Three loyalty efforts started by Drugstore.com last November have had a tonic effect on revenue.
The online retailer's fourth quarter sales rose to $55 million, a 13% hike over the previous year, and average orders crept up from $67 to $71. And it did this while cutting its quarterly marketing and sales budget from $9.3 million in 2001 to $5 million.
Moreover, total year-to-date sales jumped from $145.3 million to $193.9 million, while marketing costs dropped from $36.2 million to $24.2 million.
Drugstore.com trimmed marketing spending by ending its reliance on contracts that were “big, prepaid deals” and moving toward “pay-for-performance” arrangements, according to Bob Barton, Drugstore.com's chief financial officer. By not renewing the deals, most of which expired during last year's second quarter, the company sliced acquisition costs from $50 per customer in 2001 to $28 in 2002, he said.
Barton's 2003 budget calls for attracting 900,000 to 1 million customers at $15 to $20 each. Last year Drugstore.com was able to pull in about 856,000 new shoppers.
These gains aren't necessarily all due to the new programs, but the signs are now “trending in a very positive direction,” said retention director Bonnie Preece.
The three efforts range in complexity. The most basic, Everyday Free Shipping, eliminates mailing fees for non-prescription orders over $49. As consumers fill their shopping carts, a red “countdown” mechanism displays how close they are to earning free shipping.
Then there is Drugstore.com Dollars, which provides a 5% credit on non-prescription purchases made during the quarter after the credits are earned. This feature was designed with the once-a-year shopper in mind: In the past, the company has seen holiday buyers rack up significant purchases during the fourth quarter and then disappear for 11 months.
“We had a little bit of feedback asking if customers could redeem points [during the same quarter they earned them],” Preece said. “But the goal was to bring them back. If I can increase their frequency by one visit, that's a huge win for me.”
Preece also has high hopes for stimulating first quarter visits with this incentive. Of the 1.6 million customers who made a purchase last year, some 320,000 did so during the first two weeks of the program.
The next and most sophisticated effort is Your Diamond Deal. Consumers are presented with a choice of one of six items every week, all heavily discounted.
These include products the consumer has previously bought and goods that relate to those items. For example, regular purchasers of bandages might be presented with a bottle of mercurochrome. The rest are a mix of top sellers and test items designed to demonstrate the breadth of the site's offerings to the consumer.
But Drugstore.com isn't simply pushing high-margin commodities through this program.
“We want to increase their frequency, not necessarily their margin,” Preece said. “It's not a clearance opportunity. It's meant to be personalized.”
The rules of the program state that consumers can take advantage of only one offer during a given week. The firm did this so it wouldn't give away the farm, and to spur repeat business.
“This was my first struggle — that [the one-offer-per-week limit] was going to make customers mad,” Preece said. “But we haven't gotten that feedback. They're happy to get one of them.”
As part of this program, Drugstore.com also records which items consumers have bought in the past and repeats these offers to participants, allowing one-click reordering. The company is trying to generate replenishment algorithms based on purchase patterns and volunteered household information, but it doesn't have a timetable for incorporating time-to-reorder mechanisms into communications with participants.
Your Diamond Deal participants also receive e-mails that feature one product, with an opportunity to click through to the site and view more. The e-mail also contains the number of points the customer has earned through Drugstore.com Dollars.
Drugstore.com doesn't have an umbrella term for its three loyalty efforts. Executives considered catch-alls such as Pot of Gold, but decided to focus on names that would immediately tell consumers what they were getting.
“We called [a test version] Your Weekly Deal, but we decided that was a little too clinical,” Preece said.
One of the challenges for the online drugstore was knowing what stimulates loyalty among its customers. Preece surmised that some customers are motivated by the convenience of online shopping, while others want the privacy of being able to shop at home.
The three new programs were initially described as a series of “long-term tests,” and Preece said the next evaluation will be after six months. But, she noted, “I am sure they will continue, [and we will add] modifications to make them better.”
One such modification might be a series of tiers designed to single out the marketer's best customers. Preece doubts that these people can be motivated to spend significantly more, but she feels such a program would reduce churn among such top purchasers.
Prescriptions for Success
| Program | Hard Benefits | Soft Benefits |
|---|---|---|
| Everyday Free Shipping | Free shipping on all orders over $49 | None |
| Drugstore.com Dollars | 5% discount on purchases made in next quarter | Record-keeping done by Drugstore.com and reflected at each visit |
| Your Diamond Deal | Deep discounts on a variety of relevant products | Demonstrated knowledge of customer purchases and desires, one-click shopping list |
