The Dos and Don’ts of Email Marketing

The Dos and Don’ts of Email Marketing

What is Email Marketing?

Email marketing can be thought of as the use of email to promote products or services while developing relationships with potential customers or clients. It’s a way for you to get in front of your customer base and keep them up to date with what’s going on within your company. It is essentially the electronic version of direct mail, with the biggest benefit being that your content is sent out instantly and at a specific time and date determined by you.

Marketing Statistics

•       Marketing Weekly- 73% of marketers said email marketing is the number one digital marketing platform for ROI.

•       Adobe- As much as 58% of millennials claim that they prefer to be contacted via email.

•       Mailigen- 89% of the marketers agree that email is their primary lead generation channel.

•       Blue Kangaroo Study- 7 out of 10 people say that they have used the vouchers/coupons given to them via email marketing in the last week.

•       Litmus- 82% of the consumers check and open the emails sent to them by a company.

•       Experian- Every $1 spent on email marketing yields a $44.25 return on investment.

• Emails convert 3 times more than social media.

• Email marketing is more likely to drive sales than social media marketing

•       61 percent of consumers enjoy receiving promotional emails weekly. 38 percent would like emails to come even more frequently.

• 60 percent of consumers say they’ve made a purchase as the result of a marketing email they received.

Email Marketing Dos:

There are certain things you should be sure to adopt in your email marketing strategy. They will help to ensure that your email campaigns are successful and reaching the right audience.

Build a Contact List

If you’re relatively new to email marketing, building a contact list is one of the first things you should do. In order to send emails, you need contacts to send them to. One of the easiest ways to develop your content list is through form submissions on your website. People can subscribe to your newsletter through these form submissions or submit their contact information to receive more information about your product offerings.

You can also put gated content on your website that requires a form submission to access it. In terms of social media, you could hold contests or giveaways that require users to submit their contact information to be entered. There are so many unique ways to get these contacts, but it’s the first step in successfully implementing email marketing into your overall marketing strategy.

A/B Test Emails

A/B Testing involves sending one variation of an email to a specific subset of subscribers, then sending another variation of the email to another subset of subscribers. The variations can be in terms of subject lines, email templates, an email campaign with images vs. no images, and so on. The ultimate goal of A/B Testing is to see which email variation performed best in terms of how many people opened it, overall clicks, people who unsubscribed, etc. It’s a great tool to test out different concepts or ideas when it comes to your email marketing, so then you can analyze the results and draw conclusions of why certain emails performed better than others.

Practice Email Segmentation

Email segmentation involves dividing email subscribers into smaller subsets or lists based on specific criteria. Some examples would be separating contacts based on whether they’re customers, employees, or their job role or industry. Email segmentation helps deliver more relevant information to customers based on their interests, purchase history, and geographic location. Ultimately, email segmentation helps to avoid the one size fits all mentality. It helps to cater content to specific email lists rather than sending the same mass email to everybody. According to a statistic, segmented emails make readers 50% more likely to click on a link within the email!

Utilize Email Automation

Email automation is just as it sounds – Emails that are sent automatically to customers and prospects. By using an email automation system, it will ultimately help to save time and money for your company. Based on the criteria you required on the form submission, the information can be used to send automatic emails to customers and prospects. Examples would be a welcome email when they first subscribe, happy birthday emails, monthly newsletters, or items left in your cart reminders.

Follow Email Marketing Laws/Regulations

Certain laws and regulations must be followed in email marketing, which are laid out in CAN-SPAM and General Data Protection Regulation (GDPR). The basics of these laws and regulations are as follows:

• Don’t use false or misleading header information.

• Don’t use deceptive subject lines.

• Identify the message as an ad. 

• Tell recipients where you’re located. 

• Tell recipients how to opt-out of receiving future emails from you.

• Honor opt-out requests promptly.

• Monitor what others are doing on your behalf. 

Analyze Campaign Analytics

Finally, once you’ve successfully sent out an email campaign, you need to ensure you’re analyzing the analytics. The analytics help you better understand your email campaign’s success and areas you may have for growth. Some examples of email analytics would include the following:

Open Rate: What percentage of subscribers opened the email.

Click-Through Rate (CTR): How many people clicked on one or more of the links found in the email.

