ON-PREMISE OR OUTSOURCE: EXPLORING THE IMPACT OF TECHNOLOGY DEPLOYMENT ON MARKETING EFFECTIVENESS

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1 ON-PREMISE OR OUTSOURCE: EXPLORING THE IMPACT OF TECHNOLOGY DEPLOYMENT ON MARKETING EFFECTIVENESS Correlating Marketing Performance with Technology Deployment Options Written by David Daniels, The Relevancy Group, LLC December, 2012 Research Sponsored by

2 On-Premise or Outsource: Exploring the Impact of Technology Deployment on Marketing Effectiveness Correlating Marketing Performance with Technology Deployment Options Written by David Daniels, The Relevancy Group, LLC Introduction: As Data Sources Proliferate and Marketing Complexity Increases, the Relevancy Group Explores Which Type of Marketing Technology Deployment Options Most Improve Effectiveness Each year marketing complexity and the amount of data that marketers use for their marketing endeavors continues to increase. Due to these factors, consumers are exposed to an increasing number of marketing messages each day, and they have reported in The Relevancy Group consumer surveys that they will simply delete the marketers message if it is not relevant or comes too frequently. Therefore, marketers must continually improve their tactics to remain relevant. Given the maturation of both on-premise and out-sourced marketing solutions, The Relevancy Group sought to investigate the impact that different marketing technology deployment options have on marketing sophistication as well as customer effectiveness measures. The Relevancy Group conducted a survey of 418 executives that were familiar with how their marketing programs operate and the technology that they use. This survey was conducted in September 2012 and focused primarily on marketers in the Retail, Travel, Financial Services and Publishing/Media industries, although many other industries were sampled as well. In this survey, The Relevancy Group captured information on budgets, tactics, results and a variety of other details about their marketing programs. The full methodology can be found in the afterword section of this report. For more information on The Relevancy Group s services, visit call (877) , Find us on and on Facebook at Reproduction by any method or unauthorized circulation is strictly prohibited. The Relevancy Group s reports are intended for the sole use of clients. For press citations please adhere to The Relevancy Group citation policy at All opinions and projections are based on The Relevancy Group s judgment at the time of the publication and are subject to change. Page 1

3 Key Questions: What is the outlook for marketers to adopt on-premise marketing technology? What are the reasons organizations use on-premise marketing technology versus outsourced options, and what benefits do they cite? In what ways are on-premise marketers different than those who using outsourced technology? What impact does marketing program tenure have on the type of technology that organizations deploy? What is the difference in the value driven by on-premise deployments as compared to outsourced deployments? Executive Summary: While home grown marketing solutions still persist, many rely on a combination of outsourced (i.e. hosted) and on-premise marketing solutions. Historically, those senders with larger databases typically worked with on-premise solutions. However, The Relevancy Group survey finds that on average that those senders working with outsourced ESPs ( Service Providers) have on average 4.2 million customer records, as compared with on-premise senders that average 3.9 million customer records. Eighty-six percent of marketers stated that they would consider using an on-premise solution. While all marketers, regardless of deployment, type seek new methods to optimize their mailings, all marketers utilizing on-premise technology cite far fewer challenges than their outsourced peers. On-premise marketers are doing more with their marketing programs than vendors that outsource their technology to an ESP. On-premise marketers reported a contribution from marketing initiatives of 8.3% as compared to the contribution of outsourced senders at 7.7%. While on-premise requires a more diligent infrastructure and resources, on average onpremise marketers drive thirty percent higher monthly revenue than outsourced senders, even though their customer database size is smaller than those that outsource. The choice of deployment shouldn t just be a how, but also a why and a what; how, why, what can data be leveraged to drive goals and achieve revenue. List of Report Figures Figure 1 Marketing Technology Deployment 2012 Figure 2 Top Ten Most Important Considerations When Selecting an ESP Figure 3 Outlook for Using On-Premise Marketing Solutions Figure 4 Benefits of Using a Vendor s On-Premise Solution 2012 Figure 5 Reasons Why Marketers Use On-Premise Solutions Figure 6 Top 10 Greatest Marketing Challenges On-Premise Marketers vs. Outsourced Marketers Figure 7 Top 5 Tactics Used: On-Premise Marketers vs. Outsourced Marketers Figure 8 Data Sources Currently Integrated On-Premise Marketers vs. Outsourced Marketers Figure 9 Marketing Program Tenure On-Premise Marketers vs. Outsourced Marketers Figure 10 Median Lifetime Customer Value Outsourced Senders vs. On-Premise Senders Figure 11 Overall Corporate Revenue Percentage of Revenue Contribution Figure 12 Average Monthly Revenue and Deliverability Outsourced vs. On-Premise Marketers Figures in the Afterword Figures About the Survey Audience Titles, Customer Database Size, Annual Revenue, Market Focus Page 2

