Walgreens tests lower prices, membership savings

Discussion
Photo: Walgreens
Apr 30, 2018
Tom Ryan

At 17 stores in the Gainesville, FL area, Walgreens is lowering prices across the board, cutting SKUs and introducing a membership program as part of a pilot program.

At the stores, prices have been lowered on more than 5,000 items across health and beauty, personal care, grocery and household items.

Under the Walgreens Plus program, consumers at those locations who pay a $20 annual fee receive an additional 20 percent off prices storewide — including on sale prices — and savings of up to 60 percent on prescriptions purchased. Walgreens Plus members also will have the option of free, same-day prescription delivery.

Drugstores have long battled perceptions over high pricing while competition is arriving in certain categories from Target’s small-format stores, Aldi, dollar stores and others.

“With lower every day prices and our new Walgreens Plus program, Walgreens is adding a modern approach to value and convenience to our long heritage of trusted local pharmacy expertise and service,” Walgreens chief marketing officer Adam Holyk said in a statement.

The stores will reduce SKU counts per store by at least 20 percent to improve navigation. Alex Gourlay, co-COO of Walgreens Boots Alliance and president of Walgreens, told Drug Store News, “People give drug stores roughly seven minutes [of their time]. If you can give them two minutes back, they’re really happy. And in the modern world, more people will order in advance. We’re trying to redefine modern convenience.”

The stores will also feature strategic collaborations to bring new services to customers:

  • Eight of the stores will feature Sprint Express shops to enable Walgreen shoppers to purchase mobile phones, switch to Sprint, update their service or pay their bill.
  • Walgreens’ package delivery strategic collaboration with FedEx will be extended through an expanded selection of packing and shipping supplies at the Gainesville stores. Customers currently can pick up and drop off packages at more than 7,500 Walgreens locations and have them held for up to five days.
  • Walgreens’ existing pilot with LabCorp supporting specimen collection will be expanded to 10 Florida locations, including four in Gainesville.

 

DISCUSSION QUESTIONS: Do Walgreens and its drugstore rivals need to become more price competitive? Which aspects of the Gainesville test do you think make the most sense?

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"Having customers put 'skin in the game' is a great way to solidify customer loyalty."
"Walgreens is aware that convenience plays a key role in why customers choose to shop with them."
"There are multiple loyalty drivers and price is not the most important anymore, even for a “drugstore.” WBA is increasingly more of a c-store ..."

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32 Comments on "Walgreens tests lower prices, membership savings"


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Art Suriano
BrainTrust

Walgreens is wise to take this approach. They have a tremendous opportunity to become the neighborhood store for many items and lowering their prices will make them the customer’s first choice. Adding Sprint, FedEx services, and other services will also give them a competitive edge. The opportunity for customers to save and find great convenience is a great way to market their business. No doubt they will be successful, and I would expect other competitors to follow.

Chris Petersen, PhD.
BrainTrust

No retailer is immune from competition from the rapidly evolving retail ecosystems which transcend traditional channel boundaries and product categories. Walgreens is wise to proactively respond with value and convenience that earns customer relationships with repeat visits based on more than just price.

The interesting side bar to the post is the list of the strategic collaborations in play in order to offer additional services and value beyond products and price. Expect to see more retail collaborations with partners like FedEx and Google as they too must rapidly scale services in order to compete and thrive in the race for end-to-end customer relationships across time and place.

Rich Kizer
BrainTrust

Brilliant. For years there has been a perception that items in drug stores are higher in price than most adjacent big box retailers in the market. That has created a deep perception with customers. This concept — for Walgreens to implement a membership/everyday better pricing program (20 percent off prices store-wide, including sale prices, and savings of up to 60 percent on prescriptions purchased) — is aggressive. It will get customer’s attention. And all for only $20? I can’t wait to see what their competitors do as a result.

Ian Percy
BrainTrust

I’ve already submitted my bit on this subject, Rich, but your comment triggered another thought. “Drug stores cost more” is a legacy-meme from way back when we thought they were staffed by credentialed professionals and were more medically-focused than your run-of-the-mill variety store. A real “pharmacy” in other words. But do people today really think of Walgreens as a “pharmaceutical store?” Given that I can get prescriptions filled and buy most OTC products in the same place I buy celery, I think “drugs stores” per se are doomed.

