drugstore.com, inc.

views updated

drugstore.com, inc.

411 108th Ave. NE, Ste. 1400
Bellevue, Washington 98004
USA
Telephone: (425) 372-3200
Fax: (425) 372-3800
Web site: www.drugstore.com

A VERY HEALTHY WAY TO SHOP CAMPAIGN

OVERVIEW

When drugstore.com launched its website in 1999, the competitors in the online-drugstore segment were primarily a site introduced that year by CVS, a traditional "brick-and-mortar" drugstore, as well as several "pure-play" Internet retailers (those with online stores only), including PlanetRx.com and Rx.com. By 2000 PlanetRx.com and Rx.com had closed their sites, drugstore giant Walgreens had introduced an online presence, and drugstore.com was growing, with reported revenues of $34.8 million its first year and nearly 724,000 unique visitors to its site in one month (February 2000). To drive business during its first year, drugstore.com spent $28.5 million on advertising created by ad agency McCann-Erickson. Despite its marketing efforts and growing consumer interest in the site, however, drugstore.com lost $115.8 million in 1999. Pushed by its partners—General Nutrition Center (GNC) and Rite Aid drugstores—drugstore.com dropped McCann-Erickson and signed on Fallon McElligott as its new agency in August 1999 (the agency shortened its name to Fallon in 2000).

To help establish drugstore.com as a force on the Internet as well as a solid alternative to traditional drugstores, to further increase brand identity, and to drive shoppers to drugstore.com's website, Fallon created a new marketing campaign for the e-tailer that began in March 2000. The $30 million campaign targeted drugstore.com's core customers, women aged 25 to 54. It included television and radio spots, print ads, and online advertising, all with the theme "A Very Healthy Way to Shop."

The campaign won a 2001 Bronze EFFIE Award and achieved its goals, increasing overall brand awareness by 48 percent and pushing the number of weekly visits to the site up 18 percent. Sales also increased, jumping to $110 million in 2000. But drugstore.com continued to operate in the red, losing more than $193 million in 2000. As part of its budget-cutting measures, drugstore.com canceled its campaign and eliminated all off-line media spending.

HISTORICAL CONTEXT

Drugstore.com hung out its virtual shingle in 1999 with the goal of providing consumers with first-rate pharmacy services and a wide selection of health, wellness, and beauty products not often available at traditional brick-and-mortar drugstores because of space limitations. Coupled with the variety of products was convenience; busy consumers could shop for what the company described as "drugstore stuff" from the comfort of their own home or office simply by logging onto the Internet. Partnerships with companies such as General Nutrition Center (GNC) and the Rite Aid drugstore chain helped drugstore.com expand its market reach. Within 13 months of drugstore.com's introduction the company announced that its one-millionth customer had shopped at the site. Chain Drug Review reported that, according to Peter Neupert, drugstore.com's CEO, by May 2000 more than two million Internet users were visiting drugstore.com's site each week.

Helping drive consumers to the new website was an advertising campaign created by the agency McCann-Erickson, Seattle. San Francisco-based Left Field Advertising, which had been responsible for all of drugstore.com's advertising prior to McCann-Erickson taking over off-line efforts, continued to handle drugstore.com's online advertising. Shortly after drugstore.com began its partnership with GNC and Rite Aid, McCann-Erickson lost the drugstore.com account based on complaints by the two chains that the advertising strategy touted online shopping at the expense of brick-and-mortar stores. Also, at the end of 1999 Left Field dropped the drugstore.com account. Drugstore.com moved quickly to find a new agency. After a four-week review the company named Minneapolis-based Fallon McElligott its new agency, with McCann-Erickson to be assigned work on a by-project basis.