Unsubscribes: How many people opt-out of receiving your emails after opening the email sent to them.

Email marketing Don’ts:

Of course, in email marketing there are also things you should avoid, as they may deter someone from opening the email or remaining subscribed to your email list. Here are a few examples.

Don’t Lead with a Sales Pitch.

Leading with a sales pitch will ultimately cause your subscribers to unsubscribe from your emails or lose interest in opening them. Sales pitches are expected at some point, as the primary goal of email marketing is to draw in conversions. However, don’t make every email a sales pitch or automatically lead off with one. Consider what customers previously showed an interest in and send them similar information down the road. If they have a need, establish yourself as the industry experts so when it’s time to buy, they turn to your company!

Don’t Sound Spammy.

Sounding spammy is just as it sounds. Don’t make email content that could potentially be marked as spam to your subscribers. Subject lines are critical to whether subscribers open or don’t open your email. If your subject line sounds like spam, they’re less likely to open it, or they may never even see it as their email automatically sent it to the junk box.

Don’t Forget About Mobile Users.

In today’s day and age, many people open their emails from the app on their smartphone. Because of this, you can’t forget about mobile users in your email strategy. You need to ensure that the email is formatted so they can open it on a mobile device. For example, ensure that your type size is readable and keep subject lines short. Most sources recommend a subject line of 30 characters for mobile emails. Also, you should limit navigations and links, as this could become burdensome to the subscriber on a mobile device. (You should still have a clickable logo and other external links, just not as many). Today, mobile devices account for nearly 60% of email opens, and email open rates from mobile devices have increased by over 100% since 2011. Because so many people now utilize mobile devices for their email, it’s crucial to account for that in your email strategy.

Don’t Send Everybody the Same Email.

As stated previously, don’t send everybody in your subscriber list the same email. This goes hand-in-hand with email segmentation. Not all of your customers, prospects and subscribers have the same interest. Develop lists based on their interests and send them content that is relevant to them.

Email marketing is crucial in today’s day and age, especially when it comes to having a solid marketing strategy. Although getting started can seem somewhat difficult, by understanding the basics, you can begin to implement email into your marketing efforts and learn as you go. If you have any questions or feedback, reach out to the author below!


Jaclyn King is a Marketing Communications Specialist at Butler Technologies. Butler Technologies is a printed electronics solution provider that develops User Interface and Printed Electronics.

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Don’t Be Naïve About Native Advertising

Don’t Be Naïve About Native Advertising

by David Hagenbuch – professor of Marketing at Messiah University –
​author of Honorable Influence – founder of Mindful Marketing

Christmas Story fans remember Ralphie’s excitement in receiving a long-awaited Little Orphan Annie decoder ring, only to be disappointed by the unexpected product plug: “Be sure to drink your Ovaltine.”  Slipping commercial messages into media content is nothing new, but digital media have exploded that potential with more and more companies trying to make their ads look like they’re something else.
Native advertising is the term used to describe “paid advertising where the ad matches the form, feel and function of the content of the media on which it appears.”  Think of the approach as camouflage for commercials.  Just as hunters wear green and brown to blend into a forest, native ads mimic the look and feel of their media surroundings so people don’t perceive that they’re promotion.

Native advertising has likely existed for more than a century, one of the earliest examples being John Deere’s agricultural magazineThe Furrow, which contained “articles on agriculture and farming tips” alongside ads for the firm’s agricultural products.  The entire magazine was, in essence, subtle promotion for John Deere; still, readers could probably easily distinguish the publication’s articles from its advertisements.

Today’s native advertising is much more stealthy.

Scrolling through a news feed recently, I saw sandwiched between a Telegraph article about Prince Harry and a MarketWatch piece on COVID-19, an interesting black and white photo of a woman playing pool along with the intriguing caption, “Pics Show A Gross Past To How We Used To Live.”  I barely noticed in small type “Ad Autooverload” before hitting the hyperlink.

The link opened a new browser tab for with header menu items that included “Racing” and “Supercars.” The page also featured the start of a slideshow titled “Amazing Wild West Photos.”  What Lamborghini’s have to do with Wyatt Earp wasn’t clear, but one could imagine that the prolonged progression of “wild west” photos enhances Auto Overload’s web metrics (e.g., time spent on the site, page views) for purpose of appeal to advertisers.

