Why You Need to Improve Your RTA Model

The problems of current RTA definition

Experienced direct marketers knew that a store in Manhattan could only attract residents within 5 miles radius; while a store in Waco Texas might have frequent visitors lived as far as 50 miles away from the store.

However, many retailers define retail trade area (RTA) as a circle of 30 miles radius from their stores, and only send direct mail to customers lived within the Retail Trade Area.

The drawbacks of this simplified RTA model are obvious: for the Manhattan store and the kind, the RTA is too broad. You may have wasted our limited marketing money sending direct mail pieces to people that are unlikely to patronage your store; while for the Waco Texas store, the RTA is too small, therefore, you may have left money on the table for not talking to those lived outside the 30 mile RTA.

The 80/20 Rule

Then how to define an appropriate RTA for your stores? Remember the famous 80/20 rule? The idea is pretty simple, your task is to find the radius that includes 80% of your customers, and that is the primary RTA, and the rest will be the secondary RTA.

There are three ways to define the RTAs.

1. The Zip code Model

If you don't have tools to calculate the distance between customer homes and the stores, you can simply for each store summarize all the sales by zip-code, and rank them in descending order. And select top zip codes that cumulatively account for 80% of the total sales of the store as your primary RTA, and treat the rest of the zip codes as secondary RTA.

2. The Distance Model (Physical distance or Driving Distance)

First you need to calculate the distance between the store and customers home addresses. If 80% of your customers lived within 15 miles, then 15 miles will be the primary RTA for the store, and the rest of the areas will be the second RTA the this store.

3. The hybrid Model

You can combine both models above. Say you find that 80% of your customers lived within 10 miles from Store A, but this store attracts significant amount of regular customers from zip 12345 which is more than 10 miles. You can include Zip code 12345 in the primary RTA.

The Benefits of a well Defined RTA Model

There are many benefits of defining RTA on a store basis.

1. Increase Response Rate

Customers lived near the stores are more likely to respond to your offers. If you use response models to pull direct mail files, RTA will be a strong variable that can greatly improve your model.

2. Reduce Mailing and Acquisition Cost

For retention programs, it reduces mailing, because you stop sending direct mail to less responsive customers. Marketers can also reduce acquisition cost and improve ROI by focusing on look-alike prospects within the primary RTA of the store.

3. Save More with Appropriate Vehicles

Another cost-saving idea is to test different vehicles. If you've always sent expensive catalogs to all customers, you may want to test cheaper vehicles such as over-sized postcard or a double-gate mailer to the primary RTA customers, and see if there are any big differences between the catalog group and the postcard group. Some retailers found that they could save more money by sending cheaper vehicles to Primary RTA customers and still can achieve similar results.

4. Help Build Store Clusters

RTA model also helps define store clusters. For instance, a retailer used the RTA model along with other demographic data to collapse its stores into 4 buckets:

The Urban Stores (primary RTA <= 5 miles);
The Suburban Stores (6-15 miles);
The Second City/Small Town Stores (16-60 Miles), and finally the Destination Stores (>=60 Miles).

Based on the store types above, marketers can develop localized marketing strategies, and merchants can improve the store merchandise mix to better satisfy customers' needs and wants.