Thursday, May 19, 2011

Road Runner Sports - missed revenue opportunity


Running, though one of the most boring athletic activities, is one of the easiest to get into. All you need is a good pair of shoes, and you're ready to conquer the miles and miles of asphalt paved all around you. Wait, did I say *good* pair of shoes? How does one differentiate good from bad? This is where a store dedicated to runners comes in - Road Runner Sports.

Road Runner has a wide selection of shoes, but before you buy a pair, you can get a complimentary gait evaluation. Often times something sounds nifty but is a scam; not this gait evaluation, not one bit. Using sensors and cameras, your foot's stability and strength, and your gait's form are evaluated. This evaluation is used as input into determining the shoe that maximizes your endurance on the road without compromising your performance. Road Runner goes one step farther - no puns intended - and builds a custom pair of orthotics so that the shoes you buy fit you perfectly. Sadly, the asking price on this custom pair breaks the bank for too many buyers.

While I was at the store this past week, I saw a number of these pairs made for customers who decided against buying them. Running shoes go for upwards of $75 these days. The orthotics are priced at $80, and they have a life of about 6 months. Based on my non-scientific observations, there were 5 pairs of orthotics that were consigned to the trash can the evening I was at the store. That's cold-hard revenue that  Road Runner is letting go to waste.

A basic study of the American consumer's psyche indicates that the sweet spot for discretionary and frivolous spending is $19.99. Spend one night watching late-night TV and you will be bombarded with promotions for all manner of products that bring comfort and utility to your life that is already so comfortable. The one gimmick used by all these products is their $19.99 price-point. In this recession, infomercial sales have skyrocketed so much so that legitimate companies are piloting new products using this marketing and sales channel. Some back of the envelope math tells me that if Road Runner priced their custom orthotics at $19.99, the product will be a more attractive value proposition than it is today. Given that every customer that gets an evaluation has these made regardless of whether they are eventually purchased, they fixed costs accrued by Road Runner don't increase. The company can gather data on the sell-through rate by offering a 2-week promotion on the orthotics at $19.99; I can bet, with some confidence, that they sell more than 4 pairs of orthotics on promotion for every pair they sell today. Let's say they don't ever get to this blog post or promotion; if you were the one swiping your credit card at Road Runner, would you be more inclined to spend $20 or $80?

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