The use of such native ads has been increasing steadily with no signs of stopping.  Media from BuzzFeed to The New York Times have incorporated the promotional approach, with some suggesting that native advertising “will soon become as mainstream as the TV ad.”

BigCommerce reports that in the U.S. in 2020, over $47 billion was spent on native advertising and that 62% of all digital advertising, or “six out of every 10 digital ads were native ads.”  Furthermore, native ad spending is forecast to increase by 21% in 2021 to a staggering $57.27 billion.

Of course, an increase in native advertising is not a problem unless native advertising is a problem.  So, why are 51% of consumers who know what native advertising is skeptical about native advertising?

The example above from AutoOverload serves as a good case for analysis.  People are rightly wary of the ethics of native ads like this one because they have a propensity to deceive in two closely-related ways, which also violate Federal Trade Commission (FTC) guidelines.

1)  Clickbait photo and caption: A sultry photo alongside the enticing text “gross past,” “wild west,” and “rarely seen,” represent a hard reach to reel people into something that’s likely different than what they expect, in more ways than one.

The use of these visual and verbal elements fits the FTC’s description of bait advertising: “an insincere offer to sell a product or service the advertiser does not want to sell, in order to sell something else . . . .”  Again, there’s no reasonable connection between old west photos and automobiles.  AutoOverload seems to be taking the somewhat deceptive approach just to increase its site traffic.

The approach can be called “somewhat” deceptive because, the website does deliver a series of old west photos; although, from what I saw, they don’t live up to the promise of “wild.”  The greatest deception actually might be of AutoOverload’s advertisers.  These sponsors, which include Volkswagen, probably believe they’re paying for pageviews from people interested in purchasing cars—a conclusion that likely is often not the case.

2)  Subtle sponsorship: Most of us have regretfully clicked on a sponsored article or post thinking it was an objective news piece or something a private person shared.  The frequency of this common experience is largely attributable to what native advertising so often tries to do: Make people believe what they see is not an ad.

One of the easiest ways to do so is to downplay the ad’s sponsorship.  The AutoOverload ad sought such subtlety by using the shortest commercial identifier possible, “Ad,” instead of “Advertisement” or “Sponsored Post.”  The ad’s commercial nature also might have been overlooked because “Ad” and “Autooverload” appeared in a smaller and lighter color font than that of the headline text.

Such understated endorsements may seem normal, but that’s likely because native advertising has made them so commonplace.  This subtle sponsorship stands in stark contrast to most traditional ads on TV, radio, and billboards where sponsors want to be clearly identified.

Why don’t sponsors of native ads seek the same recognition?  They do want to be known, but they first want to make sure that people click on their ads, which individuals often are not inclined to do if they know they’re ads.  The following two quotes from LinkedIn’s B2B University expose the sneaky strategy:

  • “Native ads mimic the look, feel, and function of a medium’s content, making it more likely that your audience will trust them.”
  • “Native advertising is designed specifically not to look like an ad, making it harder to ignore. Instead, it’s designed to look like the rest of the content on the page. As a result, consumers interact with native ads 20-60% more than traditional banner ads.”

So, native ads pretend to be something they’re not in order to increase the probability that people will mistakenly choose them.  In other words, the goal of most native advertising is to deceive.

The irony of native advertising’s casual acceptance of deception hit me squarely as I was scanning a daily newsletter from the American Marketing Association (AMA) and noticed the headline “Transparency Is the Clear Choice for Salespeople.”  The article summarized the findings of a study published in the Journal of Marketing Research (2) titled “Open Negotiation: The Back-End Benefits of Salespeople’s Transparency in the Front End.”

Contrary to conventional wisdom, the researchers found that “customers to whom the salesperson revealed the cost of a car at the beginning of the negotiation spent significantly more in the back end than others.”  In other words truthfulness and transparency from the beginning of the buying process paid off not just morally but monetarily.

These results reminded me that the AMA has identified five core “Ethical Values,” which include honesty and transparency.  More specifically, one of AMA’s three “Ethical Norms” explains the aim of fostering trust in the marketing system:

“This means striving for good faith and fair dealing so as to contribute toward the efficacy of the exchange process as well as avoiding deception in product design, pricing, communication, and delivery of distribution” [boldface added for emphasis].