4 PART I Exploring Marketing Deployments While Home Grown Solutions Still Persist, Many Rely on a Combination of Outsourced and On-Premise Marketing Solutions Given the tenure of the marketing industry, just over a third of marketers continue to use ill-equipped, homegrown marketing solutions. With the certain complicated nature of sending and the necessary infrastructure to perfect message delivery and relevance, marketers using home grown solutions should look to packaged vendor solutions. While most marketers enlisting packaged vendor solutions use a combination of outsourced (i.e. hosted) and on-premise solutions, overall, fourteen percent of marketers use on-premise marketing solutions (see figure 1). Customer subscriber database size has little to do with deployment type. Historically, those senders with larger databases typically worked with on-premise solutions. However, The Relevancy Group survey finds on average that those senders working with outsourced ESPs ( Service Providers) have an average of 4.2 million customer records, as compared with on-premise senders that average 3.9 million customer records. When marketers are selecting an marketing solution, leading their solution requirements are cost, industry expertise, reporting and deliverability features (see figure 2). While these features are all important and can be found in both on-premise and outsourced solutions, marketers need to consider their level of sophistication and the number of data sources that they will be leveraging. However, our research indicates that those marketers looking to maintain costs, exert more control over marketing production, and increase customer value are more likely to do so with an onpremise solution. Figure 1 Technology Deployments 2012 Question Asked: What technology do you currently use to manage your marketing? (select one) Source: The Relevancy Group Executive Survey, n=418 9/12, United States Only Page 3

5 Figure 2 Top Ten Most Important Considerations When Selecting Marketing Technology 2012 Question: What are your most important considerations when selecting an marketing application/technology solution? (select all) (Note: Selected Responses Top ten responses) Source: The Relevancy Group Executive Survey, n=418 9/12, United States Only Majority of Marketers See Value in Switching to an On-Premise Marketing Solution When we asked marketers if they would consider using an on-premise solution, an overwhelming eighty-six percent of marketers stated that they would (see figure 3). Why? Because marketers anticipate the benefits documented by those who are already using on-premise solutions. When we asked What are the benefits that you and your organization have experienced from using a vendor s on-premise marketing solution? (see figure 4) On-premise marketers highlighted these benefits: Speed to deploy campaigns: Fifty-five percent of marketers stated that by using on-premise solutions they were able to deploy campaigns more rapidly. Time to market, specifically getting mailings into the inbox quickly and swiftly reacting to competitors, is a necessary element to building a successful marketing organization. Improved relevance and targeting: In part because on-premise marketers are leveraging more data than their outsourced peers and using more sophisticated tactics, it is not surprising that forty-one percent of marketers have stated that using on-premise solutions has improved their relevance and targeting. Lower total cost of ownership: The benefit of owning an application versus using an outsourced solution that you pay for based on sending volume is that over time the cost is lower for on-premise applications. Beyond the thirty-six percent of marketers that cite a lower total cost of ownership, an additional twenty-nine percent cite lower marketing production costs. Increased customer value: Seventeen percent of on-premise marketers state that they have increased their customer value when using on-premise solutions. This is explored in more detail further in the paper; however, overall we continued to find that on-premise tactics where using more data and more sophisticated tactics which certainly has a positive impact on key metrics such as customer value. Page 4

6 Figure 3 Outlook for Using On-Premise Marketing Solutions Question Asked: Would you consider utilizing a vendor s on-premise marketing solution? (select one) Source: The Relevancy Group Executive Survey, n=418 9/12, United States Only Figure 4 Benefits of Using a Vendor s On-Premise Solution Question Asked: What are the benefits that you and your organization have experienced from using a vendor s on-premise marketing solution? (select all) (Note: On-premise marketers only) Source: The Relevancy Group Executive Survey, n=166 9/12, United States Only Page 5

