Loyalty: Every brand wants it, but not every brand has it. CVS/pharmacy (CVS), the retail division of CVS Caremark Corporation, definitely does. More than 70 million households used its ExtraCare rewards program in the past six months, and more than 90 million households used it in the past year. In fact, one out of every three people in the United States has an ExtraCare card. But that doesn’t mean CVS/pharmacy can get complacent. The retailer has worked diligently to keep the rewards program fresh and relevant—from improving its convenience and personalization to engaging customers via mobile and social.
The goal of CVS/pharmacy’s ExtraCare reward program is twofold: provide instant savings and thank customers for their patronage to retain business. “It makes us feel good to let our customers know that we notice and appreciate [them],” says Melissa Studzinski, VP of customer relationship management for CVS, “but we also know that it helps [them] choose us more consistently over time.”
Retaining customers in today’s crowded marketplace is increasingly difficult, especially given that CVS sells products that consumers can buy from a broad array of retail outlets, including Big Box retailers, grocery stores, and specialty e-tailers and retailers. CVS Caremark, which also includes pharmacy and corporate divisions, generated approximately $126.8 billion in net revenue last year; the retail pharmacy segment accounted for $65.6 billion. But competitors across categories put on the pressure with their own earnings: Walmart earned $279.4 billion in net sales in the U.S. alone, Kroger grossed $98.4 billion, and Walgreens took in $72.2 billion, according to each company’s fiscal year highlights.
“If you think about all of the things we sell, you can pretty much get them anywhere…. What we’ve seen is that the more you acknowledge and thank your customers, you tend to be more top of mind,” Studzinski says.
And, with the ongoing evolution of consumers’ shopping habits, CVS has had to find new ways to thank customers and stay top of mind. Fortunately, its continued commitment to delivering relevance through data has helped the ExtraCare program evolve along with the retailer’s customers. Here’s how CVS/pharmacy grew its more than 15-year-old rewards program into what Studzinski refers to as the “Kleenex” of all loyalty programs.
ExtraCare wasn’t built in a day. The retail pharmacy began piloting it back in 1996; the ExtraCare program shoppers know today didn’t appear in market until 1998, Studzinski says. During this two-year period CVS tested several iterations of the program, including the types of rewards customers could earn and whether they needed their ExtraCare card to access sale prices. The retailer also relied on qualitative data—including customer advisory boards, focus groups, and interviews with shoppers and store associates—to inform these decisions.
“We were a small team at the time. I want to say that there were five or six of us,” Studzinski recalls. “We would jump in two cars and drive to Albany, or jump in two cars and drive to Hudson Valley. We would talk to store managers, associates, [and] customers.”
The program was off to a good start. After testing it in six markets, CVS found that 75% of customers surveyed said that they would shop at CVS more often because of ExtraCare, Larry Zigerelli, CVS’s EVP of marketing at the time, stated in a 2001 press release. In February 2001 CVS rolled out ExtraCare chain-wide.
As the program has grown, it’s stayed true to its customer-centric roots. “It’s really no different than how we operate today,” Studzinski says. “Obviously, we’re a much larger team, and the program is 70 million strong. But that whole idea of how do you get closest to the customer—we still absolutely do that on a daily basis.”
The year CVS/pharmacy debuted its ExtraCare program chain-wide it also launched targeted direct mail for the program.
CVS’s earliest personalization efforts included sending customers mailings containing offers or new store announcements based on previous purchases and geographic data. “At the time, that was about as innovative as you could get,” Studzinski says. But CVS faced challenges: Mainly, customers would have to wait weeks for CVS to print and mail them their coupons.
To get offers in shoppers’ hands more quickly, CVS started printing personalized coupons at the bottom of receipts in 2003. But receiving coupons after customers finished shopping didn’t jibe with their purchase flow: Customers wanted to receive offers before they hit the aisles. In 2007 CVS addressed that preference with a pilot program that converted some of its price checkers into ExtraCare Coupon Centers—kiosks that enable customers to print deals in-store; the retailer rolled them out chain-wide in 2009.
“Things that we’ve heard from customers [that] they’re interested in have really driven a lot of our initiatives,” Studzinski says.
Today, customers scan ExtraCare cards at the Coupon Centers approximately 9.6 million times per month; CVS distributed $1.1 billion in savings and rewards through the Coupon Centers in 2013.
Between introducing personalized receipt coupons and rolling out ExtraCare Coupon Centers, CVS focused on developing its brand. The company expanded its business by acquiring smaller drug store chains—including Eckerd, Sav-On, and Osco—from 2004 to 2006. During this time CVS also broadened its marketing channels, which included the introduction of targeted emails for ExtraCare.
Initially, CVS used email as a way to deliver offers electronically. But after dabbling with the channel, CVS decided to also use it as a notifications tool, such as by alerting customers within certain geographies if new stores were opening or if particular locations were offering flu shots.
“Email marketing was nascent at the time,” Studzinski says. “So there weren’t a lot of people doing marketing in the space. It was much more of a communication vehicle.”
It was also a valuable way for CVS to gain insight into whether its communications were relevant to shoppers. “With direct mail…we don’t know if [customers] couldn’t use it, if they liked it, or they didn’t,” Studzinski says. “With email, it’s pretty clear. I unsubscribe. OK. I guess we didn’t do a good job of giving you the information that you were looking for from us.”
