Case Study: Road Runner Sports Keeping Pace

The very thought of 235,000 running shoes is enough to make a runner swoon.

I have known runners who keep a running shoe closet—when opened, no fewer than 20 pairs of shoes tumble out.

Runners are a strange, quirky, masochistic bunch—knowing how to speak their language is crucial to making it in the mail-order running shoe business.

But you really only have one person to consult—Mike Gotfredson. He is the founder and CEO of Road Runner Sports, the world’s largest running store, catalog and online business—and an avid runner.

Gotfredson began Road Runner Sports in 1983. He had a wife, four children, no job and needed a new pair of running shoes. He decided to start a running shoe mail-order business after dropping an exorbitant 30 bucks on a new pair of Brooks running shoes and taking a six-city tour to investigate the running shoe market.

“I literally got on a plane and flew to [each of the cities]. I rented a car, ripped out the sporting goods section of the phone book, and for one day I went to as many sporting goods stores as I could. I found the same thing: high price, little selection and unknowledgeable staff. I said, ‘I will become the great discounter of running shoes,’” says Gotfredson.

Gotfredson’s goal was $10,000 a month in sales and $1,000 in take-home after expenses. He started with a 1˝x3˝ space ad in Runner’s World, an average of 10 calls a day and four people running the business out of his garage. Road Runner Sports (RRS) turned profitable in four months. It now employs 297 people and mails to 2.4 million runners.

Selling shoes of any kind via mail order is not the easiest market. But running shoes is a niche industry all to itself. The average runner goes through three pairs of running shoes a year. At retail prices they would spend more than $300 annually on shoes. In retail or in mail order there is little guarantee that a shoe will perform well for a runner. Mail order is slightly riskier because customers can’t try on the shoe. And you can’t rely on the running shoe’s size, each style is sized differently, making it a $100 gamble.

Well aware of the roulette of buying running shoes, Gotfredson created a catalog model that improves a shopper’s odds.

His first step was to offer shoes at a discount. Next, he and his team test every single shoe for size, fit, wear and other attributes—such as whether the shoe is good for long distance, racing or rough terrain; and whether the shoe offers cushion, stability or support. He provides runners with detailed information about what size to order in relation to their street shoe size, such as the Avia 2079, which runs a full size small. He backs every purchase with a 30-day guarantee and return policy if the shoe or merchandise hasn’t been worn on the street. But RRS’s ultimate service option is the Run America Club (RAC).

RAC Members spend $19.99 annually for a 5-percent discount on all purchases, shipping upgrades and a 60-day unconditional guarantee and return policy. So, a runner can try the shoes for two months and if they don’t work, the customer can return them for a full refund. At first glance, it seems like an opportunity for abuse. But most shoppers use the policy legitimately and the annual fee helps negate the cost of the program. The return policy is an expensive one, but Gotfredson has found a solution for that, too. He resells the previously worn shoes in the RRS retail store in San Diego.

More than 500,000 of RRS’s 2.4 million customers are RAC members.

“In 2000, 14 percent of business came from runners who joined RAC in 1988. It is the number one [marketing initiative] we have done over the years,” says Gotfredson.

Customer Contact

RRS sells more than 250,000 pairs of shoes a year. Frequent, quality communication with its customers has paved the way to success. What is most important in RRS’s communications is how they speak to runners. Every bit of copy is written with a runner’s psyche.

RRS stays in touch with its customers by talking to them personally. Managers must listen in at the call center at least 90 minutes a month. The company sponsors and attends road races, conducts focus groups, reads letters and e-mails from consumers and talks to customers at its retail store. RRS also produces Fitness Runner, a 400,000 circulation, general running magazine, and Peak Running Performance, a newsletter for competitive runners.

RRS uses all these sources to reach customers, address their concerns and to fulfill product needs.

While its roots are in shoes, it also sells socks, running foundations, leggings, shirts, suits, shorts, pants and watches. It also carries ancillary products such as energy bars, vitamins, books, electronic running logs, stretching tools, hats, sunglasses and portable stereos. And RRS has created its own line of products, which are typically lower priced than brand name items but use the same high-tech fabrics and technology.

“Catalogs that offer sporting goods are extremely broad [in audience] and it is very difficult to talk to [customers] the way they want to be talked to,” says Bill Ness, COO of RRS, about its niche. “Instead of trying to find a catalog buyer, we find runners. It is extremely targeted. Most catalog companies turn over their customer file every two years. It is not the case with us. We saw close to half our customers in 1999 come back to us in 2000.”

The company’s customer base is not just runners, it is also the running equipment vendors: Asics, Saucony, Brooks, and many more. Running shoe manufacturers have little direct contact with runners, and operate on smaller budgets than a behemoth like Nike. RRS provides vendors with a direct selling line to the customer, offering them valuable feedback about consumer needs. Fitness Runner provides updates on the latest shoes and running news. While the publication doesn’t sell directly, as the second largest running magazine in the nation it certainly has influence.

Marketing Methods

Primarily a catalog company, RRS uses many forms of direct mail to connect with its customers.

It sends more than 23 million direct mail pieces a year. Using several different marketing vehicles, RRS targets customers with messages related to their profile and via their preferred method of contact. For example, frequent buyers are different from RAC members and different again from just apparel buyers—each gets its own marketing package.

“The foundation of the marketing philosophy and focus is caring for the customer. We truly believe that and implement it at every level,” says Mary Shanahan, RRS marketing director.

