WOONSOCKET, R.I. — CVS/pharmacy is focused on growing its front-end business as it builds on the strong foundation established in recent years.
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Judy Strauss Sansone |
The goal, according to senior vice president of merchandising Judy Strauss Sansone, is to deliver the most accessible and personalized retail experience, and CVS has several means to achieve it.
First, and perhaps most important, is the CVS ExtraCare loyalty program, which over the course of 14 years has generated unmatched customer insights. It is the largest loyalty program in retail, with 92 million active cardholders who have taken advantage of ExtraCare within the past 12 months. As of last December, 67% of all transactions and 82% of front-end sales were being made through the ExtraCare loyalty card.
“ExtraCare uniquely positions us to deliver tailored offers, rewards and information for each customer that are based on individual shopping preferences,” says Sansone. “That engagement with the customer happens everywhere the customer chooses — in our stores, at our pharmacies, at home via e-mail, mobile or digital.”
Since it was first piloted in 1998, ExtraCare has been expanded and refined to offer increased value to cardholders. The most recent ExtraCare innovations last year were the Beauty Club and Send to Card, a feature that allows members to have their ExtraBucks rewards and personalized coupons sent directly to their cards instead of having to carry paper receipts — a quantum leap in convenience and functionality.
More digital refinements to ExtraCare are in the works.
“We’ll be further enhancing ‘Send to Card’ over the next few months, and we’re also launching a new digital app so customers can simply scan their ExtraCare card one time into their smartphone and store it so they don’t have to carry their card with them any more when they shop with us,” she says.
The payoff from ExtraCare has been impressive. Program members buy 4.4 items per shopping trip, compared with 2.4 items for nonmembers — a whopping 85% difference.
The customer insights yielded by ExtraCare will enable CVS/pharmacy to focus its marketing investments in its most profitable customers. As Mark Cosby, president of CVS/pharmacy, noted during the company’s investor day last December, the drug chain can fine-tune its marketing to focus on its top and middle customers, while limiting its investment in those who use the stores mainly to buy items on promotion.
CVS’ digital capabilities will be the focus of refinements for the next couple of years. In addition to targeted advertising to ExtraCare members based on their spending history, personalized offers will be delivered via e-mail and be accessible on the CVS website as well.
Moreover, customer engagement will be further expanded through a concept called Endless Aisle, by which products not available in CVS outlets will be available on the website. Finally, the retailer is developing an aggressive mobile strategy, with plans calling for a mobile wallet, real-time inventory checking at all CVS stores, a drug interaction checker and a personalized circular.
“We’re using digital to extend and enhance the in-store experience and the online and mobile experience for our customers,” Sansone remarks. “Our digital strategy, powered by the personalization of ExtraCare, gives us a tremendous opportunity to bring truly customized communications and offers to our customers. This is an area where we’ll have a lot of innovation, now and in the next few years.”
The company is also looking to enhance the in-store experience for its customers through a clustering program called My CVS. The goal is to drive sales by matching a store’s offerings to the needs of its customer base.
My CVS goes beyond fine-tuning assortments to encompass the pricing, service, pharmacy and overall shopping environment.
The initiative was kicked off in 2009, with stores segmented and clustered based on how they are shopped. The first two clusters to be rolled out have been the food convenience cluster and the urban cluster.
The food convenience cluster was extended to more than 4,000 stores over the course of nine months beginning in 2009. The space allocated to consumables was doubled in the remodeled outlets, resulting in a 12% increase in shopper trips.
By the end of last year the urban cluster had been implemented in 420 stores, and 50 more are planned for this year, CVS Caremark president and chief executive officer Larry Merlo told analysts during the fourth quarter conference call.
The urban cluster, executives say, is best defined as a “general store” concept that includes expanded grocery offerings and the addition of fresh and on-the-go food items. Results of the urban cluster stores have been gratifying thus far, with sales up 8% and profitability 9% higher, according to management.
Based on the success achieved up to now, CVS is gearing up to deploy several more cluster concepts. “Our goal in 2012 is to continue to deliver customized retail environments based on consumer insights,” Sansone says. “We’ve already evolved beyond a one-size-fits-all store environment with the introduction of our first two clusters, and we have several others that we’re starting to explore now.”
She adds that the store revamps focus on layout, assortments and overall store environment. “ExtraCare has enabled us to deliver on a meaningful product selection by helping us to define our assortment and the opportunity for transferability in each of these new store clusters,” Sansone explains. “It allows us to go beyond just using sales data and provides a level of sophistication in defining what our merchandising mix should be in terms of specific customer preferences.”
The fourth major growth avenue that will see further development this year is CVS’ portfolio of store brands, which have been a key front-end sales driver.
Over the past four years private label products have represented 17.5% of sales and accounted for 32% of front-end growth. The goal is to expand store-brand share to 20%.
Although store brands remain a major focus, Sansone emphasizes the importance of CVS’ relationship with its suppliers, which she considers a competitive advantage for the retailer. Sansone points out that suppliers who take the time to understand the power of the ExtraCare program and the insights it provides can gain added benefit from the relationship.
“When suppliers leverage our strengths and use the insights from ExtraCare, it powers our business plans to deliver leading results for every one — the supplier partner, CVS/pharmacy and, most importantly, our mutual customers,” she says.
