The Enterprise ESP Space Is Heading for A Bumpy Ride and It Is Just What Marketers Need
A radical shift in the enterprise Email Service Provider (ESP) space was well underway before the economic shut down which has accelerated the upheaval. Following a decade of clumsy acquisitions, divestitures, and Yesmail’s baffling decision to vacate the email technology space, industry heavyweights have effectively invited smaller ESPs to compete for brands that historically would have only considered the big names like Salesforce, Oracle, or Adobe. These new-breed ESPs are rising to prominence because they have proven to be more innovative, data-savvy, and focused on ecommerce outcomes while not suffocating under the constraints of legacy technology. This is reflected in the 2020 Forrester Email Wave report released last week with 6 new entrants into their recommended set of ESPs. Beyond those evaluated by Forrester, MessageGears, eMarsys, SendGrid, and Selligent are also making their mark.
“Brands have more legitimate email provider options than ever before. In today’s challenging environment brands need every advantage they can get to keep their customers and cultivate new relationships.”
– Michael Fisher Ed.D, former President of Yesmail
Digital Channels to Get More Scrutiny
With online sales taking on a very prominent role, greater scrutiny is being placed on online marketing effectiveness, and there is a lot of room for improvement. For many brands with a brick and mortar presence, the online channel was a relatively small, but growing portion of their revenue. This has radically changed. While online channels accounted for 16% of total retail sales in 2019, with restaurants clocking in at 6%, both were nearly at 100% of overall revenue of their respective industries by April 2020. Some demand will shift back to physical locations as restrictions ease but online demand is expected to remain substantially higher than previous levels putting a greater pressure on building relationships through digital channels and overall marketing effectiveness.
Competition will be fierce as brands fight for their slice of a much smaller pie so tapping into the latent potential of the existing customer email file is a must. Most brands have 66% to 75% of their email file flagged as inactive, and with more than 80% of subscribers never clicking on even a single email from a typical brand, even a small improvement can mean millions of dollars in incremental revenue. Testing has shown simple targeting and content changes can produce lifts in excess of 200%. Not a lift to open rates or click rates but to conversion rate. Considering conversions and the associated revenue are what are needed for businesses to survive, these opportunities can no longer be ignored.
To thrive brands and ESPs will need to:
– Tap into the massive dormant potential of email subscribers who have never opened, clicked, or made a purchase
– Use their Big Data assets to implement more relevant acquisition, activation, and retention programs as part of a coordinated cross-channel customer communications portfolio
– Focus measurement more on conversions, LTV, and limiting attrition, less on top of the funnel metrics
– Devote adequate time to the up-front data framework design and development so technology can live up to its promise and let brands quickly pivot as unforeseen opportunities and risks arise
This Has Been Brewing for Years
The longstanding disconnect between marketers’ revenue goals and the established ESP world’s steadfast reliance on opens and clicks has provided mid-tier ESPs, like Exponea which has strong ties to the ecommerce world and data savvy ESPs like Cordial, Iterable, and Bluecore, with an opportunity to fulfill marketer needs that have long been ignored. With their focus on putting data into action, these new-breed ESPs are able to automate more effective strategies, tactics, and metrics quickly and at a far lower cost than the better known ESPs that used to be considered “safe picks”.
“Utilizing customer data to create relevant experiences is no longer a ‘nice to have’ CMOs can pay lip service to. Finding the partners and platforms that help make this happen is key to their brand’s survival. Not tomorrow, but today.”
– Bernice Grossman, President DMRS Group
Driven by sweeping data privacy legislation, these new-breed ESPs have shown to be better poised to change how their technology interacts with personal data. ESPs like Message Gears are setting the bar for how the industry empowers users to get the benefits of data for targeting and content personalization without ever hosting the data, entirely removing that risk factor and truly embracing the concept of privacy by design.
To find the right ESP, brands will need to revise their technology partner selection criteria to:
– Balance dynamic and flexible data utilization with cost, risk, and effort minimization
– Consider a technology’s ability to build customer relationships and long-term revenue growth through personalization
– Put more emphasis on how the technology and data framework supports the demands of a comprehensive, cross-channel communications portfolio
The New Economic Formula
Brands are putting everything on the table. Last December eMarketer predicted total retail sales growth of 2.0% and ecommerce growth of 12.8%. As of May 18th, Euromonitor was projecting 2020 U.S. retail sales could be down 6.5%, and that assumes there is no second wave requiring a renewed lockdown. This reversal of long-term growth, and temporary closure of primary sales channels, has forced brands to adopt new business models, and technology providers are already sharing the pain.
“In the short term, [retailers] must identify and optimize existing technologies and business models. In the longer term, the focus should be on evolving business models and enabling transformational change with new and emerging technology.”
The idea of keeping a technology partner because they are a safe choice based on name recognition alone will not survive in a world where the status quo could likely mean the end of the brand. More than half of brands in some industries are expected to file Chapter 11 bankruptcy as a way to lower their costs, including ESP fees. Iconic brands like Neiman Marcus, J.Crew, Stage Stores, and J.C. Penney have already gone down this path. Effectively undermining the stability of long tail enterprise contracts, this will open the door to more cost effective, hungrier ESPs that offer more data-enabled platforms and do not demand brands buy their entire suite of products.
With Chapter 11 a realistic back up plan for an unprecedented number of businesses, it is time for ESPs to push brands to more effectively market to their customers. Those with the right combination of services and integrated data that allows for greater personalization that leads to engagement and conversions will be able to build a true partnership. On the flip side of the coin, this should (fingers crossed!) be the death knell for the mass blasting of emails as high opt-out rates are detrimental to saving the business. ESPs need to be prepared to deliver a new formula of relationship-to-revenue email programs, with increased levels of automation and data complexity that provide far more relevant customer experiences.
No More Wasted Opportunities
Email platform capabilities have seen leaps over the last few years providing marketers with the ability to leverage data to drive highly relevant customer interactions in near real-time speed across a myriad of channels, yet few brands have come close to fully leveraging these capabilities. As brands fight to bounce back, with little patience for outdated technology or allowing opportunities to be missed, they will start to look to a new breed of ESPs to not just help them survive, but to thrive. It is just what brands and marketers need.