The Shoe and How it Fits

Catalogs are mailed seven times a year with 28 different covers each drop. The value shoe mailer, (shown at right) a 16-page self-mailer that offers discounts on popular shoes, is mailed quarterly. The “Endangered Shoe” postcard is one of the more brilliant marketing programs RRS does. The postcard alerts runners that their favorite shoe is about to become extinct.

Few things drive a runner battier than the loss of a favorite model. Shoe manufacturers now change or update shoe lines about four times a year, so the chances that a runner’s shoe will be discontinued is pretty good. RRS alerts runners so they can purchase a bunch of shoes before their chance is gone. A spin-off of the program is the “Classic Shoe” program. RRS obtains rights and the mold to extremely popular shoes and continues to make them for its customers.

“We offer over 20 styles of shoes in which the shoes are not made any more but for Road Runner Sports,” says Ness. “We are able to have vendors continue to make our best selling shoes. It has to hit a consistent sales figure to remain a Classic, at least 700 pairs sold a month. We still offer the Brooks Chariot, which was first announced in 1981.”

Gotfredson’s newest marketing effort is “cause marketing,” which he says will be the trend in cataloging in the coming years. Defined as improving a company’s image through supporting a worthy cause, Gotfredson implemented cause marketing at RRS in the late 1990s. RRS created Athletes Helping Athletes, a non-profit organization that supports ill, injured or disabled athletes by training supporters for 5Ks and marathons that serve as fund-raisers.

RRS combines certain marketing vehicles to target runners by segment. Basic customers get the catalog, value shoe mailers and the discontinued shoe postcard. RAC members get special preview catalogs and a subscription to Fitness Runner magazine. Athletes Helping Athletes supporters are sent special direct mailings and catalogs that have a personalized message.

Targeting new customers is a specialty of RRS. Inquiries and prospects are sent a welcome package. Delivered in an 81⁄2˝x11˝ envelope, is a catalog with an offer right on the front cover and a lift letter. The letter welcomes the runners to the RRS family and describes the company’s philosophy, and it is signed by Gotfredson.

“We have tried several things, but they are interested in value,” says Shanahan. The control has been 15 percent off the first order for the past five years. The offer is constantly tested against season-based offers and how the company got the prospect’s name. The letter is tweaked now and again. In the past year, the package has brought in 205,000 new customers.

E-mail marketing has become a large chunk of RRS’s plan. It sent more than 22 million e-mail marketing messages in 2000 to online shoppers. The messages contain discount offers, free shipping or combine offers with running content. All are designed to drive traffic to the Web. RRS does more than 14 percent of its total sales online.

The Web site features interactive tools like the Shoe Critic, which chooses shoes for customers based on certain attributes, and runner-themed electronic greeting cards.

A Personalized Touch

Speaking the same language as runners is one thing, but addressing them directly with personalized catalogs, putting their favorite shoe on the cover, targeting by gender or defining them by the type of runner they are is part of RRS’s reputation.

Catalogs and e-mail are the main places where RRS personalizes. Personalization is done for many segments of its customer file. A typical catalog will be segmented 28 ways: by gender, geography, shoe brand, average mileage, birth date, RAC membership, Athletes Helping Athletes supporters and recent purchases.

Beside purchase history, RRS gathers detailed information from conversations with phone reps, through behavior, via letters and e-mail. Phone reps are trained to record running habits, as well as mention of an injury, a preference for fabric, or a race being entered.

“Our reps connect with the customer,” says Gotfredson. “Most telemarketers want you to get on the phone, make the purchase and get off. We tell our people to connect with accomplishments, talk about running products and services in catalogs, not just rush through the call. The cost to do this is huge. Typical talk time is six to seven minutes, but payback to the customer is that he gets something that works for [him]. And we get loyal customers.”

Shoe brand, size, style and frequency of purchase are used to create branded covers, discount offers for certain shoe brands, offers on products for marathoners, and e-mail reminders to buy new shoes.

“This year’s targeting is based on product purchase history,” says Shanahan. “The spring book says here is your brand and we’ve got everything new.”

The company addresses customers by name with inkjet messages on the back cover and by type of runner in Gotfredson’s message on the inside cover. It sends women catalogs with women on the cover, and men get men on their covers. While running bras are featured in all the catalogs, women receive a catalog with a running bra insert, men don’t. (shown above)

During winter, if you live in New England, you get a catalog that has snow or winter weather on the cover and running suits inside—something you won’t get if you live in California. RRS also uses geography to target certain people for local races and marathons, especially those that support Athletes Helping Athletes.

RRS uses birth date to personalize catalogs with an age-appropriate cover model and to deliver a special birthday mailer. The birthday mailer offers free shipping on all orders for the month of the customer’s birthday, a free mug or another relevant offer. In some instances a regular catalog cover is dot whacked with similar offers.

The Next Mile

RRS will continue to expand its targeted approach by marrying its online and off-line data—allowing RRS to treat customer segments individually, just as it does with the catalog. Working with Broadvision, RRS will begin online targeting of customers in late spring with personal landing pages for registered customers, show products based on gender, make product suggestions using real-time and past purchase history, and offer personalized content.

“Broadvision gives us the ability to analyze and personalize the feel and look of what they see,” says Ness. “We are expecting to see increases in average order values and conversion—it is a 100-times better upsell than we can do on the phones.”

RRS’s growth, he says, has exceeded his expectations. And even though he could sell the business for many millions, Gotfredson says he intends to continue guiding the company and expanding the way it reaches customers, such as its creation of an online store for Walking magazine.

“It wouldn’t feel right to have 10,000 bosses,” says Gotfredson. “And I’m not sure they would appreciate us going running at noon.”