eCommerce marketers are finding that email is the most effective way of boosting customer retention and increasing sales. According to a recent Report from Forrester Research, Inc. (Nasdaq: FORR), in 2004, marketers will send more than 200 billion emails to take advantage of the medium’s potency. To maintain visibility, companies will outsource strategic and technical elements of their email marketing initiatives, creating a $4.8 billion email marketing industry.

“Marketers are hunters — following the tracks of consumers and scattering promotional bait to lure elusive dollars out of hiding places,” said Jim Nail, senior analyst in Media & Entertainment Research. “Email turns marketers into herders: once they trap consumers, they must learn to tame and cultivate them as ongoing sources of nourishment.”

“But email is not direct mail minus the paper and postage,” added Nail.

Forrester found three distinct differences that, if not handled correctly, can thwart email’s potential and change the customer relationship. First, marketers must stop broadcasting to customers and instead begin a dialogue on a one-to-one basis. Second, marketers must offer value in the form of service and ease-of-use instead of simply pushing products. Third, marketers need to measure the depth and breadth of their relationships with customers by the amount of information shared, rather than the traditional measurements of timing, frequency, and monetary value of purchases.

Today, marketers who turn to email service bureaus with specialized expertise achieve purchase rates four times higher than marketers who keep all their email operations in-house. As a result, demand for email-marketing services will accelerate to create a $4.8 billion industry by 2004 — $3.2 billion of which will be spent on companies helping marketers retain their customers by mailing to their in-house lists. The remaining $1.6 billion will go to outsourcers helping marketers acquire new customers through email.

The high cost of direct mail and the broad-based nature of traditional media like TV and radio ads have forced marketers to focus on customer acquisition. Email, however, changes the economics of the marketing equation by eliminating postage, paper, and printing that account for 60% of direct mail’s response. The low cost of email means that promoting lower-cost items and communicating with less frequent buyers can be profitable.

“By 2003 the number of marketing emails will equal the volume of direct mail forwarded by the US Postal Service, and by 2004 the average household will receive nine pieces of marketing email per day,” added Nail. “To remain prominent in what will become a sea of email, marketers are going to need the right people, partners, and structure in place to build successful customer relationships.”

For the Report “The Email Marketing Dialogue,” Forrester surveyed 50 retail marketers; 22 from traditional companies and 28 from Internet pure plays. Sixty-four percent of the marketers outsourced one or more elements of their email operations. On average, marketers had 205,000 names on their in-house email list and sent each name two emails per month.