Friday, September 5, 2008

CVS ExtraCare Loyalty Program

The CVS ExtraCare® program was introduced in 2001 to obtain advantage over competition (see Highbeam). Many praise the program (for example, Stocks blog), but I’m afraid someone let an 800 pound gorilla into the room that had been occupied by the more genteel Walgreens, the struggling Rite-Aid and CVS.

Walmart is now the third largest pharmacy chain behind CVS and Walgreens (see Rubins) and it is methodically attacking the revenue base of its competitors. The Associated press reports (see TulsaWorld) that Walmart is showing strong results. Bill Simon, CEO at Walmart reports that results at the end of each “phase” on the onslaught have been "exceeding our expectations."

One of its first attacks was on the cross-subsidizing actions of its competitors (reported by Larry Abrams), where these competitors charged more for certain generics to cover price competitions with other, popular drugs. Walmart offers $4 prescriptions on generic (see Retail Wire).

CVS alone was comfortable enough to stand pat. This may unwind. Walmart also offers three percent below cost on prescriptions (see Google) and over time this is pressuring already thin margins. Facing this kind of well orchestrated brutality will put CVS and its loyalty program to the test.

On a happier note, CVS gives a commitment to protect privacy of data collected - see CVS FAQ - showing the other important aspect of loyalty programs, information.

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