Rich Kizer
BrainTrust

Ian, thanks for your thoughts. I do strongly believe, and hear often, that common perception is that Walgreens is priced higher on shelf items than the big box stores. And yes, I do believe consumers think of Walgreens as a pharmaceutical store. That position has been a huge piece of their branding: “On the Corner of Happy and Healthy.” The pharmacy wars to secure new script business never lessens, because it draws customers consistently into the store. Drug stores doomed? I strongly don’t think so.

Ian Percy
BrainTrust

Your assessment is much more informed than mine, Rich. And probably because I’m a transplanted Canadian who’d never heard of Walgreens until moving to the US, it seemed more like a large convenience store than what I thought of as a drugstore. As I understand it, about 70% of Walgreens’ revenue is from script fulfillment so clearly it’s mostly a drugstore. You are right about pricing too. Here in AZ there was an online piece about Walgreens charging $198.80 for pills that cost just $14.87 at Costco.

Tom Dougherty
BrainTrust

I don’t think Walgreens has any choice in the matter. But the real issue facing Walgreens and all the pharmacy stores in the U.S. is having a brand that matters beyond the convenience of being on the right side of the street. They have almost no preference beyond that.

Want proof? How many different brands do you find on opposite sides of the same intersection? Point made.

Ian Percy
BrainTrust

Tom, your “on the right side of the street” comment is brilliantly obvious. Gets past all the BS to the bare truth. Immediately reminded me of the old saying “The attendance at your funeral will depend on the weather.” Sometimes we need to return to the simple constructs. Well said.

Lyle Bunn (Ph.D. Hon)
Guest

Increasing the relevance of the retailer is the key to success and so elements of the Walgreens testing that reduce friction at each stage of the shopper journey will show high rewards. Broad product selection is a friction point, as is the need to pick up in-store, but the newer territories of specimen collection, health monitoring and suitable medical advice or referral open opportunity for deep retailer loyalty.

Dick Seesel
BrainTrust

Walgreens has always treated its location strategy as its key competitive advantage, so that competitive prices take a back seat to convenience. But the definition of convenience is changing fast with the push by Amazon and other online players into health and HB&A categories.

The Walgreens team is also right about SKU reduction: There is too much variety and assortment in a typical store, making navigation next to impossible. (Even if you ask an associate where something is located, you might not get an answer.) Location-based convenience may be one thing, but finding a rat’s maze inside the store is quite another.

Dr. Stephen Needel
BrainTrust

You’ve got to love more value and convenience — unless the switch cuts out your favorite products. I have four Walgreens stores near me. Three of them are within a hundred yards of a FedEx location and two are across the street from a Sprint store. I’m not sure this is adding much convenience or value. Lower prices will add value.

Larry Negrich
BrainTrust

Amazon’s disclosure of 100 million members of Prime shows consumers are willing to pay a membership fee for solutions of value. Walgreens does have a unique value niche with same-day delivery of prescriptions. That in itself is worth the $20 membership fee. I wonder when consumers will reach their limit on paying membership fees to retailers?

Shep Hyken
BrainTrust

Walgreens has never been THE lowest price, but they have always been price competitive. Charging a small amount for membership that gets you substantial discounts is a way to get customers to become loyal. Typically, consumers who pay a fee for a membership program want to get their money’s worth, so they typically shop with the retailer they have invested in. Is $20 enough to get the consumer emotionally connected enough to make them loyal? And are the discounts enough to make the consumer want to be a member? Walgreens has offered up substantial discounts. This could work, but don’t think the competition won’t come up with their version of a membership program.

Neil Saunders
BrainTrust

Sharper pricing is sensible for drugstores, not least because perceived and actual higher prices deter many shoppers. The membership scheme also sounds good, especially for a $20 fee — through persuading people to initially sign up to this might be a challenge.

However, I maintain my view that the biggest problem with drugstores is that the store environment and general proposition just aren’t attractive enough. Walgreens is somewhat better than CVS, but it is still not a destination of choice for many consumers, despite it being very convenient.

Ben Ball
BrainTrust

The drug channel’s foray into c-store-like front-ends has not been the success most of us imagined it would. At one time I thought Walgreens had the lead in the drug chain race because of its more aggressive approach to the front-end. But high prices and the need to preserve margin got in the way, even as c-stores made a strategic pivot to prepared food. Now it seems CVS has staked out a higher ground as the health and wellness store.

As for Walgreens’ test, reducing SKUs to improve navigability sounds right. And so does lower prices. But the $20 membership fee hits a sour note. While we readily pay Costco and Prime for access to low prices and incremental benefits, that was their starting position. This move by Walgreens just feels like “OK, my prices are too high — so pay me $20 up front and I’ll lower them back to what they should be for you.”

