Podcast | Multichannel Retail Pharmacy, with Tom Block and Mariana Nunes

With Tom Block, Mariana Nunes,
15 December '22

Tom Block (00:12) Welcome everyone to this dunnhumby podcast series, about the importance of putting your customers first, whatever type of retail setting you operate in. My name is Tom Block, who together with my colleagues, David Clements and Adrian Newson, host a series of podcasts with experts across many different facets of retail disciplines and merchandising, marketing and operations. In our conversations with featured guests, we endeavor to bring a customer focused perspective through practical examples, techniques, and lessons for retailers and brands, as we navigate the ever-changing retail and supplier landscape.

Today, we are speaking with Mariana Nunes, our resident data science expert in retail pharmacy customer behavior, which from the perspective of Dunnhumby contains equal parts analytical capability, and a strong business understanding of the pharmacy sector. Hi Mari, welcome and thank you for joining us.

Mariana Nunes (01:07): Thank you. I’m very happy to be here.


The new multi-channel customer is not the old digital only one


Tom Block (01:09): For today’s session, we’re going to be focusing specifically on the multi-channel retail pharmacy customer, and their evolving behavior that has been defined by technological advancement, and then very much accelerated by the global pandemic. And depending on the market, embodying a competitive cornerstone, reliant on physically convenient locations. With the digitisation of retail, and retail pharmacy specifically, this historic competitive advantage has eroded. Can you shed some light, Mari, on what’s been happening?

Mariana Nunes (01:42): Of course, but let’s provide some overview on what these digital customers look like. Digital is not new in retail pharmacy. It has been 25 years since the first sites went active, and mobile also exists for a very long time. They used to be dominated by digital-only customers. It was a growing business, but minimal sales through 2020. We really started to see a shift for the two reasons stated above, improved technology such as app development, delivery options, and global impact of lockdowns with COVID. To that end, two things have become clear. The new multi-channel customer is not the old digital only one. Digital is now for the first time critical essential to the retail pharmacy business. And understanding these multi-channel customers, must be viewed with great priority to ensure future competitiveness in this space. Traditional ecommerce only customers spend 50% less than averaging store shopper. They typically look for very specific items, or specific deals, resulting in low frequency and generally non-loyal customers.

Tom Block (02:53): It’s very interesting, Mari, for these older kind of traditional ecommerce only customers, what have been the types of items that they’ve been very much interested in purchasing?

Mariana Nunes (03:03): Many of these purchases have been items that take on personal nature, such as incontinence. Or larger items, there are single purchase solutions such as home care. Multi-channel customers, first and foremost, these are extremely valuable customers. They spend on average 3.5 times more than traditional in-store only shoppers. They’re also multi-channel in a very real sense. 75% of their transactions are still in-store purchases. This does make sense, as nearly 90% of multi-channel customers, were existing in-store only customers before they began to engage with that retailer in a digital and physical sense. While likely there are few items purchase, that jumped from in-store to online, the overall spend points to conclusively to incremented purchasing, as their in-store spending remains consistent regardless of online engagement levels. Overall, in-store frequency increases, which combined with 30% higher spent per trip online, generates very valuable customers across both channels.


Does digital engagement equal customer loyalty?


Tom Block (04:20): So, it sounds to me that once these customers become digitally engaged, they’re even more loyal to the retailer, or in this case the retail pharmacy, because they were existing customers. Now, they’re digitally engaged, and they’re visiting more, they’re buying more, much more so than they did before, from the pharmacy. Is that the case?

Mariana Nunes (04:41): Not exactly. There is a very strong watch-out with these multichannel customers. Typically, we have seen a stronger loyalty as customer increase their spend and frequency, which is what is happening as customer embrace the digital channel. The reality is, their affinity with digital is increasing engagement, but not necessarily loyalty. dunnhumby alters a unique customer insights reveal called Retailer Reference Index, or RPI for short. This survey reaches out to customers in over 20 countries, and helps provide a global perspective on customer perception in retail.

(05:23): One of the key findings related to our topic today, is that even though multi-channel customers are more valuable, they’re not necessarily more loyal. Multi-channel customers are wealthier, and therefore spend more money on retailers. However, they’re interacting with more retailers, and concentrating less of their spend in any one retail pharmacy. In fact, they visit nearly twice as many retailers per month than a single channel cost one. This new reality only serves to reinforce the necessity to drive your business in a customer focused manner, and ensure that your multi-channel proposition is laser focused to their needs.

Tom Block (06:06): So, really to recap these findings about these retail pharmacy customers, first of all, the digital customer is far more valuable than the original, either digital only customer, or in-store only customer. The great majority of these new multi-channel customers, were already very familiar with the chain. And so, it seems to be much more of a discussion around converting existing customers, versus trying to attract brand new multi-channel customers from the beginning, with the fact that it’s really about 90% of those customers being in-store before they became multi-channel. And the last part is that, despite the fact that they are becoming more valuable customers, this digital engagement is really changing their behaviour, and not just with this particular retailer, but in the way that they shop retailers, because they are spending more, but they are in fact less loyal. Which does generally make sense, because now competition is no longer the most convenient corner or a great physical location, it’s also very much just a swipe on a smartphone. So, given this new reality, Mari, what do you think are really the top priorities that a retailer should focus on?


