July 10, 2003, 12:00 AM

Drugstore.com’s loyalty program sheds light on what sells with what

When Drugstore offers discounts based on what history suggests one of its shoppers might like in its Diamond Deals program, sales go up. For new products, the discounts provide something else: exposure.

Drugstore.com experimented with a variety of promotions and offers before institutionalizing a personalized special deal offer, Diamond Deals, on its web site late last year. And several months of seeing how customers react to the offer has given it fresh insight into merchandising its products online, says Ramer Holtan, Drugstore’s manager of customer retention.


The Diamond Deals, one element of Drugstore’s customer loyalty program, presents a registered customer with a personalized grouping of six products in which Drugstore’s algorithms indicate the customer might be interested based on past behavior on the site. Customers can apply a dollars-off discount – the size of the discount varies weekly, as does the product mix in the selection - to one of the six items.


Drugstore experiments with different types of products to include in the Diamond Deals, and has a list of possibilities, ranging from the most personalized product – one that replenishes something the consumer has purchased before – to products that have no relationship to anything they’ve bought before.


“We’ve experimented with putting some of those new products in the six Diamond Deals – because this is also an area where we can introduce customers to different parts of our store,” says Holtan. It’s clear that the more relevant and personalized the product is, the better the response. “When the proportion of products in a customer’s Diamond Deals is more heavily weighted toward products they’ve bought before, or products that are related to them, the response is much better than when it’s more weighted toward products we just want them to see,” he says.


But though conversions on those less-related products may be lower, Holtan says that doesn’t necessarily mean they don’t belong in a customer’s Diamond Deals selection. The promotion gains new and new-to-the consumer products high exposure, as it’s a heavily visited area of the site. “If you’re looking just for eyes on new products and new product categories, it’s a good place for them to be,” he says. “In that case, we have to put them there with the knowledge that we are trying to accomplish something different. I`d liken it to the difference between direct response marketing and branding. You don’t expect brand-building advertising to pay for itself immediately.”

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