Marketing an undeniable difference

Drug Store News,  Oct 10, 2005  by Michael Johnsen

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Build a better mousetrap, price it competitively, merchandise-it well, and the world is quite likely to buy that mousetrap somewhere else. Trade a little quality for a lower price, or maybe buy 20 for the price of 19. It's no different whether it s mousetraps, groceries, even OTCs and cosmetics. Everybody sells what everybody else sells; it s an oft-repeated phrase in retail these days and one of biggest challenges facing drug chains today.

With more than 70 percent of its sales coming from the less-profitable pharmacy side of the business, CVS, like every other drug chain in America, has faced the cold, hard reality of creating a point of difference in its stores--an undeniable reason to have to shop CVS. It has been an inseparable piece of its core front-end merchandising strategy for the last several years. From its heightened focus on private label and exclusive brands to its ever-evolving Project Life store design--clearly, the envy of some of its competitors, given how many have since emerged with new-store formats that incorporate many of the elements that make Project Life different--to ExtraCare. Making itself different has been as much a focus at CVS as its oft-repeated corporate mission to be the easiest drug store in America.

Ironically, the difference for CVS lies in the most obvious place for a drug store chain: health care. Everything CVS does at the front end of its stores complements the engine that drives the machine. It all begins with pharmacy. Roughly 8-of-10 shopping trips to CVS are health-related; more than 40 percent of its front-store sales are generated by the OTC category, which delivers the highest profit per square foot of any of CVS' core front-end businesses.

By making sure that the pharmacy customer wants for nothing--that everything she expects to be in the store is where she expects to find it in the store, that it's easy to Fred, and it s priced competitively. That goes the same for mousetraps as much as OTCs, cosmetics, photo or food.

CVS' female-focused Project Life store lowers gondolas to a height that the average 5'4" woman can see over and features a winding main-drive aisle that leads right to pharmacy. Color packages and lifestyle signage have been tweaked continually since the first prototype opened in 2001, to appeal more and more to the female shopper.

Of course, another of CVS key differentiators is the ExtraCare program, which with more than 50 million members is quite likely the most comprehensive loyalty card program in retail. More than 60 percent of CVS front-end sales are rung up through an ExtraCare card.

But the biggest win for CVS is the wealth of data it has collected on its best customers. "We know the customers who are coming into our store to buy beauty, but aren't buying OTCs," CVS chairman, president and chief executive officer Tom Ryan noted last month at a Goldman Sachs investors' conference. "We know who's coming in for photo, but not using the pharmacy, and we can target [those customers] with special mailings and customized offers. It s not laser-like, but certainly we can target our best customers."

The ability to tap into that data has attracted a great deal of attention from the supplier community. While it is unclear exactly how much, what is clear is that CVS vendor partners are handing a rising percentage of the chain's marketing initiatives through ExtraCare, and they certainly helped pay the freight on the Eckerd integration. "Manufacturers are all over it," Ryan explained, noting a special online portal where CVS' "best suppliers are going into, getting information and using it to market their brands more effectively. ... At the end of the day, these [companies] are just putting their dollars with [retailers] that can move product--and we move a lot of product. We move more product than Eckerd did; we move more product than Revco did."

Another application for ExtraCare could be helping CVS get closer to its Hispanic customers, particularly in the Florida and Texas markets in which it now finds itself a major player in the, wake of the Eckerd deal. "We look for CVS to increasingly target the fast-growing Hispanic market with more creative product offerings, merchandising and marketing," wrote Merrill Lynch analyst Patricia Baker in a recent research note. The chain's expansion in Southern California also affords CVS a growing number of opportunities to reach the Latino shoppers in those markets.

ExtraCare not only provides the insight that helps CVS identify profitable promotions, but also helps generate a future CVS trip. And it is bringing together its partners in creative ways that appeal to important customers. For example, CVS' Sept. 25 circular featured a full page devoted to its exclusive Lumene skin care line: Buy $20 worth of Lumene products, and receive a one-year subscription to Allure beauty magazine plus $10 in ExtraBucks that can be used on the customer's next trip.