Al McClain
Staff

Agree with you on the way the $20 fee sounds, Ben. It is an admission that their prices are too high, but they are not sure what to do about it. Also, many prescription plans force consumers to use either CVS OR Walgreens, taking away trips from the one that is not authorized. And, with the push by many plans to force consumers to get prescriptions by mail, it further reduces trips to the drug store.

Joel Goldstein
BrainTrust

Having customers put “skin in the game” is a great way to solidify customer loyalty. If they are building enough value into the $20 for the customers it is going to be evident by the success of the program. This may be an interesting new strategy by brick-and-mortar stores to fight against direct-to-customer marketing campaigns.

Charles Dimov
BrainTrust

Racing to the bottom line is not a worthy business plan. However, creating a loyalty program that sticks with the customer — that gets used and ultimately gets some consumer love — that’s another story. A 20 percent discount for a small barrier of a $20 annual fee is not bad. Walgreens will be smart to copy some of Amazon Prime’s tangential offerings — if they can. Is there some other non-price value that the Walgreens membership can bring to their loyalty members?

Ian Percy
BrainTrust

I just don’t understand why the only arrow in retail’s competitive quiver is to lower prices. Each time this comes up it makes headlines like it’s some new and insightful strategy.

Cutting back on SKUs makes sense. Years ago I consulted to a drugstore chain in Canada that had well over 300 brands of perfumes. They used to brag about that. However, most of them had been sitting on the shelf longer than anyone could remember. As I recall, somewhere around 10 percent of the brands were ever purchased.

It may be an old song, but I keep coming back to ACE Hardware whose strategy seems to be “provide knowledgeable service beyond expectation.” My trips to Home Depot “to save money” have been cut back by about 75 percent. I’m happy to pay more. And yes, ACE has a membership thing but I don’t bother with it. That’s not where the value is.

Tony Orlando
BrainTrust

To a point you are correct Ian, but with a million places to buy staple goods, Walgreens needs to get real on their high prices. Price is still king and for those who disagree, fine, but outside of some signature items, if you don’t have key items close to cost or even less they are going to collect dust, as there are 10 more stores within two miles that will sell them for less.

It is the reality of today. There will be more closures of business to weed out the over-stored landscape. This is the ugly truth about retail today, especially in rural areas, and staying sharp on value must be your mantra or you risk being a memory in your town. Also great service is a given, as no one will put up with a grouch waiting on them.

Dave Bruno
BrainTrust

Winning a price war with Amazon and Walmart will be tough. Adding value and removing friction from the prescription process is what will win the day for Walgreens. I love that they are offering same day prescription delivery, and I think adding new services is a winning idea, but I am not sure that shipping and mobile phone services are really the answer. Adding more health, fitness and nutrition services, including greater human expertise in the aisles, would seem to me to be be a better value to drug store shoppers and create a compelling reason to shop these stores. Heck, even pop-up shops within the store that are on-brand with their health beauty and fitness ethos would be a welcome addition and traffic driver.

Jasmine Glasheen
Staff

Walgreens is bringing back the friendly neighborhood general store concept and their efforts couldn’t be more timely. The Gainesville pilot is focused on upping the convenience factor, with reduced SKU counts and added strategic partnerships.

Walgreens is aware that convenience plays a key role in why customers choose to shop with them. After all, the company’s marketing slogan, “At the Corner of Healthy and Happy” reminds us of the company’s hyper-local locations, and expresses a nostalgia for physical stores.

Bottom line? The Gainesville pilot shows that Walgreens is working to remain relevant in the face of online competition.

Adrian Weidmann
BrainTrust

Walgreens is testing new and innovative strategies to leverage their physical presence. Adding additional relevant services to their shoppers helps them transform their store to a multi-dimensional destination where a shopper can get several things done from her to-do list rather than just focusing on her shopping list. A critical distinction and a real foreshadowing of the function of the next generation of store.

Steve Montgomery
BrainTrust

This sounds like a win for everyone except their competitors. Walgreens should gain new customers and additional loyalty for its current base. The $20 Walgreens Plus fee will provide a very quick return for its members especially those that do not belong to a health plan that covers prescriptions. It will be interesting to see if the SKU rationalization is limited to items other than their private labels.

Phil Rubin
BrainTrust
6 months 17 days ago

Another retailer doing something interesting, testing a fee-based membership proposition, and typical — focusing on discounts. The former is smart, especially where it includes value beyond discounting, such as saving time. The latter is going to be margin reducing and, unless there is enough incremental share shift, similarly unprofitable.

