RadioShack Tunes in a Growth Frequency

When RadioShack began a program to increase its revenue by 10% and its profit by 20%, prospecting for new customers as a strategy was never considered. How could it be, when the company’s database already held information on 92 million households?

“Even if we focused on the 1% or so of households that have not bought at least one item from us during the last five years, we wouldn’t grow,” says RadioShack’s senior vice president, marketing and advertising Dave Edmondson.

The company’s goals were to increase four consumer measurements: frequency of purchase, average size of transaction, number of departments shopped in and number of individuals shopping from the household.

To accomplish these goals, RadioShack, in conjunction with business media printer R.R. Donnelley, started a program in which targeted mailings with varied messages and offers were mailed to 9 million households each month.

RadioShack wanted to ensure that its customers receiving the mailings would stimulate sales in the highest-margin departments. Using a system developed by Englewood, CO-based Customer Insight Co. called Convergent Marketing, RadioShack divided its merchandise into three categories.

The company found that 81% of its traffic was in accessories, such as wires, cables and batteries. But as these items were low-price, they accounted for only one-third of the chain’s revenue, and 45% of its profit.

The remaining 19% of the chain’s traffic was split between two tiers. The company’s second tier includes medium-sized electric and electronic merchandise, including telephones, cellular phones and recording devices. While these, too, accounted for a third of the total revenue, they made up 35% of the store’s profit. Additionally, within this core was a set of customers that, over time, migrated to higher-ticket items.

The third tier of RadioShack’s revenue came from larger-ticket consumer electronics goods such as VCRs, televisions and stereos, which provide around 20% of the chain’s profit.

Analysis of transaction pattern migration found that many customers in the first tier did not realize that the other tiers of RadioShack products existed.

The problem was that the upper two tiers, which accounted for less than 20% of the store’s traffic-but 55% of its profit-were low-frequency-demand categories, and that buyers in either of these categories were slow to migrate to any of the other product categories.

As RadioShack’s programs were designed to stimulate personal spending, the company tried to figure out the time of year its customers would have the greatest amount of disposable income.

“After Christmas, most retailers look for another day-Father’s Day, Valentine’s Day-around which to build their promotions. The truth is that people have the most disposable income around their birthday,” says Edmondson.

Upon determining this, RadioShack began sending a select group of customers-again, those with a propensity to buy higher-profit items-a birthday card offering a 10% discount. Even with the discount, the profit margin was “highly acceptable.”

For both the mailer and the birthday program, the chain sees a redemption rate of around 6% for these coupons, with the average purchase amounting to three times that of the purchase that triggered the mailing. Contributing to the success of the program was the creative-R.R. Donnelley helped create a spot-glue-applied detachable piece that looked like a check and rode on the birthday card.

Even this wasn’t enough for RadioShack. To some of its customers, the chain has started sending a “Thank you for your purchase” card, offering a 10% discount on purchases made within two weeks of receiving the offer.

To facilitate its data collection, RadioShack has begun touting the benefits of its in-house card that go beyond data. As the chain aggressively collects name-and-address data at each purchase, use of the card serves as an “express checkout” mechanism. Additionally, cardholders can also go to the head of the line at the repair shop, or receive free gift wrapping.

But RadioShack has not forsaken its wire, cable and battery customers. As the chain moved away from its original “America’s technology store” to its current “You’ve got questions. We’ve got answers” focus, these customers began to feel disenfranchised-and they had made up the bulk of the chain’s traffic, if not its profit.

“To them, that geeky stuff was more relevant,” says Edmondson.

In order to serve these customers, Tandy Corp., RadioShack’s parent company, started Tech America, a catalog primarily focusing on the basic electronic elements the chain had been known for. In addition, Edmondson ran a correlation program on its database, indexing purchases within the more technical departments by customer location, thereby determining where the “geeky stuff” users were located. The result was the first two Tech America retail outlets, which opened in Denver and Atlanta in 1997. The company is considering a third in Phoenix.

“[The tech users were] a niche, and we couldn’t serve that niche without looking at a different distribution channel. RadioShack had become annoying to them,” Edmondson says. “The Tech America stores won’t have that problem. They are RadioShack on steroids.”