Walgreen (NYSE:WAG) lost a large number of customers to competitors last year as it tried to resolve its dispute with pharmacy benefits manager Express Scripts. In an effort to win back these customers, the company is launching a loyalty program next month. Its competitors CVS Caremark (NYSE:CVS) and Rite Aid (NYSE:RAD) already have well-established programs that have been running for several years. Walgreen’s program will blend the elements of loyalty programs offered by its competitors and other elements reminiscent of frequent flyer programs. As part of the program, the company will roll out a country-wide EHR (Electronic Health Record) service in collaboration with Greenway Medical Technologies in an effort to provide better service to the communities where its stores are located. The EHR service will help Walgreen staff give personalized advice to individual customers.
Loyal customers can boost revenues with repeat purchase
The loyalty program is set for launch on September 16. Customers who sign up for this service will earn points by purchasing certain items, filling prescriptions, getting shots and even participating in a walking program. These points will be worth more as the users accrue them. For example, 5,000 points will net a $5 reward while 40,000 points will net $50, and these points can then be redeemed online or at the store. Walgreen is targeting tens of millions to sign up before the end of the year as it aims to become as big as CVS in the loyalty program segment.
The market for loyalty cards is big and brings in more revenues as the frequency and spending by customers increase. CVS’s ExtraCare card debuted in 2001 and has more than 70 million households and 100 million individuals who use the card at least once every six months. The company claims a redemption rate of 55% for its quarterly ExtraBucks program. Rite Aid currently has 25 million wellness + members who use its card at least twice every six months. Rite Aid reported that wellness+ users accounted for 75% of its general merchandise sales and 69% of its filled prescriptions in the first quarter.
While Walgreen has not divulged the costs, a loyalty plan entails significant capital investments to the tune of millions of dollars. The payoffs can be even greater as the most loyal patrons are also the most profitable. We expect the program to boost the company’s revenue per customer.
Personalized service will attract new customers
Walgreen plans to introduce the Greenway Electronic Health Record across its 8,000 locations by next summer. Currently, it is available at around 200 of its stores. The service would give the pharmacy’s staff access to a customer’s prescription, immunization, health testing record combined with pharmacy information. Based on these records, the staff can provide additional recommendations like when a customer is due for a specific immunization. We expect the service to help the company win over additional customers from local and national rivals.
We currently have a $39 Trefis price estimate for Walgreen which is 10% more than the current market price.