Pharmacy retailers face a quickly changing landscape. All of the major players are attempting to determine what the next twist will be for the industry as the threat of new competition from Amazon (NASDAQ:AMZN) looms.
On Wednesday, CVS Health (NYSE:CVS) revealed its latest move to shape the future of retail pharmacy -- and defend its turf. The pharmacy giant announced that it was launching a new membership reward program called CarePass that promises extra benefits for customers who participate. But will CarePass also deliver rewards to investors?
The perks of membership
Don't expect CarePass to make a dent in CVS Health's financial performance for a while. The company is starting with a pilot program that only includes the Boston area. But if the pilot goes well, CVS Health likely will expand the program to other markets across the U.S.
Customers will pay $5 per month for CarePass membership if they choose to pay on a monthly basis. However, if they pay for a full year of membership, the cost will be discounted to $48. Are the perks of the reward program membership worth the cost? For many customers, the answer is likely to be a resounding "yes."
CVS Health will offer free delivery within one-to-two days on most prescriptions and purchases for CarePass members. This service will include qualifying prescription drugs and eligible purchases made on the company's website. Members also will receive a 20% discount on eligible CVS Health brand products purchased either in the company's stores or online. These eligible products include over-the-counter medications, vitamins and supplements, plus other personal-care items.
In addition, CarePass members will receive a $10 promotional reward each month. Members will be able to apply this reward to many items available in CVS Health stores or on CVS.com.
On top of these perks, CVS Health will offer CarePass members 24/7 access to a pharmacist helpline. This helpline will allow members to speak live with a pharmacist who can answer questions about their medications and point them to other healthcare resources and services that could help them.
Rewards for investors, too?
CVS Health's current ExtraCare rewards program has already been a big hit. CVS Health also has been successful in capturing additional retail market share. CEO Larry Merlo stated in the company's Q2 call that CVS Health's retail market share increased 1.8% in the quarter, to 25.2%.
But Amazon is coming. The e-commerce-giant's acquisition of online pharmacy PillPack sent a warning shot that the established pharmacy chains should have heard loud and clear. While Walgreens Boots Alliance CEO Stefano Pessina has appeared to be dismissive of the threat from Amazon, CVS Health seems to be taking the entrance of a formidable new rival seriously.
The CarePass membership rewards program could prove to be a really smart move over the long run. Anything the company can do to retain customers and increase their spending on its products and services could help it fend off competition from Amazon, Walgreens, and others.
Of course, it remains to be seen how successful CarePass will be in the Boston market. The program's benefits should appeal to customers. So should its low price tag. But even if CarePass doesn't perform as well as hoped, it should provide critical information for CVS Health to develop a rewards program that can be successful for the company's customers -- and its investors.
CVS Health likes to say that it's "reinventing pharmacy." The new membership rewards program is just the latest example of how the company is shaking up the retail pharmacy world. CVS Health's pending acquisition of Aetna and the launch of telehealth services powered by Teladoc in its MinuteClinic walk-in clinics are other ways the company is attempting to reinvent pharmacy.
When the world changes rapidly, those who adapt are more likely to survive and thrive. Those who don't are likely to fade away. Whatever ultimately happens with the CarePass program, it's yet another sign that CVS Health intends to disrupt on its own terms in the face of external disruption. That's good news for the company's shareholders.