SAN DIEGO -- Challenged by competitive formats like supermarkets that are taking away front-end business, the chain drug industry is testing a multitiered health care marketing concept to increase sales of nonprescription merchandise and better satisfy its prescription customers.
The tests are currently under way at eight chains, in various regions of the country, that are participating in a three-year study conducted by the American Greetings Research Council, Cleveland, with the National Association of Chain Drug Stores, Alexandria, Va.
The first phase of the study, titled "The Changing Face of Today's Chain Drug Stores: A New Perspective," was released here during the NACDS' annual Marketplace Conference, June 15 to 18, which was attended by more than 4,500 industry executives.
Phase one identified the problems chain drug is facing as a loss in market share in health and beauty care categories; the changing buying habits of its core shoppers, the prescription customers; and the squeeze on pharmacy margins. The research, consisting primarily of consumer focus groups and telephone surveys, was conducted and analyzed by WSL Strategic Retail, New York, a strategic marketing and retailing consulting company.
"With the pressure that managed care is putting on pharmacy gross margins, it's becoming increasingly important that we offset the margin erosion with higher gross margin sales in the front of our stores," said Jim Harrison 3rd, president of sales and marketing at Harco Drug, Tuscaloosa, Ala., who is a council member and study participant.
The study found that while drug stores significantly increased their prescription business from 19.8% of total chain drug store sales in 1984 to 39.2% in 1996, they are failing to convert health customers to regularly buy a broader range of front-end merchandise.
While more than 75% of consumers usually have their prescriptions filled at a drug store, only six out of 10 buy over-the-counter medications there. Also, only one-third usually buy toiletries, vitamins, oral-hygiene products or photo-finishing services. Less than 20% usually buy cosmetics and only 10% buy eye-care products or seasonal items, according to the study.
It also found that drug stores are being shopped as either a convenience store or a pharmacy. Prescription and nonprescription shopping is not necessarily done on the same trip. One-half of the shoppers surveyed (51%) said they make a separate trip for their nonprescription needs. There is some indication that convenience is eroding store loyalty. Drug stores are not viewed as the "first choice" for front-end merchandise, so shoppers are increasingly likely to shop other outlets, the study stated.
Based on these consumer shopping preferences, a test concept was developed under the "Well Worth It" banner to enhance the drug stores' health care image and better differentiate them from competitors. The marketing program also encourages greater front-end patronage through rewards to customers and leverages the drug stores' relationship with its prescription customers to make them feel their business is valued.
Last month the General Merchandise Distributors Council, Colorado Springs, Colo., released a related study titled "Do It Yourself Health," that would help supermarkets leverage its strength in food with four health-related categories in developing a wellness marketing concept.
Besides Harco Drug, others testing the "Well Worth It" concept are: May's Drug Stores, Tulsa, Okla.; K&B Services, New Orleans; Lewis Drugs, Sioux Falls, S.D.; Medic Discount Drug, Cleveland; Hi-School Pharmacy, Vancouver, Wash.; Snyder's Drug Stores, Minnetonka, Minn.; and Longs Drug Stores, Walnut Creek, Calif.
The main components of the program consist of a direct mail effort. Each month, prescription customers receive a mailing from their drug store thanking them for their prescription business. The mailing includes a health advice letter, manufacturer coupons and a frequent-shopper card offering significant saving on front-end merchandise. A loyalty program also is a component of the GMDC's "Do It Yourself Health" study, which is slated for further development by the grocery industry.
Loyal drug store patrons can get additional savings at the pharmacy counter in the form of a "While You Wait" coupon to be used as an incentive to buy front-end merchandise. In-store signs support the concept theme along with end-aisle displays, banners and buttons worn by store staff.
Results of the 12-month in-store tests and follow-up research will be presented during next year's Marketplace Conference.