Besides flying in the face the AMA’s clearly articulated professional standards, the deception-driven strategy of some native advertising also violates several specific FTC guidelines:

  • “When the first contact between a seller and a buyer occurs through a deceptive practice, the law may be violated even if the consumer later finds out the truth.”
  • “An ad is deceptive if it promotes the benefits and attributes of goods and services, but is not readily identifiable to consumers as an ad.”
  • “Disclosure must be clear and prominent.”
  • “Advertisers cannot use ‘deceptive door openers’ to induce consumers to view advertising content.”
  • “Advertisers are responsible for ensuring that native ads are identifiable as advertising before consumers arrive at the main advertising page.”
  • “Advertisements or promotional messages are deceptive if they convey to consumers expressly or by implication that they’re independent, impartial, or from a source other than the sponsoring advertiser – in other words, that they’re something other than ads.”

The last bullet suggests what is likely the main ethical issue with native advertising—feigned objectivity.  In fact, the FTC understands well the moral rationale as it explains:  

“Why would it be material to consumers to know the source of the information?  Because knowing that something is an ad likely will affect whether consumers choose to interact with it and the weight or credibility consumers give the information it conveys.”

It’s like a new acquaintance inviting you for coffee “to get to know you better” and soon into your conversation, they start to ask your thoughts about cars while sharing their opinions of a particular make and several specific models.  You’re surprised by the topic but support the discussion.  Finally, near the end of your meeting the acquaintance reveals that they’re a car salesperson, and they ask if you’d like to schedule a test drive.

Unfortunately, some of us have experienced situations similar to this one, which felt uncomfortable because we want to know:

  • When the context we’re in is a commercial one, i.e., we’re being sold to.
  • When the person with whom we’re speaking is an agent of an organization or has some other financial stake in the product or company they’re describing.

There’s nothing wrong with a salesperson doing their job when we know who they are and what they’re doing.  We expect them to tell us the good things about their products with little treatment of their weaknesses.  Since, complete objectivity is not expected, we take what they say with a grain of salt.

In contrast, when talking with friends, family, or coworkers about products, we let down our perceptual guards and take what they say at face value because we believe they’re objective and unbiased.

To be fair, not all native advertising deceives to the same extent.  Some ads very clearly identify themselves as sponsored content, and they provide the exact content they promise, offering real value through useful information or worthwhile entertainment.

However, any ad that tries to trick people into taking steps they wouldn’t otherwise choose is on legally and ethically shaky ground.  Relationships that start with a lie usually don’t last, which is why ads that deceive represent “Mindless Marketing.”

How Email Automation Can Save You Time While Improving Your Sales

How Email Automation Can Save You Time While Improving Your Sales

How Email Automation Can Save You Time While Improving Your Sales

What is Email Automation?

In marketing, email automation helps to make personalized email campaigns for individuals as they take a specific action on your company’s site. Some examples would be when someone initially signs up for your company’s email alerts or an email follow-up after an order has been placed.

Let’s use the scenario of an order being placed. After you place an order, an email is almost always instantly sent to you saying, “Thank You for Your Order”, along with an Order Number. Once the order has shipped, another automated email is instantly sent saying, “Your Order is On Its Way” along with a Tracking Number. Whether you realize it or not, this is all done through email automation. The individual, or company, you are purchasing from only had to create the email campaign once, however, the automation continues whether you are the first person to make a purchase, or the 15,000th. Once the appropriate sequence of emails has been created and established, the emails will continue to send automatically dependent on what action the individual took.

What Benefits Does It Offer?

Saves Time/Money

As mentioned previously, email automation helps to save a large amount of time. With an email automation system, basic information can be entered for each individual client and automated emails will be sent from the information that was input. This ultimately saves a large amount of time, as the work only needs to be done once, rather than continually. The amount of time saved also saves your company money, as you do not need to hire an individual to send out these personalized emails daily. Email automation can even address emails personally to each of the email subscriber’s names, providing the perfect personal touch to your email campaigns.

