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Join Our Research Team at DMA 2014
Dec 13, 2001
Case Study

Overstock.com Hits $100 Million Profitably with Email Marketing

SUMMARY: Utah-based discount eretailer, Overstock.com grossed $2 million in 1999, $39 million in 2000, and on December 6th 2000, CEO Patrick Byrne announced that it had hit profitability. A few months later, he predicted that sales for 2001 would almost triple to $100 million, while still maintaining profitability.

When new VP Marketing Debby Richman joined the company in April 2001, she had to meet this aggressive goal -- despite the rapidly slowing economy.

This Case Study, detailing how Richman now sends more than five million emails a week to her opt-in list (and the clever tactic she uses to grow that...
CHALLENGE

Luckily Debby Richman had two advantages: she's incredibly energetic (she says, "My RPMs haven't changed since I left New York City") and, she had a solid background in measuring marketing and advertising effectiveness, having worked for Neilsen and having run her own research firm.

Although Overstock's prices are up to 70% discounted, the site focuses on high-end merchandise with price tags that can go to $800 or above. So, at least half of its sales are definitely not impulse buys.

CAMPAIGN

Like any true direct marketer, the first thing Richman did when she arrived was to closely examine all measurement systems and find ways to make them even better. Richman decided against investing in much outside technology (aside from a relationship with Vividence.)

She explains, "The key to figuring out efficiency and effectiveness is not to buy fancy software. The key is to get a kid out of college who really knows statistics." So she did just that. The Company's CTO Doug Greene also pitched in, helping Richman refine the sales measurements, which are continually displayed in real-time on the company's intranet. This intranet system tracks sales from six types of site visitors:

1. First-time visitors coming from a tracked source
2. First-time visitors without a tracked source
3. Opt-in email subscribers to Overstock's list who aren't buyers yet
4. Customers who have purchased something in the past
5. Returning visitors originally from a tracked source
6. Returning visitors originally from an untracked source

In addition, Richman tracks three key shopping behaviors:

1. Who customers are -- including what census data overlaid on their zip code reveals about their lifestyle and preferences. Richman notes, "Demographics are not just age, sex, income. Lifestyle is partly geographic as well. It's very important to track because success online is based on showing the right things to the right people based on who they are, as well as their behaviors when they are surfing on your site."

2. What product categories customers prefer to look at as they surf the site -- such as house wares, apparel, or home electronics.

3. What customers ultimately buy. "That's the most important thing!"

All of this data is tied together with Richman's systems tracking email campaign open, click through, and buy rates. When Richman joined Overstock, they'd already discovered that email marketing was incredibly effective for turning former visitors into buyers, and customers into repeat buyers. The main problem was in getting more visitors to sign up for opt-in emails.

Richman's marketing team had a brainwave -- many of their banner campaigns and broadcast email campaigns to rented opt-in lists featured discount offers, such as "Get 10% off on house wares when you purchase before December 15." For these non-product specific offers, click throughs now land on special splash pages instead of the site itself.

These splash pages are all designed in a similar fashion. Overstock's logo is at the top. Then there's a picture of the offer they saw before they clicked. Then the headline "To receive this offer, please enter the following information" and a box to collect the visitor's email. Directly below the box, a line of text in red reads, "See below for details."

Then below that is a green-bordered "coupon" that looks fairly official. And only after you've scrolled past this official coupon, do you come to the explanation, "By entering the information above, you are subscribing to the Overstock.com newsletter that will inform you of hot deals at Overstock.com. Your email address will be used solely by Overstock.com and will not be sold to or used by other parties."

After the visitor enters their email and clicks continue they are forwarded into the appropriate section of the site itself. (Note: In the case of product specific clicks, such as clicks on particular products offered through Yahoo's shopping channel, Richman forgoes the opt-in screen and sends shoppers directly to that particular product on Overstock's site. She says, "We're not offering you a coupon, so we don't have to register you. We're trying to get you to close on that product, so we focus on the close.")

Richman aggressively ramped up email marketing campaigns to take advantage of the growing database of names. She noticed that nearly 100% of response to her email campaigns comes in within just 48 hours. So to keep up a steady email-driven sales flow she needed to send a new campaign to her list every 2-3 days.

However, she was very concerned about burning out names by over-emailing them. She says, "Our biggest fear is making sure we don't burn out recipients. We have to continue to intrigue and entertain them." Luckily, Overstock has an advantage over traditional brick and mortar retailers, because the site can change their "display theme" far more frequently, which helps raise the entertainment value of promotions.

