Walgreens, the largest drugstore chain in the U.S., made big data headlines in mid-September when it launched a new national customer loyalty card, Balance Rewards, the first in the 111-year-old company’s history. The rare holdout among large retailers, Walgreens previously stated it was performing well without a loyalty program.
Clearly, times have changed.
But is Walgreens’ late entry into the loyalty program wars a pro or a con? Did the 8,300-store chain jump into the game too late, or did it find an opportune moment to maximize the impact of its big-data strategy?
What is clear is that Walgreens has faced important challenges. In 2012, the $72 billion company posted a decrease in sales and profits.
It lost an estimated 10 million customers to rivals such as Rite Aid, Kroger and CVS Caremark due to a pricing dispute with pharmacy benefits provider Express Scripts (the dispute was resolved in July 2012).
Walgreens needed fresh ways to attract new customers and extract more revenue out of existing ones. The Balance Rewards program is one way the company hopes to engage customers, Graham Atkinson, Walgreens chief customer experience officer told The Chicago Tribune in August. Atkinson formerly headed United Airlines’ Mileage Plus frequent flier program.
Walgreens’ adopting the customer loyalty card came after a deliberative process. According to Adam Holyk, group vice president of insights and analytics at Walgreens, the company’s decision to implement a program to utilize customer data in exchange for reward benefits was a protracted one that was far from a sure thing.
“We had a pilot that was in the market for about 18 months, and the question was, ‘Go or no-go?’” said Holyk. The pilot was done in Richmond, Kansas City and Portland, Ore., according to Holyk, and prompted a decision to move forward nationally. “The decision rested on more traditional business considerations, such as, what would be the incremental benefit?”
Holyk says the Balance Rewards program represents “an increased focus on our strategy of how do we deliver better shopping experiences to our customers, both in the pharmacy and front-of-store.”
Holyk said Walgreens’ program differentiates itself by being “easy and simple” to interact with in real time on multiple platforms (physical cards, mobile apps and online) and allowing shoppers “to save and earn points over time to redeem for something meaningful.”
Holyk also said that the data collected from the new loyalty program will aid Walgreens in honing the assortment of products available in individual stores based on local purchase preferences. For example, he said, the chain can determine which toothpaste brands are most popular in Puerto Rico, and stock their local stores accordingly.
The program requires IT work at the point of sale. Walgreens’ chief information officer Tim Theriault recently told The Wall Street Journal that implementing the Balance Rewards program required upgrading various checkout register technologies. It also meant eliminating existing loyalty programs obtained through acquisitions such as Duane Reade, which the company purchased in 2010.
The program is a key feature of Walgreens’ customer-centric retailing initiative, that includes refreshing stores across the country and expanding its collection of “Well at Walgreens” in-store clinics.
Customer Wallets Crowded with Cards
At least one loyalty program expert says Walgreens’ effort may be too little too late. “There are more disadvantages than advantages [to starting a program now], as we all have our wallets packed with cards,” Swedish marketing guru Martin Lindstrom, author of Brandwashed, said via email. “The average American consumer is a member of 18 loyalty programs. How should number 19 justify another space in the wallet?”
Lindstrom argues that the concept of loyalty programs has already evolved beyond conventional rewards-based programs. The media choice for consumers is about to change into a mobile commerce-based format “which obtains data based both on the consumer spend as well as geographic movements, enabling contextual messages to be possible,” he said.
Lindstrom added that any loyalty newcomer hoping for success must “reinvent the category” by going 100 percent digital and wireless and create new bonus formats that are more beneficial to consumers.
The Walgreens plan current allows shoppers to accrue points for buying specific items, filling prescriptions, and even participating in fitness programs. For 5,000 points, patrons get a $5 reward; for 40,000 points, they receive a $50 credit.
Walgreens’ Holyk says that enrollment in Balance Rewards is “ahead of expectations.” In September, Walgreens stated that 11 million people signed up for the program in its first 12 days. By comparison, CVS’s ExtraCare loyalty program went national in 2001 and is used by more than 100 million individuals.
Alec Foege is a writer and independent research professional based in Connecticut, and author of the upcoming book The Tinkerers: The Amateurs, DIYers, and Inventors Who Make America Great. He can be reached at firstname.lastname@example.org. Follow him on Twitter at @alecfoege.