Same Experience Offered to Every Email Subscriber

Email automation also offers the same experience to every user who interacts with or joins your company’s email list. For example, maybe you are a restaurant, and you are attempting to get people to sign up for your email alerts. For Upon sign up,  each customer will receive an automated welcome email and a coupon code for a free appetizer or dessert. This same experience is offered to everyone who takes the time to sign up for your company’s email updates.

Personalized Emails

While we are still using the restaurant example, email automation can also send out a coupon code on birthdays and other special occasions. However, each of these will be specified to each of the email subscribers. This is extremely beneficial for companies because the work only needs to be done once and the automation will continue once the basic information of the email subscriber has been gathered. It helps to build a valuable connection with the email subscriber and makes them feel important to your company.

Information for your Sales Team When Tied to a CRM

Many email automation platforms have integrations with commonly used Customer Relationship Management Systems so that data can be collected on the user and their interests. Many give your sales team a deep dive into information like what products the user clicked on or what emails they opened. This allows your sales team to be armed with information about each user and speak to them based upon the purchasing behavior they have shown.

Types of Email Automation

When it comes to different types of email automation messages, the opportunities are endless. Here are a few basic email automations many companies today send out.

Welcome/Thank You for Subscribing

Once a person has signed up for your company’s newsletter, you can set up an automated email to be sent out to these individuals. The automated email would welcome them to your email list and thank them for taking the time to subscribe. It may even include a coupon code or special offer for subscribing, as mentioned previously.


Automated emails can also be sent out to people who entered their birthday or anniversary information in when signing up. It could be as simple as wishing them a Happy Birthday or Happy Anniversary, or it could even include a special gift/coupon code that can be used with your company to celebrate it. This helps to develop a relationship with your customers, as they feel important and recognized by your company on special days to them.

 Reminder

If you are an online retailer, then an automated email may be used to remind people of items that they left in their shopping cart. This can be set on a time schedule, such as 24-48 hours after they abandoned their cart. This automated email could be the difference between them making a purchase or forgetting entirely about their shopping experience on your company’s website. Email automations can also be scheduled to be sent at various time periods when the customer is likely to need to reorder or for partnered products based upon their previous buying history.


Many companies send out external newsletters to keep their customers up to date on what is new and exciting. Automated emails can help to personalize these newsletters, such as by addressing each of them to the email subscriber it is being sent out to.


If your company is putting on an event or webinar in the near future, email automation can also be extremely beneficial. As mentioned previously, the emails can be personally addressed to each of the email subscribers. However, emails can also be resent to those who did not open the email the first time around. This can also be done on a time schedule and sent anywhere from 24 hours to 7 days after the initial email was sent out. This will help to increase the email’s open rate, as well as the number of individuals who may attend the event.

Email automation is extremely beneficial to companies today and is more prevalent now than ever before. Email automation can help to send personalized campaigns and emails to individuals, and ultimately helps to build a better connection between customers and your brand. Email automation is the easiest, and most impactful way to continually grow your business, so what are you waiting for?

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Meet the Author: Jaclyn King

Jaclyn King is a Marketing Communications Specialist at Butler Technologies. Butler Technologies is a printed electronics solution provider that develops User Interface and Printed Electronics.

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A Promotion Unlike Any Other

A Promotion Unlike Any Other

by David Hagenbuch – professor of Marketing at Messiah University –
​author of Honorable Influence – founder of Mindful Marketing

Fans of The Office know that whenever Michael Scott attended another person’s party, wedding, or baby’s baptism, he would inevitably steal the spotlight, making the event about him.  That kind of social sabotage makes for great TV comedy, but does a recent impromptu endorsement on golf’s greatest green signal that real life self-promotion is off the fairway?

The recent Masters Tournament seemed like a success, including that it crowned its first Asian-born champion, Hideki Matsuyama of Japan.  However, “a tradition unlike any other” also showcased some cringe-worthy commercialism that led to the son of an all-time golf great losing permanent access to Augusta.

Perpetuating the Tournament’s prestige, Masters’ organizers invited three of golf’s living legends to serve as honorary starters: nine-time major champion Gary Player, 18-time major champion Jack Nicklaus, and Lee Elder, the first African American to play in the Masters.  It was at that ceremonial tee shot when the uninvited endorsement occurred:

“While Elder was receiving the accolades of Augusta National and surrounding patrons, Wayne Player, serving as his father’s caddie, stood behind Elder clearly holding a sleeve of OnCore golf balls in such a way as to give the logo maximum visibility.”

