Last Thursday (June 28, 2018), Amazon bought Pill Pack…and in other news, Balance Rewards members can get 2,000 bonus points an Advil at Walgreens.

Amazon’s purchase of Pill Pack on Thursday sent Walgreen’s stock down 9.9% and CVS’ down 6.1%.  Why?  Walgreen’s and CVS’ high value and highly lucrative pharmacy customers are suddenly at risk.

Big drug store chains depend on the repeat business of pharmacy customers. Pharma anchors the business. Pharma customers are high value and high margin. Pharma is the entry point for the customer relationship and a means to cross-sell into other categories. Ever notice that the pharmacy is at the back of store? That’s not an accident.

Both Walgreens and CVS have highly effective loyalty programs—Balance Rewards and CVS Extra Care. Both programs use rewards and discounts to retain their customers and drive whole basket spending.

Amazon now has their gaze set squarely upon Walgreens and CVS highest value customers. With Pill Pack, Amazon will present a more compelling value proposition to attract and retain customers than points and rewards.

Pill Pack solves many fundamental customer experience issues. People don’t always refill their prescriptions, because it takes time to pick them up. People with chronic conditions have multiple prescriptions and maintaining the regimen is difficult. With multiple prescriptions neither the doctor nor the pharmacist thinks about coordinating the refill date so all the prescriptions can be refilled at the same time. Pill Pack solves all these problems.

My mom and dad have 14 prescriptions between them. My mom collects and uses her loyalty points on her prescriptions. She goes at least once a week to pick up a prescription. While delivery is an option, the delivery charge is 4.99 per prescription and there isn’t an easy mechanism for coordinating the dates into one delivery. All the phone calls and text messages informing her prescription is ready or needs to be refilled annoy and sometimes confuse her. Once a week my mom spends an hour or so, putting her and my dad’s pills into a pill tray, organizing them by AM/PM for each day of the week.

I told my mom about Pill Pack: “Mom what if you didn’t have to run to CVS twice a week? What if you didn’t have to organize the pills by day? What if instead once a month all your pills and dad’s pills came in box with all of them pre-packaged for each day AM and PM? What if it cost $4.99 a month for that delivery, free if you had an annual membership?

“Would you like that Mom?

“Oh that would be wonderful”. And she never said, “will I still get my points?”

CVS and Walgreens use their rewards programs to vest customers in their currency and prevent switching. Their programs build baskets and drive whole store behavior. “Double points on soap and shampoo…I’m here already to pick up my prescription and I need shampoo”. Most loyalty people would agree Walgreens and CVS have highly effective loyalty programs.

But rewards work at the margins. Rewards are what behavioral economists would consider “a nudge”. Rewards are a nudge. A  better experience is a shove. With Pill Pack, Amazon is poised to build a fundamentally better customer experience in the drug category. If Walgreens and CVS expect to employ rewards alone to counter Amazon Pill Pack, it will be like a cavalry facing tanks.

For decades, loyalty marketing has largely been about nudging customer behavior with points and rewards. That shouldn’t be diminished; points-based loyalty programs wouldn’t have become so ubiquitous if they weren’t effective at changing customer behaviors. But points are only a nudge.

The effectiveness of Balance Rewards and Extra Care to date is impressive. The programs are assets that Walgreens and CVS can employ to battle Amazon. But the Walgreen’s and CVS’ loyalty marketers will need to do more than nudge members with bonus points on Advil. A superior customer experience is a bigger loyalty lever than points.

This prescription goes for the loyalty industry in general.  There will always be a place in the loyalty marketer’s repertoire for points and nudges, but delivering a great customer experience like Pill Pack does is a shove, and a shove beats a nudge every time.