PHILADELPHIA -- A loyalty-rewards program developed to spur front-end sales at drug stores achieved an overall 2% gain in nonprescription goods sold during a year-long test.
Implementation of the "Well Worth It" marketing concept further secured the loyalty of store customers and improved gross margins at some of the 24 stores running the program.
Results of the "Well Worth It" tests were presented here during the NACDS annual Marketplace Conference, June 28 to July 1. This year's conference drew some 5,300 health and beauty care executives.
The tests culminated a three-year project run by the American Greetings Research Council, Cleveland, in conjunction with the National Association of Chain Drug Stores, Alexandria, Va. WSL Strategic Retail, New York, conducted the research, and Winston Weber & Associates, Memphis, Tenn., was the project facilitator.
The test, conducted in 24 stores operated by eight drug chains, is noteworthy in that it demonstrated that drug-store retailers can do something to stop the erosion they have suffered in higher-margin front-end sales. Pretest research indicated that 53% of prescription customers do not usually buy front-end merchandise while waiting for their prescriptions to be filled at a drug store.
"There was some real skepticism that we could impact the front end," said council member Phil Perkins, vice president of marketing at Snyder's Drug Stores, Minnetonka, Minn. "It had been for the most part declining in chain drug stores. It may still be. But again, there was enough data to support that, given the right tools, we can do something about the front-end business."
The marketing concept that was developed and tested involved several key components, including a frequent-shopper card, which is used by most supermarket chains to drive sales.
The focus of the program was to reward drug-stores' best customers -- those who had had a prescription filled within the last 90 days. A personalized monthly promotional mailing was developed and sent to 105,000 prescription customers. The mailings were built around themes such as well babies and children, healthy skin, diet and nutrition. A newsletter and cents-off store and manufacturer coupons were sent out in the mailings.
Of the various elements tested in the program, the "While You Wait" coupon, which offered prescription customers $1 off $10 worth of front-end purchases, had the highest redemption rate -- 11.4% during the test period. Perkins pointed out that the coupon has the potential to increase incremental front-end sales by 2.5%, and gross profit by nearly $8,000 per store per year.
Although the coupon offers "the greatest potential for building front-end sales," said Perkins, there was some lack of follow-through by the pharmacy staff to consistently distribute the coupons to customers.
"We believe that it would be easier to motivate the staff to execute more effectively if the program was conducted chainwide and if it were part of the overall marketing plan," he added.
Valued-shopper cards sent in the monthly mailing offered $5 off $50 worth of front-end merchandise. The rate of card redemption ranged from 1% to 3%. Frequent-shopper cards favorably affected front-end sales and gross margins compared with control stores not using the cards.
The cards further solidified shopper loyalty as 42% of the customers surveyed said that they were "very likely" or "somewhat likely" to purchase items at the test store that they would have purchased elsewhere.
Test-store sales increases were driven by greeting cards (up 4%), hair care (up 3%), photo (up 3%) and food/beverage (up 2%).
Mixed results were reported on the program's effect on front-end gross margins, as just half of the chains in the test reported higher gross-margin percentage increases.
Although not part of the program's main objective, the "Well Worth It" strategy helped increase prescription sales at the test stores, achieving a 10% increase vs. an 8% increase at the control stores in a year-to-year comparison.
The program also appeared to be an effective defense against competitive formats. Where new competition opened in a test store's market, test sales and profit improved much quicker than in the chain's past experience.
In addition to Snyder's, the other chains participating in the test were Harco Drug, Northport, Ala.; Hi-School Pharmacy, Vancouver, Wash.; K&B Services, New Orleans; Lewis Drugs, Sioux Falls, S.D.; Longs Drug Stores, Walnut Creek, Calif.; May's Drug Stores, Tulsa, Okla.; and Medic Drug, Cleveland. (Toward the end of the test period, two of these companies, Harco and K&B, were acquired by Rite Aid Corp., Camp Hill, Pa.)