Richman set up a schedule for email campaigns to take advantage of this fact. Twice a week she sends out a "mass" email to everyone on the now two million+ strong opt-in list. Typically these promotions will include offers for a variety of top-selling products in different departments.

Each mass email is built around a particular theme (samples below.) Whenever possible these echo the themes, such as "Back toSchool" or "Columbus Day Sale," that brick and mortar retailers are also promoting that week. Richman explains, "If it's white sale season in January offline, we'll promote it as well because of all the brick and mortar retail promotional noise. It creates awareness of a need you can fill, it lifts you."

Overstock's marketing team also sends a targeted email campaign out once a week spotlighting a particular department's specials (samples below.) It's scheduled to go out between the two mass campaigns. The targeted mailings only go to opt-ins that have demonstrated an interest in the topic either from their surfing activity on the Overstock site, or their purchase history there.

Every campaign goes out with at least a test-cell or two to track how creative changes can affect response rates. And some of these changes are very subtle. (See sample of two test versions of a single campaign below.) Richman says she's learned three things from these tests:

1. If you send email campaigns in the same format all the time, you'll reduce your revenue. "You really need to be on your toes in terms of changing things."

2. Some of the features work some of the time, but none ever work all the time. There is no one perfect lay out that will always work. In fact things that worked well for a while, often run into fatigue, so you must constantly test for the next tactic that will work.

3. People react different to email lay out than they do to direct mail or printed flyers. For this reason, the last thing any offline retailer or cataloger should do is faithfully reproduce the art from their printed materials online.

When email recipients click through to the site, they land directly on splash pages relating to the offer they just received. The pages are designed to be as light as possible. Richman says, "We make sure we don't have too many bells and whistles. They have to work on a 28.8 modem. That's very important to us."

As visitors navigate these pages, they can use their choice of surfing and searching styles. Overstock provides a wide variety of visitor-directed options, including sorting by price, newness, text vs. photos, types of products, etc. Plus the site's search function, developed in-house by CTO Greene's team, is one of the best we've ever seen. Visitors can use search to get useful results, even if they enter in very general terms such as "Golf." (We highly recommend that you test this functionality to learn what an effective search can do in terms of presenting product.)

Plus, when visitors land on particular product pages, they're again presented with a clickable list of action items (in addition to simply buying) that can turn a surfer into a customer. These include:
- Email Product Info to a Friend
- General Sizing Info
- Returns Policy
- Pricing Policy
- Read Customer Reviews
- Request More Info

Each product description also includes capsulated shipping, warranty, materials and model # information; and the now-expected list of alternate and complimentary product options.



RESULTS

Year-to-date sales for October 2001 were up 350% over…

… October 2000 sales. During the month of October 2001 alone the company grossed $7 million from seven million unique visitors. Now fueled by the holiday season, sales are continuing to leap higher daily in an astonishing fashion, Richman says, "Our numbers are basically double every single day now."

However, Richman's marketing programs are highly effective even when it's not holiday season. Some stats:

- Overstock's new customer acquisition cost is now under $10 per customer. The company routinely makes a profit on the very first order a customer places with it.

- Non-holiday season email response rates to the house file are about 5%, even though names on this file receive up to three new Overstock promotions a week.

- At least one out of every 10 customers revisiting the site buys something new. So the site gets a 10% sales conversion rate from their customer file.

- Email recipients don't seem to mind the frequency of Overstock's emails even though the Company sends more frequently than the vast majority of eretailers. In fact Richman notes they have gotten some requests from customers for daily emails!

- Overstock sells to a satisfactory number of first-time visitors. Richman claims her results "blow smoke on" the experts who say you must get a visitor to return as many as seven times before they'll purchase. "We're getting conversions from people just coming in."

As we promised above, here are some samples of Overstock's email marketing campaigns:

1. Samples from a creative test mass mailing. You may need to click back and forth a few times between these two samples to spot their subtle differences. When we asked Richman, which one worked the best she said, "I'm going to be coy here. This is the hard work of online marketing -- trying different things. These samples show you the subtle things you have to pay attention to."

Test version #1:
http://www.marketingsherpa1.com/overstock/overstock1.ht
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Test version #2
http://www.marketingsherpa1.com/overstock/overstock2.ht
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2. Sample of a targeted mailing, in this case for people who have shown high interest in purchasing expensive watches:
http://www.marketingsherpa1.com/overstock/overstock3.ht
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3. Sample of a mass mailing around a theme. This is a very useful sample for marketers who want to weave customer testimonials into a sales message:
http://www.marketingsherpa1.com/overstock/overstock4.ht
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4. Sample of splash page that collects opt-in emails:
http://www.marketingsherpa1.com/overstock/overstock5.ht
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