There are multiple loyalty drivers and price is not the most important anymore, even for a “drugstore.” WBA is increasingly more of a c-store with more CPGs and a pharmacy, so the time-savings value is ultimately a better focus than discounts. I’d be more bullish on WBA if it were focused elsewhere, including how it recognizes customers and makes it easy for them to get what they need/want.

Harley Feldman
BrainTrust

Not only is Walgreens trying lower prices, it is offering new and different services. They are trying to become a one shop drugstore, pharmacy and other services shopping experience. The fact that they are doing this in a 17 store pilot test is smart as they will learn what works and what does not.

The one area of caution is the SKU reduction. Once consumers are used to buying their favorite products in a store, it is hard to give them up when they are not on the shelf. Walmart tried this several years ago, and it cost them dearly. They brought most of the SKUs back to recover.

Cate Trotter
BrainTrust

I wonder how much loyalty customers feel towards brands like Walgreens. In that respect the new loyalty scheme seems like a good way to get people to come back — $20 is a very low charge for a year with significant price benefits. I’m sure those with regular prescription needs will also welcome it and it may help counter competition, especially from online brands. With Sprint, FedEx etc I wonder if they’re adding to many disparate services. There’s a danger of diluting what customers think Walgreens is there for — a jack of all trades but a master of none, maybe. I’m also not sure how unique those services are to be considered drivers of traffic.

James Tenser
BrainTrust
Walgreens’ test is fascinating and potentially disruptive. I’d add overdue, as well, since I’ve been mostly unimpressed by its Balance Rewards loyalty program. It could use a shot in the arm, IMO. There are so many moving parts to this that it’s hard to know where to begin. Start maybe with the stores’ many roles as pharmacy; healthcare destination; neighborhood convenience store; variety store; photo lab; and soon, private post office and mobile phone service center. Consider the role of price competition in a sector where many visits are driven by the choice of pharmacy, which is further directed by health plan membership. Would a $20 investment in membership influence those trip decisions much? Well, I guess that’s why it’s a test. I am in favor of tightening the assortment somewhat, as I perceive some very slow movers on the shelves. Plus you need to make room for the planned Sprint and FedEx counters. This should be done mindfully, as others here point out — it’s bad business to disappoint shoppers on key items. Some… Read more »
Georganne Bender
BrainTrust

Walgreens has been setting itself up as the “local” corner pharmacy for years. If you think about it, the Walgreens Plus program is really no different than joining a warehouse club or paying $25 for a B&N Membership to get a better pricing on books, plus bonuses.

Some Walgreens locations now have beautiful cosmetics sections that rival those in department stores. Adding specialty departments like Sprint Express shops, and a package delivery collaboration with FedEx, to an already strong pharmacy presence just makes sense. These conveniences make the store even more important to its customers.

Seth Nagle
BrainTrust

To a certain extent yes, but shoppers aren’t expecting EDLPs at drugstores. The opportunity for them is to create pricing that increases impulse purchases or at least encourages the shopper to walk down the aisle.

The membership discount pilot program is intriguing. I’d imagine there’s a lot of possibilities regarding the discounts. Walgreens has done some great things with their pharmacy services and I expect them to combine the two to maximize their value offering.

Ken Morris
BrainTrust

Drug stores are primarily selling commodity products (available at many stores, including online) that customers are not willing to purchase a premium prices, therefore, price is important. Since the product is the same as your competitors, you can only compete on price or service.

The $20 membership program is a compelling strategy, as the discounts are significant and make consumers ROI very fast. And Amazon, Costco and BJ’s have proven that membership programs are well accepted by consumers. The membership program is also a great way to improve customer loyalty.

I’m not sure how long Walgreens can offer this 20% discount but if they can drive membership, they don’t really need to make much margin on the product.

Javier Cazares
Guest

This strategy of providing a higher value and therefore better CX is right on point. Walgreens is focusing its efforts on capturing and providing value to an extended customer journey by offering additional services within its stores. If Walgreens is also able to find a way to extended such value to its customers by improving their health, make their time efficient and save money then other retail pharmacies on this similar format will follow. If this works out well, I can see big retailers like Walmart or Target building small-format pharmacy retail stores in the future.

wpDiscuz
Braintrust
"Having customers put 'skin in the game' is a great way to solidify customer loyalty."
"Walgreens is aware that convenience plays a key role in why customers choose to shop with them."
"There are multiple loyalty drivers and price is not the most important anymore, even for a “drugstore.” WBA is increasingly more of a c-store ..."

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