Buying from Staples saves money, to be sure. But consider the process of buying in the first place. You have to drive to the store, where you grab a shopping cart at the entrance. The average store -- all 15,000 square feet of it -- stretches out before you. The floor is concrete, the ceiling unfinished, the shelves bare metal. There are 5,000 different products, and it seems you have to walk past nearly all of them to find the file folders you need. Once you reach your goal, you puzzle over the display. Third-cut or fifth-cut? Manila or colored? Letter size or legal? What is it you use back in the office, anyway? Staples may be cheaper, but it is also bound to strike at least some people as, well, inconvenient -- and different.
"We knew it would be difficult to change their behavior," Krasnow says. "Anyone can be a customer at K mart or Star Market. Our customers are different."
As marketing challenges go, getting businesspeople to push a shopping cart was a big one. Open up a new supermarket, as Stemberg had done, and you'll move hundreds of people through the checkout aisles on your first day. People understand the concept. Not so Staples. "This is a new market," Krasnow adds. "If we open a store, why would anyone come? Nobody is waiting for us."
But Staples had an advantage over supermarkets. Thin margins and an enormous universe of customers limit the ability of supermarkets to invest in targeted marketing. Instead, they advertise widely with newspaper ads and circulars.
Staples, on the other hand, serves a specialized market of business customers. With store operating margins projected at 9.5%, Stemberg could afford some aggressive direct-marketing efforts aimed at specific groups.
Using computers and databases, even deep-discounting retailers can maintain relationships with their customers. This is the course that Stemberg chose, developing a direct-marketing system that surpasses what many established large companies have in place.
"These guys are at the year 2002 compared with the usual retailer who checks his shelves once in a while," says John Stevenson, executive vice-president of client services and database marketing at Krupp Taylor USA, a subsidiary of Foote Cone & Belding. "Their database system is beyond the state of the art in what's going on at small companies."
Once Stemberg perceived the potential value of a customer database, he committed more than a million dollars to the effort. The company tied together several minicomputers and hired three programmers, including a software expert who had devised the order-tracking system at Emery Air Freight Corp.
The direct-marketing system evolved into a powerful tool to attract and keep customers. First, telemarketing finds the customers and brings them into the store for the first time. Then direct marketing, through computers and the database, tracks their buying patterns and when necessary reaches out to them again and again with special offers to convert them into regular shoppers.
Whenever Staples opens a new store -- by the end of this month there will be 27 from Boston to northern Virginia, with 12 more to follow by the end of the year -- it buys lists of small businesses within 15 minutes' driving distance. Then a group of telemarketers goes to work. "We talk to the office-supply buyer," says Krasnow. "In a very small company, it's usually the owner. In a 15-person office, it's probably an office manager. We say we're opening a new store, something like Toys "R" Us, except it's for office supplies. We ask them how much they spend on file folders or copy paper. Then we'll send a coupon for free copy paper. If the offer is appropriate, they come in."
Even so, they come in slowly. The free offers pull in the first group of customers, who seem intrigued enough to take a look. Word of mouth is reinforced by more free offers and by local newspaper ads.
Meanwhile, the marketing department keeps building the database. When a customer redeems a coupon at the store, he or she receives a free Staples Card, a membership card that is the linchpin of the system. From the card applications, Staples gets vital information about the customer: what type of business is it? How many employees? Where is it located? This information is entered into the database. Every time a customer uses the card, the card number and the purchases are logged into the cash register and then, at the end of the day, swept into a computer at headquarters. The company has continuously up-to-date information of what merchandise is being bought and by whom.
Customers must use their cards in order for the system to work, and they have plenty of incentive to do so. At any one time, several hundred items are available at even lower prices to members.
When the company sent out its 1988 winter catalog, it targeted thousands of customers who had received a Staples Card but hadn't used it. But in order to make the marketing effort cost-effective, Staples wanted to reach only companies that could become significant accounts in the future. That's how companies with eight or more employees near the Farmingdale, N.Y., store received a special catalog last winter. It had a wrap around the front cover with a special offer: customers would receive a free Sheaffer Eaton pen-and-pencil set with their first purchase of $10 or more.
As it turned out, customers who were pulled into the store spent an average of $65. The redemption cost Staples less than $7 for each set it gave away, so it broke even on the average transaction, based on projected operating margins for the stores. And it may have converted a large percentage of these previous noncustomers into regulars. Company data indicate more than half of those attracted by such special offers become faithful customers.
