Warning: Contests and Sweepstakes May Be Hazardous to Your Marketing Health

For as long as direct response marketing has existed, marketers have stretched themselves to find the most cost-efficient channels for new user acquisition. Over the course of the past two years, we’ve seen many clients (and B2C marketing teams at large) rely more heavily on sweepstakes and contests in pursuit of these improved economics. At the surface, these campaigns have yielded positive returns; consider a $1,000 giveaway that yields 5,000 new signups – you’d certainly be hard-pressed to find a $0.20 CPA pocket via traditional display!

That said, we’re in the business of retention, so we’re always trying to understand which channels play out most effectively downstream. To better assess the value of contests and sweepstakes, we looked at like cohorts for a sample of 10 Sailthru clients who have been heavily relying on contests as an acquisition channel for at least the past year and compared/contrasted their engagement metrics against other paid channels.

Here are some highlights of what we found:

• The risk of opt-outs is almost always highest in a user’s first 30 days, but this risk is even further exaggerated for users who’ve come in from a contest (which is pretty intuitive when you think about the number of “contest junkies” in the mix): the 30-day opt-out rate for the contest cohorts are typically 52% higher than other paid channels. Opt-out propensity also remained higher over time, though the degree of difference becomes less pronounced over time.

• Interestingly, the contest users who do stay around actually prove more likely to engage with email over time. Looking at the past 30 days, an average 32% of contest users opened an email vs. just 26% of the others.

• Similarly, average revenue per purchaser for the contest cohorts were just marginally higher than other non-organic channels.

• Unfortunately, however, despite their strong open tendencies, contest cohorts proved 63% less likely to convert into buyers, so all told, the quality of contest buyers does not even begin to offset the quantity of them that actually exists; in other words, the average email address was worth $3.07 for non-contest cohorts vs. just $1.14 for contest users (again, a 63% difference!)

The best marketers know that it’s more valuable to retain an existing customer than to acquire a new one; with that in mind, we’d urge marketers to really be cautious and consider the downstream economics of those “high-bang-for-your-buck” campaigns!

Cassie Lancellotti-Young is the VP of Client Optimization & Analytics at Sailthru where she is leading the revolution around 360-degree customer marketing and helping our clients maximize their marketing initiatives.