Wayne Player has a relationship with OnCore Golf that includes serving as Tour Commissioner of the Player Amateur Tour, for which the golf ball brand is the title sponsor.

Social media quickly condemned Wayne Player’s “guerilla marketing,” calling the tactic “an embarrassment” and “undignified,” and suggesting he hijacked a special moment to “sneak in a free ad for golf balls.”  Masters organizers apparently didn’t like the ambush advertising either:  They’ve reportedly banned Wayne Player from the Tournament for life.

Those are harsh criticisms and consequences, especially given that considerable commercialism already surrounds the Professional Golfers’ Association of America (PGA) and the Masters.

The PGA’s Partners’ webpage reads like a Who’s Who List of corporate sponsors.  “Official Partners” include the likes of AIG, Charles Schwab, Cadillac, John Deere, KitchenAid, KPMG, and Rolex.  Then, there’s a whole other list of  “Golf Retirement Plus Partners.”  In total, 54 companies can claim they support the PGA.

For its part, the Masters Tournament’s website contains logos and links for its three marquee sponsors, AT&T, IBM, and Mercedes, who reportedly treat invited guests to an incredibly indulgent tournament experience, all charged to their corporate accounts.

What may be even more noteworthy is that the golf balls Wayne Player held were far from the only promotion present at the ceremonial tee shot.  Gary Player wore a PXG hat, whose golf clubs he endorses, and a Black Knight shirt—his own signature brand.  Similarly, Nicklaus came outfitted in a bright yellow sweater and matching hat, both bearing his Golden Bear brand.  Elder also wore branded apparel: a PNG hat and a TravisMathew shirt—the latter is part of a formal partnership with Elder that the company announced just days before the Masters.

Given all of the corporate/self-promotion already present at the starting tee, what was wrong with Player strategically displaying one small sleeve of golf balls?

There are two main reasons Player’s product placement was ill-advised:

  1. It was unnatural:  It’s typical for golfers and others to will wear branded apparel on golf courses and elsewhere.  It’s strange, however, to see someone hold steadily a sleeve of golf balls precisely so its logo appears prominently in camera shots.  That’s why when product placement is done well in movies and TV shows, the products don’t draw attention to themselves; rather, viewers simply see them as part of the scene, if they notice them at all.
  2. It was uninvited:  The very unique Masters moment belonged to Gary Player, to Nicklaus, and especially to Elder.  No person or thing should have stolen the spotlight from them, at least not without the Masters’ express permission.  Ultimately, Wayne Player pulled a Michael Scott, showing little social awareness and, instead, surmising that the situation should be about him, not just the others.

So, the next time you’re a caddie at the Masters . . . of course, that’s a situation most of us will never experience, which makes it even more tempting to point a finger at Wayne Player, shake our heads, and wonder how he could act so insensitively.  The problem, though, is that the proliferation of social media has made it exceedingly easy for any individual or organization to do the same sort of thing and steal others’ spotlights.

On a corporate level, such commandeering might take the form of a company donating $10,000 to a worthy social cause, then spending $100K to brag about its kind-hearted contribution in TV commercials, print ads, and other media.

Individuals also are not immune.  We should be especially careful not to steal the spotlight with one upmanship.  For instance, when a friend or colleague shares a special accomplishment on social media, we shouldn’t ‘congratulate’ them with a reply like, “I’m so happy for you. I remember when I completed my first 5K three years ago.  Now I’m getting ready to run my fourth marathon.”

A few years ago, the American Marketing Association published a piece I wrote about the “Three C’s of personal branding.”  In the article I argued that communication, which is what many people solely associate with branding, should only be the “icing on the cake.”  A strong personal brand, or corporate brand, must first include a foundation of “cake”: character and competencies.

When we steal another’s spotlight and try to make their moment ours, we not only misplace our personal marketing communication, we reveal the serious character flaw of callous self-absorption, which is very destructive to any brand.