7 Maintaining Control over Costs, Production, and Integration Spur On-Premise Usage The benefits that on-premise marketers find in their deployments and the drivers to using on-premise technology are similar. When asked to indicate why their organization operates all or some of its marketing with a vendor s onpremise solution, forty-eight percent of marketers stated lower costs, not needing to pay ESPs based on volume and a separate forty-eight percent stated greater control over marketing production costs (see figure 5). Marketers using onpremise solutions have been shown these improvements manifest in a variety of ways including higher revenue, customer value and performance metrics such as delivery metrics. Figure 5 Reasons Why Marketers Use On-Premise Solutions Question Asked: Please indicate why your organization operates all or some of its marketing with a vendor s on-premise solution? (select all) Source: The Relevancy Group Executive Survey, n=372 9/12, United States Only PART II Correlating Marketing Deployments with Performance On-Premise Marketers Have Far Fewer Challenges than Their Outsourced Peers While all marketers, regardless of deployment type, seek new methods to optimize their mailings, across the board, marketers utilizing on-premise technology cite far fewer challenges than their outsourced peers (see Figure 6). For example, some of the biggest differences in challenges cited were in the area of deliverability, list turnover/subscriber churn, having adequate staff and analyzing campaign results. On-premise marketers report not being challenged by these items nearly as much as marketers utilizing outsourced solutions. Additional challenges that had wide deltas between the different deployment methods were having adequate IT support and data security, as just two percent of on-premise marketers cited the lack of data security as a challenge. Clearly marketers working with onpremise solutions are more prepared, better equipped and find their marketing efforts to be less challenging than their online peers. Page 6

8 Figure 6 Top 10 Greatest Marketing Challenges On-premise Marketers vs. Outsourced Marketers Question Asked: What are your greatest challenges when developing marketing campaigns? (select all) Source: The Relevancy Group Executive Survey, n=418 9/12, United States Only On-Premise Marketers Are Using More Advanced Marketing Tactics than Those That Outsource Their Technology On-premise marketers are doing more with their marketing programs than vendors that outsource their technology to an ESP. Specifically when it comes to understanding customer behavior and using it to target subscribers, on-premise marketers are more advanced than their outsourced peers. For example, on-premise marketers are more sophisticated when it comes to integrating their social and programs and segmenting their customer with sales data (see Figure 7). The advancements in these data driven attributes are in part due to the fact that on-premise marketers are integrating more data than outsourced marketers (see Figure 8). Figure 7 Top 5 Tactics Used: On-premise Marketers vs. Outsourced Marketers Question Asked: From the following list, please select the statement or statements that best describe the marketing tactics that you regularly utilize? (select all) Source: The Relevancy Group Executive Survey, n=418 9/12, United States Only Page 7

9 On-Premise Marketers Integrate and Leverage More Disparate Data than Outsourced Marketers Considering the ever expanding amount of customer data and the often disparate and chaotic manner in which it is stored and organized, leveraging and consolidating data remains a huge priority for marketers. When asking marketers how their data is organized and stored, The Relevancy Group found that on-premise marketers leverage and integrate more disparate data than out-sourced marketers. The one exception is response attribution data, which in part stands to reason that out-sourced marketers that are using more non-integrated data and accordingly need to attribute marketing responses across channels (see figure 8). Figure 8 Data Sources Currently Integrated On-Premise Marketers vs. Outsourced Marketers Question Asked: For each of the following systems and data sources, please indicate your plans for integrating to them into a centralized database for use in marketing efforts - Currently Integrated Summary Source: The Relevancy Group Executive Survey, n=418 9/12, United States Only As Marketing Programs Mature Tenure Favors On-Premise Solutions As organization s launch their initial marketing efforts, the tendency is to first out-source the program to external ESPs. The Relevancy Group data shows this trend (see figure 9). However, interestingly, as the tenure of the marketing program increases, organizations tend to bring their programs in-house and use on-premise marketing technology. The data indicates that somewhere around the fourth or fifth year of working with an outsourced solution, that marketing programs begin to mature and move to an on-premise solution. This is also in keeping with previous research conducted by The Relevancy Group that indicated the pay-back time for an on-premise solution is typically three to four years, compared to outsourced ESP solutions that pay back by year four or five. The ESP outsourced solution typically exceeds the cost of an on-premise solution. Page 8

