DoubleClick Solutions Analysis of Open Rate Trend Data

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1 White Paper Analysis of Open Rate Trend Data October 2005 Name of author

2 Detailed Analysis of Open Rate Trend Data Over the past three years, DoubleClick has seen steady improvements in list hygiene and address collection practices, both of which have driven delivery rates (both in terms of bounce-backs and in-box delivery) to an all time high. At the same time, our clients have seen measures of productivity such as click-through rates, click-to-conversion rates, and revenue per delivered remain remarkably stable, even with ever-increasing volumes and difficult delivery environment. Despite the fact that programs continue to show remarkable effectiveness, North American and EMEA open rates have declined steadily for five consecutive quarters. The purpose of this paper is to discuss the diversion of this one metric which appears out of synch with the other positive trends. DoubleClick believes this decline has several causes: Increased adoption of ISP technology developed to shield users from spam and questionable content has led to images being blocked by default, and tightened filtering leading more mail to be delivered to bulk mail folders. Because a one-pixel image must be rendered in an for DoubleClick to measure an open, image blocking has had an impact on declining open rates. The introduction and adoption of these new technologies has been staggered, ranging from the autumn of 2003 to present. List/file maturity i.e. new addresses tend to outperform older addresses, so when new addresses become a smaller percentage of a marketer s overall file it puts a natural downward pressure on open rates. If these addresses continue to receive the same marketing messages again and again, the overall file can become desensitised and the effect magnified. Consumer behaviour is adapting to the greater volume of they receive, and DoubleClick believes that consumers are growing more selective in what they choose to open. Given the stability in clicks and conversions, this selective opening does not mean that messages are not valued, but rather that consumers will respond when they are in market for a particular product or service offering. To further explore the issue of inbox visibility, DoubleClick has commissioned a study to be released later this year around the impact of on branding (regardless of opens or clicks) which should shed additional light on how changes in consumer behavior may be affecting open rates. ISP technology changes To date, DoubleClick has suggested that some of the recent open rate decline has been due to images being suppressed by default in Outlook and by major ISPs, either in bulk folders (as is the case with Hotmail and Yahoo), or in the inbox (Outlook 2003, Outlook Express with SP2, AOL, and Gmail). In researching this hypothesis, Double- Click has found data that supports this theory but still raises new questions. Figure 1 below suggests that as these new technologies were released and adopted, open rates declined steadily. DoubleClick s AOL open rate trend casts doubt on the assertion that all open rate declines are due to image blocking. The AOL open rate is based on all messages Image blocking by ISPs has been associated with a decline in open rates 50% 40% 30% 20% 42.9% 42.9% AOL blocks images by default; Outlook 2003 Released 40.0% Open Rate - EMEA Yahoo and Hotmail begin blocking images in bulk folders; bulk filtering becomes more sophisticated; Outlook 2003 adoption 38.5% 38.0% 36.8% 32.0% Outlook Express (SP2) blocks images by default; Gmail (blocks inbox images by default) adoption rate increases Q4 03 Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Figure 1 Aol.com Open rates have not been significantly affected by image blocking 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Figure 2 AOL begins supressing images by default AOL Open Rate - EMEA Q3 03 Q4 03 Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05

3 sent to the AOL domain (this includes those com address directly in the system, accessed through Webmail, or popped to another address). While AOL open rates did decline slightly in the latter half of 2003, when AOL began to suppress images by default, rates have subsequently picked up again and are now actually higher, at 22.8% in Q This data suggests that image blocking, at least for AOL, has not been associated with sustained open rate declines. However, users of Outlook and Outlook Express, because of the preview panes in their applications, are very likely to have fewer opens than previously. In older versions of Outlook, just previewing a message would register an open, since images were loaded in the preview pane. Now that Outlook has more aggressive settings for blocking images by default, preview pane viewing will not necessarily register as many opens as previously, unless the consumer changes her defaults or clicks on the option to download the s images. DoubleClick suspects this has had a significant impact, given the 2005 results of the DoubleClick Consumer Study show fully 47 percent of consumers said they use preview panes to read their . 1 File Aging has been helping clients address open rate declines for the past two years, and found that another significant factor driving down open rates is file aging. Nearly all marketers find that the most recent names added to the file perform better than older names, across all metrics (open, click through, and non-bounce rates). Meanwhile, as address files mature, older names are becoming a greater percentage of the database. Even if open rates by segment remain steady, the changing composition of a mail file can put significant downward pressure on overall open rates (see figure 3). Note that open rates by segment (age on file) have not changed at all, but because the file has aged (a greater percent of addresses are now in the 13 month and older segment), overall open rates have declined. This is true even though the marketer may be bringing in an increasing number of new names (0-3 month customers make up 10% of the file in both cases). File aging is not a new problem in direct marketing. Catalog mailers faced similar file maturation issues in the direct mail industry. Because the direct costs of postal Even with open rates by segment remaining constant, file composition changes can lead to declines in overall open rates 50% of file 10% open rate 10% of file 40% open rate 40% of file 25% open rate Total open rate: 19% Figure months 7-12 months 60% of file 13 or more months 10% open rate Total open rate: 17.5% 10% of file 40% open rate 30% of file 25% open rate mail forced marketers to keep volumes above break-even, catalogers were quickly forced to segment their files based on age on file, recency and frequency of purchase, and so forth to optimize the response rates against costs. In doing so, marketers could set specific goals and contact strategies for each segment/decile, and measure success metrics by segment rather than across the file. Because the cost economics of are so different (it costs many times less to send an as opposed to a direct mail piece), the medium has a greater ability (almost a guaranteed ability) to break-even on every mailing. So, segmentation such as RFM modeling or customer profiling provides the opportunity not necessarily to mail less, but rather to mail smarter and reap the rewards much more quickly. marketers today face the prospect that overall open rates could decline even if open rates for each segment improve, only because file composition is shifting. The more mature a marketer s file is, the more difficult it becomes to increase your overall open rate if your view on open rate metrics is limited to a campaign-by-campaign analysis. DoubleClick instead suggests that if marketers are going to continue to rely on open rates as a success metric for their businesses, that they measure the metric by customer segment, considering the factor of time, moving towards a customer contact strategy approach rather than by individual campaigns. Giving the data above a cursory glance, one might think that the best way to increase open rates would be to stop mailing the older portion of the mail file. But if open rates were the only thing we cared about, why take the next step, and offer our products for free that would be sure to drive up all response metrics. Except profit, of course! 1 DoubleClick 2005 Consumer Study

