Drugstore chains compete for customer loyalty and growing online sales

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CVS’ ExtraCare program gives members 2% back; Walgreens members earn 10 points for each dollar spent
CVS’ ExtraCare program gives members 2% back; Walgreens members earn 10 points for each dollar spent

CVS Caremark
$98.7B annual revenues
7,196 locations

$67.4B annual revenues
8,136 locations

As consumers are faced with rising healthcare costs, competition among the country's leading drugstore chains, CVS and Walgreens, has increased, fueling sector-wide acquisitions and dueling marketing campaigns. To keep up, these companies are vying for loyalty in their pharmacies, as well as diversifying their brand messaging to promote their other retail offerings such as beauty products and photo developing.

Walgreens and third competitor Rite Aid both launched loyalty programs in 2010. While CVS' ExtraCare loyalty program has been around since 2001, the retailer expanded its loyalty foothold by launching the ExtraCare Beauty Club in January.

“The drugstore space has become a really hot area right now in terms of loyalty programs,” says Kelly Hlavinka, partner at Colloquy, a firm that specializes in loyalty marketing. “There has been consolidation in the industry, which makes it a lot more competitive, and loyalty programs help these marketers gain the edge.” (Walgreens acquired Duane Reade last year; CVS acquired Longs Drug Stores in 2008 and finished its Caremark acquisition in 2007, which greatly increased its pharmacy program.)

CVS' ExtraCare has more than 66 million members while Walgreens' Rewards, a pilot program that launched in select US cities in May 2010, already has about 2 million members. Walgreens has tried some loyalty-like efforts in the past, such as the EasySaver coupon rebate program, which was discontinued in 2009, but none as robust as the new rewards program. Both programs reward members for shopping in their stores, emphasizing the pharmacy by giving extra points to members that fill prescriptions. Given that most of the revenue drugstores make originates in their pharmacy businesses, this marketing strategy makes sense. CVS, for example, makes 70% of its revenue from pharmacy sales.

Walgreens members earn 10 points for every dollar they spend and 100 points for every dollar spent on prescriptions. CVS members earn 2% back on every purchase and an extra reward dollar for every two prescriptions.

“They both allow you to earn extra bucks in their programs for almost all of your purchases in the store, but Walgreens' program is a bit simpler and easier to understand,” says Hlavinka. “Still, CVS has a lot of momentum since they have been around so much longer.”

Both Walgreens and CVS Caremark tally enough sales each year to land them among the Fortune 50 elites, although CVS is the larger of the two in terms of revenue. CVS increased sales in 2009 despite a recession, capturing $98.7 billion in revenues, up from $87.5 billion in 2008. CVS had not reported 2010 annual sales by press time, but its first three quarters of the year raked in $71.6 billion in net revenue, down slightly from the same period in 2009, in which the company saw $72.9 billion in net revenue. Walgreens reported $67.4 billion in revenues for its fiscal year of 2010, which represented a 6.4% increase over 2009. Profit is also up 4.2% this year compared with 2009, when profit fell 7% year-over-year.

Both drugstore chains are also working to drive sales online through their e-commerce sites and e-mail marketing programs. While neither company is particularly restrained when it comes to website design — both fill their home pages with as many possible deals and calls-to-action as will fit on the page — Walgreens' site has a slightly cleaner look, which makes it easier to shop. “Neither company seems to have a clear message or a strong call-to-action on their e-commerce site,” says Lisa Harmon, VP of creative services at Responsys, a digital marketing services firm.  “They both struggle with hierarchy in messaging and there is a lot of randomness in messages on both sites. It is like a garage sale with a lot of stuff thrown on the table.”

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