10 Figure 9 Marketing Program Tenure On-premise Marketers vs. Outsourced Marketers 2012 Question Asked: How long has your organization s marketing program been in existence? (Select One) Source: The Relevancy Group Executive Survey, n=129 9/12, United States Only Marketers Using On-Premise Solutions Have Higher Customer Lifetime Value, Revenue and Important Campaign Performance Metrics In addition to on-premise marketers being more advanced and using more data, they are also contributing more corporate revenue from their programs than their outsourced peers. The Relevancy Group data looked closely at all performance metrics and segmented the marketers into different groups based on the type of technology they use to deploy their marketing. The following differences were revealed Median Lifetime Customer Value is Higher for On-Premise Senders: On-premise senders report a median lifetime customer value of $6,750 as compared to outsourced senders that report a median lifetime customer value of $5,250 (see figure 10). What is particularly telling is that on-premise marketers have smaller customer database size than outsourced marketers (outsourced senders on average have 4.2 million customer records, as compared with on-premise senders that average 3.9 million customer records). Overall Corporate Revenue Percentage of Revenue Contribution is Higher for On-Premise Senders: When asked what percentage of their annual corporate revenue is attributed to their marketing initiatives, on-premise senders again indicated a higher amount than their on-premise peers. On-premise marketers reported a contribution from marketing initiatives of 8.3% as compared to outsourced senders of 7.7% (see figure 11). We found that while outsourced senders have a slightly larger customer database, on average both outsourced and on-premise senders were sending the same amount of each month, which was approximately 8.3 million pieces. This clearly shows that on-premise marketers are driving more revenue per than their outsourced peers. On Average, On-Premise Marketers Drive 30% Higher Monthly Revenue than Out-Sourced Senders: When comparing performance metrics including delivery, open, click and conversion rates between different types of senders, there was a noticeable difference in the average delivery rate. While these delivery metrics are Page 9

11 significantly lower than delivery rates typically published by vendors, we found them to be accurate, particularly in the difference between on-premise and outsourced senders. Outsourced senders reported an average monthly deliverability rate of forty-five percent, as compared to on-premise senders that reported an average rate of sixty-two percent (see figure 12). In comparing other metrics, such as open, click and conversion rates, we found that the differences were minimal, in most cases within one percent of one another. However, the median of the AOVs (average order value) of each group was significantly different, with on-premise marketers reporting a median AOV of $327 dollars and outsourced marketers reporting a median AOV of $304 dollars. This difference is significant considering that each group of senders both send on average 8.3 million pieces of per month. Additionally, the fact that on-premise marketers had fewer customers in their database than outsourced senders, indicates that on-premise marketers are capturing more money from their clients on average than organizations utilizing outsourced solutions. This indicates that on-premise solutions are more efficient. Finally, we modeled these results, leveraging the actual performance metrics from each set of senders. In doing so we normalized the average order size to the mean AOV of $150, which was the mean AOV for all survey respondents. We applied these metrics to an average 8.3 monthly send size and found that on-premise marketers generate 30% more revenue per month than outsourced senders (see figure 12). Figure 10 Median Lifetime Customer Value Outsourced Senders vs. On-Premise Senders Question Asked: What is the lifetime value of your customers? Source: The Relevancy Group Executive Survey, n=418 9/12, United States Only Page 10

12 Figure 11 Overall Corporate Revenue Percentage of Revenue Contribution Question Asked: What percentage of your overall revenue is attributed to your marketing initiatives? Source: The Relevancy Group Executive Survey, n=418 9/12, United States Only Figure 12 Average Monthly Revenue and Deliverability Outsourced vs. On-Premise Marketers Question Asked: For each of the following metrics, please select what your average metric is for these performance measures (Delivery, Open, Click, Conversion, Average Order Value), Applied average monthly send size, 8.3mm/mo. Source: The Relevancy Group Executive Survey, n=418 9/12, United States Only Page 11

