Back in the days when I ran the regional office of a major ESP, pitching new business was a lot easier once I started listening to my head of sales.
It was almost all about price, but is it still? And what does the death of the CPM pricing mean to you?
Winning new clients with the best idea
Coming from the world of advertising, I was convinced that winning new clients was, like in advertising, a contest of who had the best solution. In advertising it was all about who had the best creative idea. In email marketing, I assumed the best solution was a combination of platform, people and creative/strategic ideas. But as it turns out in email marketing the best idea never won.
Rigid pricing didn’t work
As a result, during the first several new business pitches I worked on with my head of sales I tended to be very rigid regarding our pricing. After all, if the clients wanted the best solution, shouldn’t they be willing to pay more for it?
This attitude drove my sales guy out of his mind. And we weren’t winning much business. I remember quite a few shouting matches with him over our email marketing CPM pricing — to the point where some people outside my office thought we were going to come to blows (he’s actually one of my best friends to this day).
We were losing pitches because of price
And then one day, it hit me. Nick was right; regardless of the quality of our solutions, we were losing pitches because of our price. In the deals we pursued, clients would go through the motions of checking out the platform (the dreaded demo), and meeting the team, and listening to our creative and strategic ideas.
But in the end, the selection of ESP came down to one driving factor—price. Pitches were driven on the client side by procurement folks whose job it was to get as low a sending rate (CPM) as possible. If you were one of the top vendors in the Forrester wave Email marketing vendors research the procurement folks viewed you as interchangeable with any of the other top vendors. So hiring the one with the lowest price just seemed to make sense. Once I stopped fighting the pricing game, we started to win a lot of business. I mean a lot.
Downward spiral of Email marketing CPM fees
And so, in my own way, I ended up contributing to the relentless downward spiral in CPM’s the industry has seen over the last six-seven years. There’s a “factory” cost of sending emails. The difference between that cost and the CPM represented the margins being made by the ESPs.
During this time reductions in factory costs could not keep up with the downward trend in the pricing paid by senders. As margins were shrinking towards zero, investments back into the email platforms shrank as well. That was one negative outcome of the contraction of email marketing pricing.
CPM prices hitting rock bottom
The other major consequence of the pressure on ESP’s to cut their CPM fees was the fact that few took the time to think about what would happen when prices hit rock bottom—when further reductions became impossible. Because that’s where we find ourselves today. Even Nick was appalled when it took a bid as low as of 65 cents per thousand to win a new client.
The glory days of Email marketing CPM have come to an end
Clients who would have been satisfied with a $2 CPM six years ago, now expect to pay 50 cents or less. But because there isn’t an ESP today that can stay in business sending emails for free, the days of choosing your ESP based on price are coming to an end, if they haven’t already. Prices can’t get much lower than they already are.
Selecting email service providers on quality
However, some consequences are not inherently negative. Interestingly enough, the fact that CPM’s have hit (or are about to hit) rock bottom brings us full circle back to where I started. By that I mean that the search process for a new ESP is going to become much more complex than simply who has the lowest price.
A bigger role for marketing in email marketing
Email marketing software and service providers will need to be evaluated on the quality of their people and ideas for your business. The role of procurement will be reduced and the role of marketing will be increased in the selection process. Qualitative evaluations with replace quantitative ones. The entire solution offered by the ESPs competing for your business will need to be thoroughly examined, discussed and agreed upon by the various client stakeholders.
This means good news for your email program
There is two pieces of good news that go along with this development. First, it should mean that your overall email marketing program will get better, faster than in the days where price drove your decision-making. ESP’s are going to need to hire more people who can deliver agency services (creative, strategy, account management) with their email platforms. And they are going to need to spend more time upfront thinking about your business and how they can grow it.
Help in choosing the best email service provider
And second, there are resources available that can help you navigate the process, companies like David Daniel’s Relevancy Group, as well as websites like this one. For years marketers have used search consultants to assist them in selecting new advertising agencies. The cost of switching out a fully embedded ESP providing a comprehensive solution is much more than just switching platforms. If you’re running a multi-million dollar email program, now is the time to consider using email search consultants for your next RFP.