Late to the Loyalty Game, Walgreens Pushes the Envelope

Drugstore Goes From Zero to 85 Million Members, Some Reporting Physical Activity for Points

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It's hard to believe, but before acquiring New York drugstore giant Duane Reade in February 2010, Walgreen Co. had no loyalty program, even as countless competitors, including Rite Aid and CVS, aimed to grab more consumer dollars through their own programs.

Walgreen Balance Reward members can earn more points if they tie their physical activity to their accounts.
Walgreen Balance Reward members can earn more points if they tie their physical activity to their accounts.

Today, Walgreens has finished integrating its now year-old Balance Rewards system across Walgreens and Duane Reade stores, and has branched out into collecting information on its customers' physical activity by linking their exercise-tracking devices to their loyalty accounts.

Getting there was a tough task.

"It was one of the largest -- if not the largest -- technology projects that we put in place," said Adam Holyk, VP of insights and analytics at Walgreen Co., which purchased Duane Reade in a transaction valued at $1.08 billion. Now the company claims to have 85 million members enrolled in the Balance Rewards program, up from a reported 72 million in June.

Epsilon supports transaction processing for Walgreens, and stores its loyalty-points data. Think of Epsilon as the Balance Rewards point bank: When a customer record is created and points added to that account, it happens at the Epsilon level. Epsilon and Walgreens partnered on an earlier pilot program. That pilot was scrapped to focus on the broader Balance Rewards program, which launched nine months later in September 2012.

Killing the earlier loyalty program was risky since it threatened to alienate enrolled customers who had a limited time to use their points before they fell into the memory hole. That fear was outweighed by a desire to create a much more elaborate program to coincide with an upgrade of its point-of-sale system. Combining loyalty and POS projects was a logistical nightmare because it involved rejiggering around 40 internal systems and replacing POS terminals in 8,000 stores with ones that included customer-facing pin pads.

Real-time tracking
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The single largest [challenge] was the replacement and standardization of all our POS technology," said Mr. Holyk. That allowed the company to maintain and track points and balances in real time, he said. The system also talks to accounting systems that track expenses and sales data, integrates with promotional planning systems, and is linked to call-center and customer-service databases. Customer-service reps "have to have visibility into [customer] points earning," said Mr. Holyk.

To get into the updated system, customers were asked at checkout if they wanted to join; if they were former Duane Reade loyalty-program members they scanned in their old cards to enter the new database, which revealed some of their profile data on the POS pin pad.

The Walgreens POS database includes information that appears on a receipt tape, such as product SKUs and prices, the time and date of the purchase and payment method, said Mr. Holyk. That info is connected to an ID, "which allows us to understand our customers and really inform our price-promotion and assortment decisions."

Members can also choose to link their physical activity, as tracked by devices such as FitBit and BodyMedia, or products from Withings, which makes scales that measure weight, body composition, heart rate and air quality. The "Steps With Balance Rewards" system offers more points as members add devices and increase activity. Members can also manually self-report their exercise activity.
"This is a market differentiator for Walgreens," said Jeff Mulkey, VP-general manager of marketing technology at Epsilon, which has worked closely with Walgreens on developing its sprawling loyalty program.

Around 1% of Balance Rewards participants, or 868,000 members, are reporting their activities to the program, the vast majority doing it manually rather than transmitting the information via devices, according to Rick Ton, senior manager of brand and program innovation at Walgreen Co. Collectively those users have clocked nearly 25 million miles, scoring more than 330 million rewards points, according to the Walgreens site.

Mr. Ton added Walgreens is not planning to use data from the Steps program for marketing purposes "immediately or potentially ever."

Top line earnings aren't enough to determine the impact of the loyalty effort, especially as these programs improve with time and data. However, for the period ending Aug. 31, Walgreen Co. reported total comparable store sales rose 4.6%, and though customer traffic in comparable stores dropped around 2%, basket size grew 3.6%.

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