Drugstore.com stipulated that Fallon McElligott (which became simply Fallon in 2000) needed to create the new branding campaign quickly, but the agency's president and creative director, David Lubars, said that Fallon was up to the speedy challenge the job posed. During an interview with Adweek, Lubars said, "All of these [dot-com] companies want to go fast. It's good for us as an agency to move quickly." And move quickly Fallon did. The agency was hired by drugstore.com in August 1999, and its first work for the online business—television spots with the tagline "Let the drugstore come to you"—broke that November. In March 2000 Fallon released a new campaign for the e-tailer themed "A Very Healthy Way to Shop."

TARGET MARKET

Drugstore.com's director of communications, Erik Moris, succinctly stated the company's target market during an interview with Advertising Age. "We're building this company around women," he said. Moris noted that even the use of a bathtub as the focal point of the marketing campaign specifically targeted women, because men took showers and not baths. Women 25 to 54 years old were drugstore.com's core audience. Additional studies identified head-of-household women, known as the family's gatekeeper, as a key target because they were the consumers who made decisions about what products to buy and where to shop for them. The campaign was designed as a way to show busy, working women how drugstore.com could help simplify their lives and give them more time for the things they enjoyed, including spending time with family and friends and simple pleasures such as bubble baths. The campaign also drove home the point that by shopping for their various non-grocery purchases, from prescriptions to cosmetics, on the drugstore.com website, they could reduce the number of weekly trips they made to a bricks-and-mortar drugstore.

THE CHARITABLE WING OF DRUGSTORE.COM

Founded in 1999, drugstore.com used 200,000 shares of its initial public offering (IPO) to create a nonprofit charitable organization, the drugstore.com Foundation. According to drugstore.com, the foundation "funds programs that facilitate emotional and economic self-sufficiency and improve the health, dignity and well-being of people in need." Its focus is on communities where drugstore.com has physical facilities.

The drugstore.com Foundation has donated money to numerous organizations, including Washington Women in Need, the AIDS Coalition of New Jersey, the American Red Cross, and National Meals on Wheels. Donations are selected by drugstore.com employees. For example, in 2001 an employee committee at drugstore.com's southern New Jersey distribution center donated $25,000 to three nonprofit organizations in the state: the Visually Impaired Co-Partners of Gloucester County, the Emmanuel Cancer Foundation, and the AIDS Coalition of Southern New Jersey.

COMPETITION

Since 1901, when pharmacist Charles R. Walgreen, Sr., opened his drugstore in Chicago, his business goal was always to provide customers what they needed at a good price. By 1910 Walgreen had two stores and a growing customer base. The business continued to expand and had reached 525 stores by 1929. Recognizing the value of advertising to reach customers, Walgreens (as the chain became known) relied on newspapers to carry its ads, but in 1931 the company launched the largest marketing campaign in its history. The effort cost $75,000 and included both print and broadcast advertising. In 2001 Walgreens was the number one drugstore chain in the United States, with $21.1 billion in sales. The company had 3,300 stores and projected opening a total of 425 new stores annually. The company was slow to become an e-tailer, however, falling behind the competition on the Internet. That changed when Walgreens went online in 2000. The launch of the new website, walgreens.com, was supported by a national marketing campaign designed to introduce consumers to Walgreens' new service and build online brand awareness. The campaign was created by Euro RSCG Tatham, Chicago, and included four television spots.

CVS opened its first store in Lowell, Massachusetts, in 1963, offering customers a selection of beauty items and over-the-counter health products. Pharmacies were added to the stores in 1963. By 1970 the chain had grown to 100 stores serving customers in the Northeast. The drugstore chain continued its expansion, and beginning in 1990 growth was driven by acquisitions. In 1990 CVS acquired the 500-store People Drug, which served the Mid-Atlantic states; in 1997 the Revco chain was purchased, adding an additional 2,552 stores in the Midwest and Southeast; and in 1998 Arbor Drugs, with 207 stores in Michigan, was acquired. In 1999 CVS paved the Internet highway for other brick-and-mortar drugstores when the chain became the first fully integrated online pharmacy in the United States. To help promote the new service, CVS signed a multimillion-dollar sponsorship agreement with Microsoft Corp.'s MSN.com. As part of the deal CVS agreed to advertise through the online company's network and to sponsor the MSN Health Channel, MSN WomenCentral's Health, and MSN Hotmail's Pharmacy Quicklink. In return, the Health & Wellness Channel of MSN's e-commerce site, eShop, offered links to CVS.com's various sections. Other marketing for CVS included newspaper circulars and television and radio spots with the tagline "Care that touches everyone, one at a time." The New York office of ad agency Bates USA was responsible for the company's television and radio spots, while print ads were created in-house by a CVS team.