13 Conclusion: Regardless of how marketing technology is deployed, here are some best practices to engage your audience in their inbox: Leverage data and enlist audience segmentation. Audience segmentation is key to not only driving relevance forward, but also the value that the marketing program delivers to the organization and to the customer. This can be measured in costs, revenue and profits. As the aforementioned data illustrates, organizations that are integrating and using data for audience targeting are driving more revenue. For marketers who don't practice relevance through segmentation and targeting, your programs are costing you a lot more than you might realize. Incorporate a data security and data breach plan. The reality of the digital age requires that as marketers that we are prepared to protect and react to the nefarious players that continue to attack infrastructure and data resources. While all organizations regardless of their deployment type are vulnerable to these truths, organizations must incorporate data security standards and should a breach occur, have a plan of response in place. Doing so is good business. Developing a plan can help to minimize risk to consumers, business partners and stockholders, while increasing brand protection and the long-term viability of a business. At The Relevancy Group, we contributed to and endorse the data security readiness plans put forth by the OTA (Online Trust Alliance). Marketers should build data readiness and breach response plans based on OTA recommendations. The OTA Data Readiness and Breach Guide can be downloaded here.https://www.otalliance.org/resources/incident/2012databreachguide.pdf. Institutionalize testing and frequency caps. Ensure marketing mailings focus on goals by incorporating regular testing into marketing campaigns. Tests should focus on variables that are levers (e.g., frequency, time of day, content) for attaining target goals (e.g., conversion). Work backward from a specific goal to ensure optimization practices such as testing are part of the mailing process. Determine the total number of messages subscribers will receive in a given month. Typically, marketers mail once per week. However, develop a contact strategy that incorporates frequency rules to avoid burning out subscribers. Leverage dynamic content. Using segmentation, customer behavior, and context triggers such as location and client/device to insert relevant content is a fantastic way to ensure your message is relevant. Additional attributes such as demographics, location, and use of advertising banner ad cookies to target subscribers with appropriate content is another means to improve dynamic content placement. Firms such as LiveIntent and Movable Ink offer innovative solutions to improve content targeting that easily work with any marketing solution. Page 12

14 AFTERWORD & METHODOLOGY Survey Methodology: The survey was conducted in September 2012 by The Relevancy Group using an online panel of marketing and IT executives. Survey respondents where qualified based on their knowledge of and participation in their organization s marketing efforts. The survey included randomization and skip ordering to ensure that the results and answers were normalized. The survey also focused on respondents in the retail, travel, financial services and the media/publishing industries and quotas were used to ensure at least 50 respondents in each of these industries. The balance of the respondents included random collection of other industries. This survey and panel complies with ESOMAR codes and guidelines. Panels are recruited by and online marketing with over 300 diverse online affiliate partners and targeted website advertising. The Relevancy Group employs e-rewards "by-invitation-only" recruitment methodology to invite pre-validated individuals to participate in these panels. Research document and survey: About The Relevancy Group The Relevancy Group is dedicated to educating the market on the imperative tactics needed to foster trust with consumers and improve an organization s relevance within the broader online economy. Working with the leading vendors and associations serving the household names that comprise our economy, The Relevancy Group acts as an educator and trusted advisor in the aim of optimizing cross-channel connected marketing strategy and tactics. The Relevancy Group publishes research and other educational resources. For more information, please visit: and follow The Relevancy Group on About The Author David Daniels CEO and Co-Founder, The Relevancy Group, LLC For a quarter of a century, David has been a marketing industry proponent. Currently as CEO of The Relevancy Group, David directs market research and consulting essential to digital marketing. Direct Magazine said David is one of the most influential experts in marketing, if not the most influential. Co-author of the book Marketing An Hour A Day, David has held senior level positions at Forrester and JupiterResearch, Apple, Anthropologie, MacWarehouse, Proteam and the earliest online retailers on CompuServe. David advises many industry associations including the OTA, writes a syndicated column for ClickZ and has been a contributor to the Weekend Today Show on NBC. Follow David on https://twitter.com/#!/ daniels Learn more at Page 13

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