Will Balance Rewards live up to its name?

September 28, 2012

Walgreens, the nation’s largest drug chain, tries to recoup Express Scripts customers with a new loyalty program.

How many Express Scripts customers will come back to Walgreens, and how quickly?

That’s the key question for the nation’s largest drug chain, which ended its showdown with the PBM this summer after about seven months of declining traffic and sales. Without those pharmacy customers, Walgreens could be stellar at food and other front-end categories, but the numbers just weren’t there.

That was enough motivation for Walgreens to launch Balance Rewards, its new loyalty program, this month. CVS and Rite Aid have long had such programs, which frequently reward buyers with purchase discounts. CVS, in particular, e-mails coupons to members that save them 20% to 30% off of their next-visit purchases; it also issues coupons on cash register receipts based on what is bought, including food. In the mix too is Kroger, a loyalty leader with dunnhumbyUSA, which told analysts it aims to keep the pharmacy customers it picked up from Walgreens earlier this year.

Citi Research analyst Deborah Weinswig predicts Walgreens will recapture just 40% of the Express Scripts customers they lost—and maintains her sell rating on the stock.

Time will tell how aggressive Walgreens will be with its program, and how well it works. At first blush, however, The Lempert Report is disappointed by its lack of transparency and multiple conditions. A sample:  Members that don’t earn or redeem points for six straight months will forfeit all accumulated points. For active members, all points expire on a rolling 36-month basis. And it takes time to earn points that are worth dollars—40,000 points are worth $50 in rewards. The terms mention certain times when members earn 10 points per dollar spent. 

Circulars do highlight specific items that rack up points, but shoppers have to pay attention. A 24-pack of private-label bottled water for $2.99 earns 500 points. Yet they have to buy 24 rolls of Bounty paper towels to earn 5,000 points. And it is unclear if it is necessary to buy Coca-Cola cans at a hot price as part of a $15 purchase in order to earn 5,000 points. 

Some good aspects of the program are its availability at 7,900 Walgreens and Duane Reade stores, its online and mobile app access, and a hint of special promotions to come, such as a “Spend $30, Get 5,000 Points” ($5) promotion on September 25 and 26. In our view, Balance Rewards will need to grow up and be more compelling in order to excite traffic—especially after it forced millions of customers to fill their prescriptions elsewhere.