Top priorities for retailers to focus on


Mariana Nunes (07:16): Well first, it must be clear how multi-channel customers are shopping. There are six possible ways of engaging. Five of them being online. To best describe, we need to break down the retailer experience in the same way that customers have done in this new environment. Some are familiar channels, such as in-store purchase. Some are very new, such as operators, like Instacart. Those we’ll focus on, are the digitally enabled internal options. They’re the combination of app and web, for selection and purchase, and delivery and click and collect for fulfillment. These channels are the most prevalent in driving the business, and luckily the new contact points most under the control of the retailer.

(08:04): Once a customer moves to a multi-channel engagement, they typically find their preferred method, and stay with them. The preferred method is a combination of app purchase, and click and collect fulfillment, chosen by 46% of multi-channel customers. This group has both higher span and frequency than customers using the only single combination. Their online span is actually the lowest within the combination, but it’s made up by additional purchases in store. As such, app purchase and click and collect fulfillment customers, are the most valuable actually due to their in-store behavior. Despite the in-store tenure with the retailer pharmacy, the use of click and collect begins to clearly evolve their spend, as 30% incremental growth is measured by the third month after the first click and collect transaction.

(08:58): Finally, there is also a product and price difference between the digital and in-store purchases, as online purchases are consistently more expensive items. Click and collect is a strong feature to drive increase in spend and frequency, as their customers are more frequent shopper, buy more expensive items online, and purchase incremental items when picking up.


Retailers must serve the new and expanded expectations of their customers


Tom Block (09:27): So, what we’re really seeing is a major change in that customer connection, as they adopt more channels to interact with the retail pharmacy. Increased frequency and spend increase on the online side as expected, but also very much in-store. And the shopping missions are evolving, depending on the channels that they’re using. Yet, despite all of this, the loyalty that they have to a given retail pharmacy, is actually dropping. Given this fact, hugely valuable customers, adding different types of shopping missions depending on the channel, what else do you really feel can be done or the retailers and potentially their supplier partners should focus on, in order to be in that best possible place, both physically and digitally.

Mariana Nunes (10:12): Retailers must understand how to best serve the new and expanded expectations of their customers. Moving the levers of channel engagement, we require the insights around which to move, how much, and for what individuals. So, what multi-channel customers are shopping? As we said, customers are buying differently depending on the channels. Category such as baby and medical equipment, are premeditated and considerate purchases, resulting in strong digital sales. While first aid and beauty, are an acute need, or more experiential purchase, and is still predominantly purchased offline. And how much they’re paying. Multi-channel customers are less price sensitive. At an initial level, these customers register as 20% less price sensitive than a typical customer, and align 15% more to save and splurge. That would indicate a strong opportunity to potentially raise prices. And increase margin, with little impact on customer purchases. However, customers use different channels for different missions. And as a result, they have different price sensitivities, depending on what is purchased, and how it is purchased.

(11:33): Usually, they purchase more expensive items online, but pay 20% less than they would have paid in-store for the same item. As a consequence, products that compose price perception for multi-channel customers, can be different than a typical store-only customer. To best identify the right products for multi-channel KVI, the sensitivity needs to be reviewed separately, for in-store and online purchases. If behavior is sensitive to either channel, it must be accounted for. Therefore, when comparing whole retail KVI list to multichannel KVI list, we perceive again in importance of a few categories, such as baby, vitamins, and skincare. Over other categories such as First Aid. In applying a customer first approach, we would recommend that pricing should be consistent for those customers across the channels, in order to reinforce the trust and encourage a stronger relationship with those most important customers.


A very digitally decentralised environment


Tom Block (12:41): And just a note on that, even though it is a much smaller typically assortment set than maybe what you would see in a grocery chain, customers are still very much in tune to those key value items, those KVIs, that really shapes their perception of whether or not there is a lot of value with a given retail pharmacy. So still, very critical to have those key value items priced appropriately for those right customers, and making sure that there is that consistent approach across the channels. Extremely interesting.

(13:14): I think to just summarise, what we’re seeing is that the customers in retail pharmacy, even though it may have started as much more of a convenience type of business, are continuing to evolve dramatically, and digital is playing a key part in that. And what we’re seeing is that, that redefinition of the customer behaviour, enabled by the digital technological advancements, is also creating a very digitally decentralised environment. Customers in this case now have much greater power and options on how they spend their time and their money, because it’s so much easier to look between various retailers, even inside and outside of the retail pharmacy sector specifically, and really spend their money and their time in the areas that really best fit their needs. And those needs are not only a solution, but it’s also that perspective of value, which is now so much easier to compare as people swipe between various applications.

(14:10): I think it’s key to call out here that both the retailers and their supplier partners, have the ability to really understand these customers through the analysis of their data and behaviors. Very much as you’ve just demonstrated here, during our podcast. Successfully doing so really sets them up for success in this new normal. The world has definitely changed over the course of the pandemic, when it comes to retail pharmacy. And digital is really playing a very central role in that change.

(14:37): That really sums up our discussion today. Very much like to thank Mari Nunes for her invaluable insights and recommendations, on how retailers and suppliers can look at their customers in this context, and some of the decisions that they can potentially take, to really position themselves for this new world. Certainly look forward to having you back again soon.

Tom Block (14:58): To everyone listening, thank you so much for your time. Please feel free to reach out to dunnhumby.com, with any questions on this topic matter, or any further information that you may have. This is your host, Tom Block. Thanks again, and speak soon.