Article today from Jeanne Jennings on ClickZ 'Why Email Matters More Than Ever' has some good points on why email is still relevant as a tactic/communication vehicle especially as marketing budgets are being cut and every tactic is under a microscope.
Jeanne talks about being strategic in your emailing (targeting, creating relevant messages), optimizing your tactical email elements (and testing those elements), insuring deliverability and list testing.
I might add that I feel any touch (email or other) that you make with a prospect should have a purpose and should always be designed with dual goals in mind - providing ongoing value/information to that person as they interact with you while moving her/him thru the funnel and better qualifying their needs. The latter goal is of course critical to your organization - converting them into an opportunity or learning that they will not be a future buyer (or influence the buying decision) of your products or solutions. In my eyes any tactic should have a distinct purpose of a true value exchange - give the target information that makes them smarter while further understanding/qualifying their needs to see if/how/when you can solve a business problem for them with your solutions.
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