CVS Launches an Amazonesque Membership Program. Will it Succeed or Fail?
Earlier this week, CVS made headlines when they announced the nationwide expansion of their CarePass program. CarePass, like Amazon Prime, is a fee-based subscription service that offers free 1-2 day delivery on a variety of items. In the case of CVS, these will mostly be front-of-store CPG goods and medications – both prescribed and over-the-counter.
The service will cost consumers a $48 annual, or $5 monthly, fee. In addition to the delivery service, customers will also get a $10 monthly coupon, discounts on CVS-branded items, and access to a members-only pharmacy hotline.
Results from their pilot program were strong, with CarePass Members spending 15-20% more at CVS, so there’s reason for optimism, but the company will have to overcome some major hurdles in order to be successful with CarePass. Let’s take a look at three obstacles CVS can expect to face and three opportunities they might be able to seize.
We’ll start with the obstacles:
- Amazon is Entering the RX Game
Last year, Amazon.com acquired PillPack, an online pharmacy that ships prescriptions to 49 states. The move put immediate pressure on companies like CVS, Walgreens and Rite-Aid, who took a combined hit of about $13 billion in the stock market just after the announcement. With their consistently low prices, ever-increasing delivery speeds and a robust distribution network, Amazon is always the elephant in the room with anything related to eCommerce and logistics.
- Online Pharmacies are Already Stiff Competition
With nearly 300 legitimate online pharmacies in North America, competition is heated. Worth over $42.32 billion in 2018, this is a rapidly growing sector that is projected to grow to over $107 billion by 2025. CVS is playing it smart by launching a membership-based model to corner a segment of loyal customers here. The question is, how competitive will their pricing be? Lower prices are a strong driver for the growth of ePharma. Will CVS’s prices + membership fees make it a worthwhile investment for price shoppers?
- Delivery Speed
When it comes to the front-of-store goods, delivery speed is a huge potential challenge. Competition for speed is coming from every direction, with Amazon offering same day and free next day delivery, Walmart introducing next day delivery, and the surging growth of the buy-online-pickup-in-store model. CVS has long thrived on selling goods that are of relatively urgent need, as opposed to stock-up items. One has to wonder if two-days is too long of a cycle to mesh with many of their core offerings, when the competition is offering options that are quicker.
With that said, here are three opportunities CVS might be able to seize with their CarePass program.
- Shortening the Purchase Cycle
According to Numerator’s Retailer Snapshot the average purchase cycle for CVS is 57.7 days. CarePass has been built with some mechanics that are designed to shorten that cycle. The program includes a $10 coupon for members every month, which will no doubt incentivize some shoppers to hop online for another shopping session. Amazon Prime has also done well to establish the frequency potential for membership-based eCommerce programs. According to Statista, 49% of Amazon Prime customers make an Amazon purchase at least once a week. For non-prime members, that number drops to just 13%. If CVS can tap even a fraction of that potential, CarePass will be a huge success.
- Increasing the Basket Size
The aforementioned Numerator study also found the average basket size to be 4.2 items ringing up at $18.00. During the pilot program, CVS found members spent 15-20% more, enough to easily offset the additional costs of shipping and promotions associated with the program. If these kinds of numbers can hold steady as the program rolls out nationwide, the average basket size will increase by nearly a full item for CarePass members vs. non-members. A very nice success story.
- Tapping into a Younger Customer Base
CVS is facing an aging customer base and needs to find inroads with younger customers. The company was surely pleased to see 20% of enrollees during their pilot program were millennials. Millennials are the largest generation in the U.S. with over 75 million people, making up about 23% of the population. Building a robust eCommerce platform like CarePass appears to be one of the inroads they were looking for, based on early results.
What do you think about CVS’s CarePass program? Will membership-based eCommerce programs be the new norm for similar retailers? Will they be able to compete with the speed of the mega retailers? We’d love to hear what you think. Sound off on social media now and join the conversation.