MARKETING STRATEGY

Fallon's "A Very Healthy Way to Shop" campaign for drugstore.com quickly followed the agency's first effort for the health and beauty e-tailer, "Let the Drugstore Come to You," which was a series of television spots that broke during the 1999 holiday season. "A Very Healthy Way to Shop" was an expansion on drugstore.com's effort to establish brand identity, to position the online-only business as a preferred alternative to brick-and-mortar drugstores, and to drive consumers to shop at the site. The campaign began in March 2000 with television and radio spots, special sales promotions, and online advertising. The budget was estimated to be $30 million.

Precampaign research by Fallon identified key markets based on consumers' income, education level, and access to the Internet. Eight metropolitan areas where the campaign would be released were targeted: Boston, New York, Chicago, Denver, Seattle, San Francisco, Austin (Texas), and Washington, D.C. Research also noted that many women with an extra hour in their day would spend it taking a bath, which led to a continuation of Fallon's earlier work for drugstore.com that featured a woman soaking in a bathtub.

Television spots for the new campaign had the busy career woman back in her tub, where she made decisions, helped family and friends, and ordered health and beauty items from drugstore.com while she soaked in a bubble bath. In the first spot the woman was shown running a business meeting from her bathtub and helping one of her staff members by ordering necessary items from drugstore.com via her laptop computer, which was securely resting on a tray across the middle of the tub. A follow-up spot showed the woman chatting with her upset preteen daughter and again turning to her laptop to order products that would make her daughter feel better. The third spot in the series featured the woman hosting a cocktail party from the foamy comfort of her bathtub. The spots aired for the first time during the broadcast of the Academy Awards. Additional network programming during which spots aired included ratings giants Friends, ER, The West Wing, and The Late Show with David Letterman.

Radio spots followed a similar format and aired in the target cities on news/talk stations and on stations that played music ranging from adult contemporary to oldies, jazz, and classic country. Integrated online and off-line efforts included an alliance with Discovery Health Media, a multimedia company consisting of a health-information website (http://health.discovery.com) and the Discovery Health Channel, a new cable channel run by Discovery Communications. The agreement entailed placing drugstore.com advertisements on the Discovery Health website and running television spots not only on the Discovery Health Channel but also on other Discovery cable networks, such as the Learning Channel and the Travel Channel.

OUTCOME

Although drugstore.com's marketing campaign was funded with a limited budget, the effort successfully achieved the goals of increasing brand awareness, reaching its target consumers, and driving business to drugstore.com's website. According to Fallon, in the markets where radio and television spots aired, brand awareness was 52 percent higher than in markets where drugstore.com had not been promoted. Further, brand awareness overall increased to 48 percent in less than one year. Visits to drugstore.com's website increased significantly following the start of the campaign. Just over one year after opening its online business and within one month of the campaign's introduction, drugstore.com reported that it had reached its one-millionth unique paying customer. A review of online health and beauty retailers by Drug Store News noted that visits to drugstore.com's site increased 24 percent through June 2001 compared to the same period the previous year. In 2001 the "A Very Healthy Way to Shop" campaign won a Bronze EFFIE Award in the General Retail/Etail category. Despite the campaign's success and rapidly increasing sales, the company was losing money. In response to the mounting deficit, all off-line media spending was eliminated in July 2000, four months after the campaign began, cutting the total media expenditure to less than $20 million.