with unwanted phone calls and regular mail. Therefore, even though there are no legal requirements to ask a customer's permission before sending e-mail, and though few apply the same thinking to direct mail and telemarketing, financial institutions tend to adopt an ask-first policy for e-mail. They also make it easy for customers to remove their names from the list.

Hasan declines to reveal how much e-mail Wells Fargo is sending, saying only that volume is directly related to growth in the company's online customer base. When the bank does a good job of identifying a need for a particular product among a group of customers, e-mail solicitation generates a better response rate than direct mail, he says, presumably due to channel preference among people on the e-mail list.

Compiling a good prospect list is arguably the major challenge with e-mail marketing. Though lists of e-mail addresses are available from brokers, many bankers doubt their usefulness. Consumers change e-mail addresses often and it's difficult to associate electronic addresses with physical locations. Credit bureaus also haven't matched up electronic addresses with credit scores, a prerequisite for pre-approved credit offers, as they have with street and city addresses.

"I don't trust customer acquisition lists of e-mail addresses," says Mark Ellis, vice president of e-commerce development with Banknorth Group Inc. in Portland, Maine, which launched its first e-mail marketing campaign this summer.

Banks that are active in e-mail marketing find the safest approach is to start with their own customers and build from there. They typically ask for e-mail addresses when customers open accounts or sign up to bank online. "The number of e-mail addresses that a bank has is totally based on the effort put into capturing those addresses," says Kana's Olin.

To build a list beyond its own customer base, Hibernia occasionally runs contests in which an e-mail address is the price of entry. Bank One Card Services, meanwhile, seeks names from its co-brand and affinity partners.

"Some of the customers served by our larger co-brand partners have fabulous demographics," Corrigan says, citing United Airlines' frequent flyer program as an example. In addition, she says, partners' customers have a greater propensity than average to respond to Bank One Card offers, due to their relationship with the partner.

So far, no institutions have reported a breakthrough success with e-mail marketing. And some major banks, such as FleetBoston Financial Corp., eschew it entirely. That isn't surprising, given the modest response rate to direct marketing under the best circumstances. Still, Hibernia, National City, Wells Fargo and Bank One all view their efforts as worthwhile, suggesting that e-mail marketing has its place with customers who prefer that medium for communication.

Mr. Stoneman is a freelance writer based in Albany, N.Y.

Copyright © 2003 by Banking Strategies, published by BAI.

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