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Walgreens to Launch Largest U.S. Loyalty Program

The new store technologies have been piloted in three markets over the past 18 months and are now ready for rollout chainwide.

Walgreens

CHICAGO — Apparel retailers diligently recorded preferences of top customers long before Abraham Lincoln commissioned Brooks Brothers to design an overcoat for his inauguration.

Shopper loyalty programs are not new; they just evolved from meticulous handwritten script in coveted little black books to highly sophisticated databases and analytical tools that suggest ways to engage, upsell and encourage repeat purchases in a more targeted fashion.

This week, Walgreens threw down the gauntlet: The longtime rewards program holdout will launch in September what it calls the largest loyalty program in the U.S., on track to become the largest in the world.

One hundred million shoppers pass through Walgreens doors each year, said Adam Holyk, divisional vice president, loyalty and insights at the $72 billion drugstore chain. He shared “teasers” of the new program and supporting technology at CRMC 2012, the annual customer relationship management conference that concluded Thursday in Chicago. Holyk is a former executive at dunnhumby, which guided loyalty programs at Macy’s, Kroger and Tesco in the U.K.

Walgreens, the nation’s largest drugstore chain, has been on a roll with its 2010 acquisition of Duane Reade, last year’s purchase of drugstore.com and beauty.com, followed by the Look Boutique rollout and opening of the Chicago flagship that sells spirits, high-end wines and sushi. This fall’s launch of the loyalty program — its formal name will be revealed this summer — dovetails with an ambitious upgrade to the technology platform in stores and behind the scenes.

“Ultimately, the secret sauce is not that we have a campaign management system…or that we are building [customer] segmentation, but that we are able to connect the ecosystem together,” Holyk said. The ecosystem includes analytics and predictive technologies that identify opportunities for Walgreens to shift from a product-centric organization to a customer-centric chain that treats its best customers better. Earlier this month, Walgreen appointed GSD&M of Austin, Tex., as its agency of record to tell that story.

The analytics tools inform tactics for targeted marketing, assortment, pricing, store layout, and real estate site selection and provide a 360-degree view of shoppers. Already, analytics permit Walgreens to predict customer attrition with accuracy rates of 81 percent, he noted. Technology investments include a mobile application and a new point-of-sale system that is RFID-enabled. Holyk would not disclose how Walgreens will identify loyalty program customers in-store — whether it will be through RFID technology, bar code or magnetic stripe on a traditional loyalty card, mobile phone or all those methods.

The new store technologies have been piloted in three markets over the past 18 months and are now ready for rollout chainwide, he said. The objective is to build not only behavioral loyalty such as frequent purchases and larger transaction size but also “emotional loyalty” fed by how store associates engage with shoppers. At the Chicago flagship location, cashiers close each sale with a “Be Well” valediction and it’s this sentiment Walgreens wants to imbue across its 8,000 stores.

Walgreens is among the few large chains without a loyalty program; Wal-Mart also does not have one.
“You are late to the game on loyalty,” said Jenn McMillen, division vice president, loyalty and CRM at Gamestop, during the Q&A portion of Holyk’s presentation. Gamestop’s loyalty program has 18 million members and half of those pay $14.99 a year for a premium membership at the video game and entertainment software chain. “What is your big differentiator and what can it add to the 2 billion memberships that are already out there?” she asked.

Holyk said Walgreens’ advanced technology platform, particularly the new POS, along with how associates engage with shoppers and the chain’s equity in the wellness space will enable Walgreens to leapfrog other reward programs to build emotional and behavioral loyalty.

“We are touching people’s lives more closely within our healthcare business than a grocer or electronics retailer would,” he said. “Our inspiration is not based on other programs in the U.S.,” such as the grocery sector with its emphasis on discounting. “We are going to push the envelope.”