No self-promotion should come at others’ expense.  In fact, the best self-promotion actually benefits others

It’s easy to argue that Wayne Player’s golf ball product placement at the Masters was a bad idea.  It’s also easy for any of us to succumb to similar temptations in everyday situations and make another’s moment our own.  Pulling a Wayne Player, or a Michael Scott, makes any of us guilty of “Mindless Marketing.”

Is it Right to Sell Others Short?

Is it Right to Sell Others Short?

Written by David Hagenbuch – professor of Marketing at Messiah University – author of Honorable Influence – founder of Mindful Marketing

You’re a basketball player whose team just won the NCAA Division I national championship!  You run courtside to celebrate with family but your mother is visibly upset.  “Mom, what’s the matter?  “I’m sorry,” she stammers.  “It’s just that . . . I bet against you.”

No athlete, or anyone, likes to be picked to lose.  However, life is full of potential successes and failures that people need to predict.  For some, those predictions offer significant money-making opportunities.  But, is it right to earn a living betting against others? 

As for many, the practice of short selling stocks burst onto my radar screen when GameStop’s shares took their rollercoaster ride several weeks ago.  With more than a casual interest, I followed the ensuing events, including Robinhood CEO Vlad Tenev’s testimony before Congress.  Along the way, I gained a better grasp of what short selling is, but ever since, I’ve been wondering whether anyone should be doing it.

In case you’ve forgotten how short selling works:  Investor A borrows from a broker 100 shares of XYZ at $100 per share and sells the stock to Investor B at the same prevailing market price, or $10,000 total.  Over the next week, XYZ’s stock price drops to $75.  Investor A then buys 100 shares of XYZ for $7,500 and returns them to the broker, pocketing $2,500 in the process, less any interest and commissions the broker has charged.

The Securities and Exchange Commission (SEC) has made short selling legal.  However, even with this regulatory approval, the practice should raise at least two red flags, or moral concerns, that lead one to ask:  Is short selling ethical?

Before addressing the two concerns, I imagine some may be wondering what short selling has to do with marketing—the other half of this blog’s two-pronged focus.  Short selling is marketing in that many stockbrokers, including very well-known ones like Interactive Brokers, TD Ameritrade, and Charles Schwab, market short-selling among their investment services, or ‘products.’

For instance, Interactive Brokers’ website contains a Shortable Instruments (SLB) Search tool:  “a fully electronic, self-service utility that lets clients search for availability of shortable securities from within [the firm’s] Client Portal account management platform.”  The relative ease with which an investor can sell short makes its moral implications all the more important.

First Red Flag

‘Selling something that one doesn’t own’ was the short selling issue that initially gave me pause.  Peddling another’s property certainly appears problematic, until one begins to consider the many ways in which such leveraged transactions regularly occur: from apartment subleases, to bank loans, to consignment clothing.  Individuals and organizations often sell others’ property on consignment.

Of course, just because consignment occurs doesn’t mean it should.  Still, the fact that all parties involved 1) willingly participate and 2) typically benefit are good signs that most of these activities are above-board.

Second Red Flag

The prior examples differ from short selling, however, in the second of the two ways:  While the participants in apartment subleasing, etc., generally rise and fall together financially, a short seller’s success comes courtesy of two others’ failures, namely 1) those of the company whose stock the short seller has borrowed and 2) the person who buys the stock from the short seller.  The short seller makes money when the other two parties lose theirs.

In contrast, consider again the clothing consignment example:  If I take an unwanted suit to a consignment shop, both the consignor and I will want a high price when the suit is sold.  Conceivably, the suit’s maker also would like its aftermarket products purchased for higher prices because such resale value reflects favorably on the brand, not unlike the way higher vehicle resale prices benefit automobile manufacturers’ brands.

