(Reuters) - Walgreen Co WAG.N will join the loyalty card game next month as it tries to win back millions of pharmacy patrons, a daunting task as rivals CVS Caremark Corp (CVS.N) and Rite Aid Corp (RAD.N) already have well-established programs.
For years Walgreen, the largest U.S. drugstore chain, said it was just fine without a loyalty card that rewards holders for spending more. Now, after testing formats for a year and a half, and after losing shoppers who had to fill Express Scripts prescriptions elsewhere for most of 2012, the chain is embarking on one of the biggest marketing pushes in its 111-year history.
Heading the introduction of the Balance Rewards card is Graham Atkinson, who led United Airlines’ UAL.N Mileage Plus program before he joined Walgreen as chief customer experience officer in January 2011.
Walgreen’s new program blends aspects of airlines’ frequent flyer plans and loyalty cards from drugstore rivals and Duane Reade, which the company acquired in 2010.
“This program is all about collecting points, saving up for a treat,” said Atkinson. “If we get a more engaged customer, and ultimately a more loyal customer, they will give us a larger share of their shopping wallet.”
Walgreen will bring out its loyalty card on September 16, although patrons can sign up starting early next month with a chance to win 10 million points.
“Today, it’s kind of table stakes in most retail to have some program for rewarding, incenting, personalizing communications to your shoppers,” said Ben Sprecher, co-founder of Incentive Targeting, a software company that helps retailers and brands understand and change shopper behavior. “It absolutely needs to be done, and better late than never.”
Walgreen shoppers will earn points for buying certain items, filling prescriptions, getting shots and even participating in a walking program. Those points are worth more as users accrue them. For example 5,000 points nets a shopper a $5 reward. But it only takes 40,000 points to get $50 to use in the store or online.
“We’re looking for tens of millions of sign-ups before the end of the year, and we do believe this can be as big, if not bigger, than the CVS program,” said Atkinson.
But CVS and Rite Aid, which continue to add features to their programs, say they think they have a head start.
“You can’t make a 12-year scotch in 12 months,” said CVS Chief Marketing Officer Rob Price. “We feel a little bit that way about loyalty. A genuine relationship takes time to develop.”
CVS’s ExtraCare card began with a pilot program in 1997 and went national in 2001. More than 70 million households and more than 100 million individuals use it at least once every six months.
Rite Aid said that as of early June, it had 25 million wellness+ members who had used their cards at least twice in the past six months.
Any retail loyalty program is often measured against the one at Kroger Co (KR.N). The grocer partnered with British loyalty firm dunnhumby in 2003 to better personalize discounts after starting its own program in the mid-1990s.
Nearly 60 million households have signed up for Kroger’s card, and redemption rates for its personalized offers can be as high as 70 percent, well above the average rate of 5 percent or less for coupons.
CVS, the leader in drugstore loyalty, said its quarterly ExtraBucks rewards had a redemption rate of about 55 percent.
Drugstores already have an edge in keeping customers loyal since many return to a store to pick up regular prescriptions. But Walgreen lost many patrons this year during its now-resolved rift with pharmacy benefits manager Express Scripts Holding Co ESRX.O.
Walgreen can start filling Express Scripts prescriptions again on September 15, the day before Balance Rewards begins.
CVS, meanwhile, is trying to strengthen the connection between pharmacy sales and loyalty. It is conducting a five-market pilot program in which users get $5 in ExtraBucks for every five prescriptions filled, up from $1 for every two prescriptions. CVS said it was thinking about whether to enhance pharmacy-related ExtraCare rewards nationally in 2013.
While Walgreen has not divulged costs, introducing its plan included a “significant technological investment,” Atkinson said.
Implementing a loyalty card program at a large retailer can cost millions of dollars, Sprecher said.
The payoff can be even greater, as chains’ most loyal patrons become their most profitable ones.
In the first quarter, Rite Aid’s wellness+ users accounted for 75 percent of general merchandise sales, up from 67 percent a year earlier, and 69 percent of prescriptions filled, up from 62 percent.
Shoppers who reach Rite Aid’s “silver” and “gold” levels get discounts across most of the store, which then spur them to visit the chain more often.
“We see pretty dramatically increased frequency and spending from those customers,” said Rite Aid Chief Operating Officer Ken Martindale. “They are by far our most profitable customers.”
Reporting by Jessica Wohl in Chicago; Editing by Lisa Von Ahn