4 Joking aside, there are three important reasons why not to give up on your older names. First, the s that are active with your company (opening and clicking) are likely some of your best customers, who purchase regularly (in multiple channels) and who are advocates for your brand. Second, those who are not responding to s may still be valuable consumers in your other channels. This is something that is worth discovering, as moving offline consumers to the online channel is likely to increase Lifetime Value (LTV) as well as improve margins by moving the consumer to a higher margin channel. Third, there may be significant soft brand effects from , even from those not opened. To better understand this impact, DoubleClick has commissioned a study, due out later this year that seeks to understand s indirect effects on your customers. If your s are not being opened by a segment of customers, is keeping your brand top of mind for when they may be in market for your products worth the cost of continuing to send them s? DoubleClick believes the answer is yes. Evolving Consumer Behavior Consumer behavior is very likely playing a part in the open rate declines over the past 5 quarters. As consumers use more often, receive more s, and have better technologies to manage those s, they will become more discerning in their open behavior. As our click and conversion rates show, consumers will continue to respond to s when they are in market for a product and/or when the offer is compelling. Focusing on message relevance, timing, and offer is therefore extremely important for marketers today. 90% of users are checking their multiple times a day, up from 73% in When they check their boxes, users are seeing an average of 361 s delivered per week, up 42% from To manage all of these messages, consumers have multiple accounts, with 47% reporting to have 3 or more active accounts in These accounts are not simply temporary accounts that users set up to make purchases and then forget about. Consumers report that the average life of their accounts is four to six years. 2 Furthermore, the ISPs and mail readers consumers use to manage these accounts have given users greater ability to manage their s through personal and bulk folders, rules, and accepted contact lists. Given that consumers have a greater volume of s to manage than ever before, and have increasingly sophisticated tools to manage their in-boxes, consumers have become more selective in the s they are opening. Consumers continue to state that product relevancy and timing are the two most important factors in their decision to purchase it follows that these are also crucial factors in the decision to open an as well, 36% of consumers stated that receiving an offer for product or service they wanted at that time significantly increased their likeliness to respond. Once again, there are parallels with the direct mail channel. For example, catalogs delivered to the home that were once a rare and special occurrence for a consumer quickly became a burden so great that Do Not Mail lists had to be established. Consumers became very discerning with which mail or catalogs they opened, quickly disposing of anything that was not immediately relevant to them and only taking the time to read a marketers message if they were in-market for an item or the offer was compelling, or both. DoubleClick believes a similar shift is occurring in the channel. Conclusions & Recommendations The last five quarters of open rate declines is not caused by any one factor. There seem to be three major forces pushing open rates down: ISP technology changes, file aging, and evolving consumer behavior. ISP technology changes can be counteracted somewhat by asking your subscribers to add your address to their contact list, instructing them on how to turn images back on by default in Outlook and Outlook Express, and following general best practices guidelines. File maturity, while seemingly negative in relation to overall open rates, is actually a valuable source of customer behavior data that marketers can use to better segment their customer base. Analysing older customers who are active (opening and clicking) compared to those who are inactive can be particularly revealing. Since older, inactive addresses will make up a sizable part of any marketer s file, there is a huge opportunity to reactivate these customers, especially if they are active in other marketing channels. Finally, consumers are evolving to become more selective so marketers must follow their customers and adjust their tactics or risk further deterioration in both open and click rates. 2 DoubleClick 2005 Consumer Study

5 To remain successful, marketers must optimise timing and message relevance to improve productivity. So what should you do to increase the relevancy of your messages? Begin by mapping your customer base against the needs your company fulfills. By building customer life cycle models that account for key contact opportunities (such as purchases, anniversaries, attaining certain loyalty levels, cart abandonment, etc), marketers can listen for contact opportunities and deliver relevant messages immediately. Next, use data as the enabler. Utilise all of the data that is available from your mailing activity, such as opens, clicks and conversions, as well as any profile data that you have from subscriptions and stated preferences. Consider how to augment this with additional data from other channels, web site behavior, demographics, etc. Finally, execute smartly with the all the tools you have at hand. Leverage dynamic personalisation, filters and targeting rules, event triggers and transaction events to enhance the relevance of the message based on all of this data. Events and triggers are an effective way to harness recommendations marketing to turn both marketing communications and even transactional campaigns into truly relevant selling opportunities. By focusing on relevancy and timing, consumers and marketers win. Consumers will be more likely to open, and do so more often, if they can engage with s that are better tailored to their needs. Marketers will benefit from improved open, purchase, and retention rates. For more information on DoubleClick s Solutions contact us at: Compass House, 4th Floor 22 Redan Place London W2 4SA Tel: (0)

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