On the other hand, the suit’s buyer would like to pay a lower price, but even he really doesn’t want the price to be too low, since perceptions of the brand are tied, at least in part, to the price that he and others are willing to pay for the suit.  Most importantly, each time he wears the suit, he extracts value from it.
The suit is this example is analogous to the stock.  Whereas everyone ‘invested’ in the suit seems to want it to retain its value, investors who short stocks clearly want the value of those securities to decline.  Short sellers are betting against the very companies whose financial instruments they have borrowed and sold, as well as the individuals on the receiving end of those stocks.
The zero-sum game, or winner-loser outcome, that underlies short selling is certainly atypical of most economic exchanges, but it’s not without precedent.  Casinos win when their customers lose, as do many “rent-to-owe” retailers like Rent-A-Center and Aaron’s.  Any kind of predatory lender falls under the same unseemly umbrella, including certain credit card companies that don’t make money unless people fail to pay off their account balances and become locked into an endless cycle of exorbitant monthly interest payments.
However, many argue that short selling does not do anything nearly so destructive.  In fact, some contend that the practice produces several important economic benefits, the primary one being liquidity, “the efficiency or ease with which an asset or security can be converted into ready cash . . . . ”
In my research, I found market liquidity to be the factor cited first and most often in the defense of short selling.  However, at least one financial markets expert suggests that advantage is exaggerated.
Dwayne Safer is a chartered financial analyst (CFA) whose career has included significant roles in investment banking, corporate finance, and strategy.  For the last five years, he’s been a professor of finance and my colleague at Messiah University.  When asked about short selling and market liquidity, he offers a contrarian analysis: “the liquidity offered by short selling for most stocks is negligible.”
Safer supports his suggestion by sharing a Bloomberg Terminal screenshot (below) that shows that shares sold short represent only about 3.5% of trading volume on the New York Stock Exchange (NYSE).  He also cites an example from the financial crisis in late 2008, when the SEC temporarily banned the short selling of financial stocks “without any noticeable degradation of liquidity in those stocks.”

Safer recognizes that there may be some “modest liquidity benefit” for certain heavily shorted stocks; for instance, at the time we spoke, 21% of Dick’s Sporting Goods’ shares available for trading were short.  Still, he affirms: “If shorting wasn’t permissible, liquidity would be brought into the market by the broker-dealers and market makers who would stand ready to buy and sell shares of a given company to generate trading revenue.”

So, does the elimination of liquidity as a main benefit of short selling leave no morally tenable ground on which short sellers can stand?  Not necessarily.

Safer continues by saying that although he doesn’t agree with conventional wisdom that short selling adds significant market liquidity, he does believe short selling offers other meaningful market benefits:

  • It provides the ability to hedge/protect a portfolio from downward movement in stock prices, mitigating portfolio volatility.
  • The in-depth research short sellers often conduct can expose fraudulent companies.  For example, short selling hedge funds warned about the frauds at Enron, Tyco, Fannie Mae and more recently Luckin Coffee and Nikola.
  • Shorting helps prevent overinflated securities prices that waste valuable capital and harm investors, as occurred in the dot-com bust in 2001.  Former SEC chairman Christopher Cox once stated, “We need the shorts in the market for balance so we don’t have bubbles.”

Before beginning to write this piece, I was unaware of these important benefits of short selling.  Still, how do we reconcile such consequences with the moral principle of respect, or as my second red flag/concern described: not betting against another person.

That moral principle certainly has merit, but my earlier discussion probably represented too narrow a view of short selling.  Safer’s observations have helped me see that there are other factors to consider and parties to take into account, e.g., other investors, firms’ customers and employees, and the economy as a whole.

I’m also helped by remembering a story I heard just a few days ago:  A guest speaker in our capstone marketing course mentioned that a former client of his used to tell him, “I pray for my competitors.”  This very successful business owner was not being sarcastic—he truly wanted his competitors to succeed both because he genuinely cared about them and because he understood that “a rising tide lifts all boats.”

Returning to the basketball metaphor that began this piece, no serious athlete wants to be on the winning side of a forfeit.  Basketball players need competitors, who also happen to have fans rooting for them.

However, choosing loyalties isn’t unique to picking stocks or selecting sports teams.  Each day we make dozens of similar decisions when choosing what clothes to buy and where to order takeout.  Each selection of a company is essentially a vote against another; however, other people are voting for the competitors.  In fact, the next time one of those ‘other’ votes may be ours.

Meanwhile, a ‘no vote’ conveys valuable information to all who are willing to listen and learn from it.  When companies assimilate such negative feedback, they make themselves better, their industries stronger, and stock markets more stable.

It’s very unlikely that a mother bets against her own daughter or son for anything, but other ‘no votes’ are not necessarily bad.  Short selling a company’s stock can be a good or bad bet for the investor.  It also can be “Mindful Marketing.”