SMS marketing—how AI and data crackdowns are reviving the strategy

Text message marketing is having a resurgence thanks to artificial intelligence and a data crackdown that has made it more difficult for brands to directly target consumers online. If done right, many brands view SMS as a more effective way of building a staunch customer base than email or loyalty programs. Conversational commerce, which SMS marketing is often considered to be part of, is growing rapidly, expected to grow 29.5% to $1.7 billion in 2023, according to a recent Global Conversational Commerce Market Intelligence and Future Growth Dynamics Databook report. “From the death of the cookie to changes around privacy regulations in the last few years, brands have found it more challenging to connect with customers,” leading to “the resurrection of channels like text messaging,” said Digitas U.K. CEO Jen Berry. Ad Age Best Places to Work Recognizing employers in advertising and marketing Enter here For The Container Store, mobile marketing—and specifically text messages—will be a cornerstone of its 2023 back-to-school campaign. The Container Store is working with Vibes, a mobile marketing platform, to help tailor its messaging via texts and its app to drive sales using mobile wallet—enticing customers with a coupon for 25% off their entire purchase. The retail chain saw success with prior mobile marketing campaigns during the 2021 and 2022 back-to-school seasons, enrolling more than 121,000 subscribers to its college program in 2022, an increase of 61% over its 2021 college subscriber list. Its mobile-attributed revenue was also three times greater in 2022 than in 2021, according to the company. “It's about the engaged audience at this time of year for college, but then there's also that simplicity of getting the offer delivered easily. It's efficient. It's effective,” said The Container Store Chief Marketing Officer Melissa Collins. “Also, doing mobile wallet has been another way to keep track of the offer, and being able to download [the promotion] right into mobile wallet has been successful.” Of course, this audience is largely made up of a demographic that is incredibly tied to their phones. According to a recent report from SMS marketing from mobile marketing platform Simple Texting, 71% of consumers are subscribed to receive texts from businesses; and 53% of consumers want the ability to text companies back. As such, 86% of businesses have used texts to reach customers this year, compared to just 55% in 2022, and 67% of companies have increased their SMS marketing budgets in 2023, the report said. Also read: The best emojis for email marketing campaigns Inside the SMS resurgence “You can use SMS as an organic social channel; that is what's really interesting,” said Shray Joshi, whose various ventures include serving as founder and CEO of marketing firm Good Peeps, which invests in various ventures; advisor to SMS marketing tech platform Postcript; and fractional VP of marketing for health supplement brand Kaged, which heavily relies on text message marketing. “SMS is the best way of making sure that you get what you're saying in front of every single customer that's on your list. Social is what gets the attention and SMS is where you build your brand promoters." SMS marketing used to fall under email promotions and loyalty programs in importance in retaining customers, but it’s quickly outpacing both of those tactics as a way to not only engage existing customers but acquire new ones. “Email is becoming less effective,” Vibes Co-Founder and Chief Innovation Officer Alex Campbell said. “Email used to fit into the bucket of ‘if I want to have direct conversations with customers, I can send them an email.’ But email has become such a spammy environment that I'm filtering out things by default.” Loyalty programs, meanwhile, have become less effective in driving sales online, Joshi said. “No one uses them on the Internet. There's not that many times that I'm worried about a brand’s loyalty points that I bought from two times,” he said. Related: How McDonald's and other restaurant brands are promoting loyalty apps If done right, text messaging can yield some impressive results. Some advertising professionals, including Joshi, even see the results of SMS outpacing social media. “SMS has a 99% open rate and insane click-through rates … You’re getting 1% to 10% engagement rates on email,” Joshi said. On social, when a brand has content that goes viral, about 10% to 20% of followers like the post, while 99% of people open a text message, he added. Joshi said SMS marketers are also driving 30% to 35% of revenue for many brands’ e-commerce businesses. Marketing messaging data firm Mobilesquared noted in a report released last year that while 100% of texts are opened only 55% are read. That number was revised from a 2010 report in which the firm said 90% of text messages were read within three minutes of being sent. Nick Lane, chief insight analyst and founder of Mobilesquared, wrote that while that 55% stat may seem disappointing compared to the 99% previously reported, that performance is still “far superior to virtually every other channel.” “One of the reasons marketers are turning to SMS is because of its high open rates,” Berry said. “Texts are often acted on in real time and can drive immediate action, which scores highly for brands on the effectiveness scale.” Collins said the high open rates have made The Container Store prioritize SMS marketing, but social is still a big part of the company’s strategy, as well. “I wouldn't say one is more important than the other,” Collins said, “but each has a