With front ends that typically sell staples and convenience items that shoppers can find in many other retail channels, drug stores are discovering that continuity loyalty programs provide incentives to lure top customers back more frequently.

And, as a result, these top customers (the 10 to 30 percent who spend the most) will spend even more.

Drug Fair Group, a 55-unit regional chain based in Somerset, N.J., is moving into the second marketing phase of We Care, a customer loyalty continuity program it launched last August.

Continuity loyalty programs offer rewards, not just discounts, to encourage consumers to shop more frequently. Drug Fair decided to implement one because it wanted to use purchasing information to increase the frequency of visits by offering incentives and rewards that would be relevant to individual shoppers, says Robert Pouliot, Drug Fair’s senior vice president of merchandising.

Customers using We Care cards get points for each dollar spent at a Drug Fair store; 150 points earn them a $5 rebate reward. To ensure that the rebate does increase shopping frequency, customers must redeem their $5 reward within two weeks.

“We’ve found that once we can engage them to that level, we can increase their spending meaningfully,” Pouliot says. “The bottom line is to increase the frequency of their visits, and the beauty of this program is its simplicity: All our customers understand it very quickly.

“And what’s neat is that there is no minimum purchase [for redemption],” he says. “So if a customer wants to come in and buy $5 worth of milk or shampoo, they can and it’s as if they are getting their products for free.”

Following the lead of drug chains like Duane Reade, Drug Fair is using Morristown, N.J.-based Cartwheel and its technology partner, New York City-based 1010data, to provide shopper-based marketing expertise and to gain access to powerful data storage and processing capability.

By having Cartwheel capture, analyze and store customer data and provide strategic input, Drug Fair is able “to drive a major marketing objective, which is [to] increase the frequency of our shopper visits and, to a slightly lesser extent, attract new customers,” Pouliot says. At the same time, our staff can stay focused on the goal of managing the business and looking for new growth areas.”

Interesting, significant growth
Drug stores have a great opportunity “to increase frequency, and as soon as you start increasing frequency, that is really where the growth becomes interesting and significant,” he says.

Duane Reade doubled the number of trips made by its most loyal customers within six months of implementing Dollar Rewards, its continuity card program, in March 2005. It also saw same-store sales rise from -3 percent to 8 percent by the end of 2006, and “the only significant change we made was implementing Dollar Rewards,” says Gary Charboneau, who was the chain’s senior vice president of marketing at the time.

Drug Fair needs to get a year’s worth of data from the program before it can accurately quantify how frequency and sales have been impacted, but initial results show that, among “the folks who visit us regularly, the basket is increasing,” Pouliot says. Average store sales also are increasing, and that growth is accompanied by “a lot of positive feedback from the customers.”

Cartwheel president and CEO Larry Aronson says that, for drug stores, “75 percent of the growth that comes from a continuity rewards program comes because of increased frequency of visits, as opposed to increased items in a basket.”

When people shop more often, “they tend to spend at least the same amount, if not a little more, each time they come,” says Charboneau, who retired from Duane Reade and is working as a marketing consultant. When Duane Reade started Dollar Rewards, the top 10 percent of customers were spending roughly $600 annually. That figure jumped to more than $750 in the first year, “so all of our positive change in store sales was coming from that relatively narrow group of top customers,” he says.

Building a strong continuity loyalty program entails making a number of strategic decisions, including choosing a reward that will have meaning to customers. The program also must have the support of every key department in a retail enterprise, and marketing and operations must play strong roles in educating consumers about the program’s value.

To gain visibility, Drug Fair didn’t just describe We Care in its ads and circulars: It engaged all store-level people so that they could speak knowledgably and enthusiastically about the program. It set up in-store enrollment tables, a tactic it still utilizes at new-store openings.

Marketing, support team
Drug Fair is analyzing additional customer segments to identify the product categories that are most relevant to them.

To develop these programs, Pouliot and representatives from store operations, loss prevention, customer service, training, advertising and marketing, as well as district managers, meet weekly with a dedicated marketing and analytical support team from Cartwheel.

One recent program involved targeting the chain’s 1,000 highest-spending and most-frequent customers. In addition to sending these customers a $5 redemption coupon, Drug Fair included a letter from CEO Tim LaBeau thanking them for “signing up for our program and being one of our best customers.”

Coupon-redemption rates for drug stores with $5 reward coupons and strong program implementation are typically in the high 40s, Aronson says. (Drug Fair’s redemptions range from the low to high 40s, according to Pouliot.)

Drug Fair is developing a “coordinated, continuous program of targeted mailings that top customers will receive regularly for offers that Drug Fair knows have relevance or meaning,” Pouliot says. It also is beginning to engage manufacturer suppliers in the planning process, looking for ways to drive sales and generate additional revenues on a brand-by-brand basis.

Although starting a continuity loyalty program from scratch can cost a retailer millions, third parties can provide a significantly cheaper entry point – and a relatively rapid return on investment. Drug Fair, says Pouliot, expects to break even “in a year or less.”