Today, using ExtraCare data and predictive modeling, CVS is able to generate open rates two times the industry average and click-through rates five times the industry average, according to the brand’s Q1 2014 earnings report.
Even as CVS’s email performance improved, its on-the-go customers sought additional touchpoints. So, in 2009 the brand launched its first mobile site, which enabled customers to locate their nearest pharmacy, manage prescriptions, and view available savings. In 2010 CVS introduced a mobile app that offered new capabilities, such as scheduling flu shots.
CVS continued to extend its mobile presence. For example, in 2011 the retailer streamlined its shopper journey by enabling customers to keep track of their ExtraCare rewards, browse through more than 25,000 products in the online catalog, purchase items, and redeem coupons all via its mobile site. Additionally, to give consumers more choices for accessing their coupons, CVS launched its Send to Card feature, which allows customers who receive email offers to send them electronically to their ExtraCare card instead of printing them. In 2012 CVS enhanced its mobile app, including adding a pill identifier and the ability to use a smartphone as digital ExtraCare card. The retailer even introduced an iPad app with a virtual 3-D pharmacy in 2013.
CVS’s mobile Web visits nearly doubled over the past year—after tripling the year prior—and the number of monthly iPad visits to CVS.com has more than doubled compared to the year before.
As with its email efforts, expanding into mobile gave CVS another window into consumers’ shopping preferences, Studzinski says. For example, the retailer could determine whether customers prefer to view offers in-store, online, or via the app. The Send to Card feature also provides the retailer with valuable data. It allows CVS to detect which categories and products consumers are looking for.
Over the past three years about 85% of CVS’s customers have adopted the Send to Card capabilities. Still, Studzinski says that it’s important to keep the print options available to provide flexibility and choice, as well as connections between digital and in-store. For example, if shoppers forget which offers they sent to their card, they can print them at the ExtraCare Coupon Center. “It puts the customer in the driver’s seat as she’s planning her shopping trip,” Studzinski says.
However, deciding how they receive their rewards isn’t the only choice CVS customers make. In the case of the ExtraCare extension program, Beauty Club, the retailer also enables them to choose what kind of rewards they’d like to receive.
After talking to customers who frequently purchased beauty items, CVS’s marketers hypothesized that a targeted program would appeal to beauty-centric consumers. So it launched ExtraCare Beauty Club in January 2011. Customers who enroll in the program received beauty perks, such as a 10% off beauty shopping pass upon enrollment and $5 in ExtraBucks Rewards (or store credit) with every $50 beauty purchase. In addition, members received monthly email newsletters that include coupons, advice from beauty experts, and product information.
More than 13 million customers have enrolled in the Beauty Club since its inception. These members, according to CVS’s Q1 2014 earnings report, spend 2.5 times more than the average beauty customer.
Studzinski says that the program is the highest-rated concept CVS has ever put into market research. “It actually scored off the charts,” she says.
Studzinski attributes customers’ enthusiasm for the club to the ability to choose to be a part of it in the first place. “If we started rewarding everybody who bought any beauty products, our definition of beauty [would be] pretty broad,” she says. “What we found over time is [that], again, this is about choice. If you let the customer say, ‘Yep, I’m really interested in beauty so please reward me specifically for it,’ it feels that much more important to her and that much more relevant.”
In fact, the success of the Beauty Club has sparked similar initiatives like the ExtraCare Pharmacy & Health Rewards, which debuted in February 2013 and rewards customers with $5 of ExtraBucks Rewards for every 10 prescriptions filled.
Not only does CVS adjust its marketing based on customers’ shopping trends, but it also fine-tunes its programs based on broader market shifts. For example, decreases in newspaper readership prompted CVS to evaluate whether it should still try to reach customers through Sunday newspaper circulars. So, this past October CVS decided to modernize its weekly sales circular by sending the 45 million people who receive the printed edition a digital version called myWeekly Ad.
The front page of myWeekly Ad is customized based on each recipient’s purchase history, ExtraCare rewards information, and data provided via customers’ profiles, such as gender. CVS can also present offers based on the category of product consumers tend to purchase.
Recipients are able to view myWeekly Ad online or via their mobile devices. To help shoppers on the go, CVS enables customers to build digital shopping lists, which they can print, email, or view via their mobile devices. Of course, customers can also send deals to their ExtraCare card.
“It’s taking the same information in the Sunday circular and reorganizing it to make it more shippable and more relevant,” Studzinski says.
So, how can CVS determine whether its initiatives are effective? One way is via social interactions. These dialogues allow CVS to learn about customers’ experiences in a more “spontaneous” and real-time way, compared to the traditional means of customer research or call centers, Studzinski notes.
Social also serves as a way the retailer can inform customers about new deals or launches. Additionally, customers who are involved in CVS’s online communities teach each other by answering members’ questions. And CVS learns a great deal, as well. As with email unsubscribe rates, the number of social reactions and comments helps the retailer gauge whether its discussions and posts are relevant to its customers. “It’s a good two-way dialogue,” Studzinski says.
What’s next for the ExtraCare program? Studzinski says she’d like to turn the program into a more one-to-one experience. “It sounds easy,” she says, “but actually delivering that so that every single customer feels like the program is perfect for [her]—that’s ultimately when we’re successful. Each customer is going to have a different experience and she’s going to feel like it’s absolutely the most relevant program for her.”