moment. With SMS, you can get that urgency across a lot faster than you maybe can on a social post.” Text message marketing is still seen primarily as a way to retain customers, versus acquire them. But new advancements are also emerging to boost text messaging so it’s retaining and acquiring customers, and driving more sales from competitors. “There's been a debate for a long time around whether it's a loyalty tool or an acquisition tool,” Campbell said. “When you start to get into the offers side of it, you can start to acquire new customers. In the last couple of years, with inflation, we're starting to see shoppers who were very loyal to one brand all of a sudden be very price-conscious. So, getting someone an offer [via text] that they actually do use is really important in that acquisition model.” Smartly.io, a SaaS digital ad platform, is working on a product that can connect consumers directly to messages that fit their interests in the hope that it will convert to a sale, said Laura Desmond, CEO of the company. “They might be scrolling, getting their daily diet of news, community news and friends news and other kinds of entertainment, and they see something and they're given the option to say, ‘hey, do you want to find out more?’” Desmond said. “It takes a relatively few amount of text interactions to get them to the point where they want to do something … It’s beyond brand loyalty.” AI marketing blog How brands are using ChatGPT, DALL-E 2 and other tools Read more here How AI is helping improve the space AI is also being used to improve SMS marketing strategies to better serve people with the content they want, when they want it. “SMS marketing is rapidly evolving,” Desmond said. “If you can hit that mid-funnel intent signal with the right ad, the right personalized message, at the right time, with the right offer, it converts a lot better.” Desmond said delivering consumers with “the right information and serving them the right ads” via messaging requires AI, which platforms including Meta are already deploying to improve shoppable ads via messaging apps. “And it'll get faster and better,” she said. According to the Simple Texting report, 83% of businesses use AI in their SMS marketing and 81% have used ChatGPT and other such apps to specifically write texts to consumers. AI is starting to be used to create copy and push out SMS marketing faster. For online bridalwear retailer Azazie, SMS is a critical part of its marketing strategy. It’s a huge driver of online sales—73% of the company’s website traffic and 45% of all sales come from mobile “and this is thanks to using SMS as the strategy,” said Azazie Senior Brand Marketing Manager Keily Hernandez. Hernandez said Azazie started to invest in SMS marketing in 2018, when the company noticed an uptick in mobile web traffic and saw an opportunity to use texts to drive that further. The company has refined its strategy to make it perform better—including by using AI chatbot ChatGPT to write texts for campaigns such as its recent Barbie-inspired Doll House collection—and now it’s looking at ways to also add customer service capabilities via SMS, she said. Even though some ad professionals, including Campbell and Joshi, argued that generative AI still sounds too robotic to use to write texts, AI is improving fast and it will likely be used to fully automate SMS marketing, and soon. Also read: AI is revamping out-of-home advertising “You can automate the entire process, which obviously saves a ton of money,” said Matt Null, co-founder and head of AI for brand and communications agency Human. “If you don't know you're interacting with an AI, it blends in a little bit more with just getting spam email or any sort of cold text from any number of services you've signed up for. We have a long way to go but we're going to be there very, very soon.” Navigating risks Text message marketing isn’t without its risks. Unlike email, where unsubscribing is usually a pain and takes time and multiple steps, all a person has to do to opt out of receiving texts from a company is reply “STOP.” “There's a huge risk,” Joshi said. “If you're not fun, not providing value, if you're sending too many text messages, people will leave immediately.” Email is less effective because it’s become so spammy, Campbell said, but texts can be just as spammy, too. “It’s a very personal media,” Campbell said. “If I send you a message every Thursday at 5 p.m. talking about a sale this weekend, that gets old and I don't care about that. I expect you to know who I am and use that information to communicate with me via SMS.” Collins said it takes The Container Store only about 15 minutes to set up its texts to send out to customers via Vibes, which makes it easy to send out a lot of messages if the company chooses to do so. But it has had to take a more careful approach in using SMS only for events and promotions that make sense, such as around new products or as a way to let consumers know when a promotion is ending. “It’s not for everything,” Collins said. “It has to be used in the right way. You can use it to engage with some fun events. And then we’re using it for order tracking updates, which customers definitely want." Segmentation is also key to its success. When Azazie first started using SMS marketing, Hernandez said the company didn’t segment customers, so sending different texts to different customers based on their individual needs, such as whether they are shopping for a mother of the bride or bridesmaids dress. It also previously sent out texts monthly and now “it's part of the weekly strategy that coincides with email,” she said. Before it revised