When CVS Caremark rebranded as CVS Health (CVS) in 2014, it pledged to help customers venture down the road to better health. But it looks like the pharmacy retailer could use a bit of a checkup.
While the brand reported a 3% net revenue increase in Q1 2017, it also experienced a 3.8% decrease in retail and long-term care segment revenue, which it partially attributes to a 4.7% decrease in same-store sales. In addition, it revealed that same-store subscription volume dropped 1.4% that quarter and that front-store, same-store sales decreased 4.9%. Plus, its net income decreased 16.9%, according to its quarterly results.
Generating customer loyalty is crucial to CVS’s business. In a letter to its investors featured in its 2016 Annual Report, CVS president and CEO Larry J. Merlo revealed that CVS focuses on reaching the top 30% of its customers who account for 75% of CVS’s margins.
However, generating repeat business can be difficult in a world where many of CVS’s convenience products can be purchased on Amazon or from other retailers. For Michele Driscoll, VP of loyalty and personalization for CVS, the main differentiators for CVS are the brands that it carries in its stores — some of which are exclusive — and its customer shopping experience — an experience that it’s able to personalize using data from its ExtraCare program.
Personalization based on purchases
According to Driscoll, ExtraCare has more than 80 million active members. She also says that one out of every four households in the U.S. uses ExtraCare. CVS is able to mine these members’ purchase and demographic data and pair it with internal research (e.g. online communities, surveys) to deliver personalized offers and marketing communications to its customers.
“For us, personalization means that it’s relevant to her,” she said at a CVS press event held in mid-April in New York.
One way CVS does this is by targeting communications based on what customers buy. If a customer buys hair color for instance, CVS might send that customer an email offer for their next hair color purchase because it’s a routine buy, Driscoll explains. Or, it might look at customers who have purchased allergy medications, Driscoll says, and send them targeted offers when there’s a high pollen count in their area.
CVS also leverages lookalike modeling. For instance, it might send customers who purchase beauty products discounts for skincare products, Driscoll explains, because people who have an affinity for one tend to have an affinity for the other.
In addition to these factors, CVS considers category preference when creating its marketing. For example, Driscoll says that the brand might send customers ExtraBucks — a CVS currency — for a product category in which the customer makes frequent purchases, like vitamins or personal care. It also leverages demographic data. For instance, the retailer might leverage customers’ geographic data to send them a direct mail piece about a new store opening, Driscoll explains.
CVS targets specific customer segments within ExtraCare, too — such as its ExtraCare Beauty Club members. There are more than 15 million members in the ExtraCare Beauty Club, Driscoll says, and according to a 2014 DMN article about CVS, these customers are very profitable. Driscoll says CVS will engage these customers by offering them opportunities to earn rewards, such as by sending them $5 in ExtraBucks for every $50 they spend.
In addition to this granular targeting, CVS can personalize creative or the name featured in a message.
But CVS’s efforts to resonate with customers and generate sales don’t end in the digital realm. The brand is also making strides towards capturing customers inside of its retail locations.
In April, the brand revealed a new store design which includes the debut of “discovery zones.” These designated setups allow customers to learn about new trends and be exposed to different products. For instance, one discovery zone might focus on beauty and highlight popular Korean beauty products while another zone might focus on self care and promote sleep or immunity products.
“As you experience some of the stores, there will be information about different kinds of products that can resonate and help our consumers get a better sense of what they’re seeing,” Driscoll says.
At the time of the interview, Driscoll said that these discovery zones were in three CVS stores and that the brand planned to roll them out to as many as 70 new and existing stores this year — with plans to expand to “several hundred” stores in 2018.
Mobile is a good way for CVS to bridge the digital and in-store shopping experiences. Customers can download the CVS app to manage their prescriptions, order photos, and see wait times for CVS’s walk-in clinics, MinuteClinic, and hold their place in line. They can also scroll through their available coupons, filter them, and forward them to their ExtraCare card to be used at checkout. Furthermore, customers can forward ExtraBucks to their cards, and pay directly through the app.
The CVS app has more than 19 million downloads. And at the press event, Rebecca Grimm, senior director of loyalty design for CVS, said that ExtraCare members who sign up for email or app offers save three times more than customers who don’t.
In addition to the app, CVS has a pharmacy text program to remind patients to refill their prescriptions and alert them when their medications are ready. According to Carolina Michaud, director of CVS’s digital innovation lab, nearly 41 million customers are enrolled in the SMS program, and these text messages saved pharmacists from answering more than 31 million calls in 2016.
Besides the app and the SMS program, CVS leverages beacons to notify customers of the ExtraCare deals they have available when they enter the store.
Keeping customers at the core
Given the multiple opportunities for engagement, it’s important for CVS to engage customers via their preferred channels. Driscoll cites CVS’s receipts as an example of how the brand does this. She acknowledged that CVS has received media attention for the length of its receipts. So, in 2016, the brand made it possible to digitize receipts if desired. Driscoll said customers can even opt to have their transaction history printed on a paper receipt and have their coupons emailed to them directly.
Still, Driscoll admits that it can challenging to keep up with the evolving retail environment to best serve customers’ needs.
“The market is changing at a rapid, rapid pace,” she said. “So, really the hardest thing is making sure that we see what our customers are telling us and respond in a way that keeps her engaged and coming to CVS.”
But when it comes to proving certain programs’ ROI, Driscoll goes back to the basics: caring for the customer. As she put it, “Everything really starts with the customer.”