its SMS marketing strategy, most of Azazie’s sales were still coming from email and its website, Hernandez said, rather than the 45% that now come from mobile. “That's only going to increase now that everyone is on their mobile,” she said. For Azazie, SMS marketing is now both easy to deploy and yields great results. “With SMS, it is so much easier and faster for communicating promotions and also targeting and retargeting customers because we can instantly target a customer who is, for example, viewing a pink dress, with just a text,” Hernandez said. “Whereas with email and a social media campaign, you need a lot of planning in order to execute a campaign.” To have a successful SMS marketing campaign, you also have to know your customers well, so it does work better for companies such as retailers that have a wealth of first-party data. Consumer packaged goods don’t have as much first-party data because they are sold through external retailers, so SMS might not be the best strategy for them. “CPG has been getting disrupted by some of the direct consumer stuff,” Campbell said. “I still think there's an opportunity there. They have loyalty they could cultivate.” Azazie’s customer base is largely millennial and Gen Z, and they respond really well to texts that are celebrity- or trend-driven. “They really love when we talk about the Kendall and Kylie Collection,” Hernandez said. Related: A marketing guide to Gen Z Campbell said an easy way to send a personalized text to a customer is via a birthday message. “Our number one performing message type is a birthday message. It's a special day, it's your special day,” he said. Banks will also often use SMS to reach older consumers “who may not be so digitally native,” but who are also on their phones, Berry said. Text messages can be a good way to build hype around something, too, with already engaged audiences. Laundry Service, the Wasserman-owned creative agency, incorporated a text message game for consumers to partake in and get exclusive content and clues for the promotion of season two of “The Wilds” on Amazon Prime Video, a show about a group of teenagers stranded on a remote island, said Jordan Fox, head of the agency. “The sheer intimacy of it was interesting to us for this particular project and our client,” Fox said. “[SMS marketing] is a direct line to people when you get them to opt in. It's hard to get people to opt in because it's so personal, but showing up in someone's DMs or text is more intimate and has a much higher chance of being read, consumed or engaged with than buying paid media on Instagram, or whatever the other ways are that you try to reach people digitally.” Fox said for a show like “The Wilds,” which has a dedicated fanbase to engage with, SMS marketing made sense. “The use cases for SMS have to be tailored to the right type of communication, transactional [versus] marketing,” said Nathan Kurach, senior VP of business architecture and marketing intelligence for WPP-owned Wunderman Thompson Data, noting it will work, for example, for “service reminders for your vehicle [versus] vehicle launch messages. Joshi said Kaged avoids using text messaging as a promotional channel, something that will annoy both Gen Z and millennial customers especially. “We have a killer SMS list,” Joshi said. “We focus on product education because nutrition and supplements are so confusing. The goal is not, ‘buy, buy Kaged, buy whatever products. It's like, ‘hey, you just bought this pre workout, start with half a scoop and scale up slowly. See how you're feeling in the gym.’” Joshi said Gen Z is the most open to receiving text messages because they’re used to being bombarded with constant content but they also are the most likely to unsubscribe if they don’t feel texts are personal or providing value. Millennials, too, will opt out of text messages if they feel they are receiving too many, he said. Still, some advertisers, including Null, are more skeptical of SMS marketing and its ability to truly convert sales and acquire new customers. Null said he hasn’t seen the sales conversions yet and doesn’t see open rates, for example, as a good indicator of success. “The open rate is fine but you can't even really use that as a metric,” Null said, noting how many people just click to open a text without even reading it or doing anything more once they realize it’s from a brand. “There's value in it. SMS marketing is a better tool for re-engaging already existing customers because you're creating an even deeper connection. But as far as cold outreach, I personally don't think that SMS is the tool.” Some advertisers are deterred by it being costly and time-consuming, with the capabilities not quite there yet. “We typically encourage our clients to use WhatsApp, which is more affordable and more frequently used by some segments,” Berry said. “Like all consumer experiences, to create the most business impact and consumer value with SMS, audience insight and needs state should always be priority.” Most email service providers that allow brands to send email marketing campaigns also offer SMS capabilities, “but there is still significant effort in setting that up, configurations and integrations, short codes, contracts, working with the telcos,” Kurach said. Kurach said “scale costs could add up,” with Salesforce Marketing Cloud charging four times the cost of email for SMS capabilities. “With AI in play there could be some other opportunities, but overall, I would consider it a more sensitive channel,” he said.

SMS marketing—how AI and data crackdowns are reviving the strategy

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