Drugstore.com's Lonczak wins marketing award

Chain Drug Review, Jan 5, 2009

BELLEVUE, Wash. -- Drugstore.com has changed from a survivor to a striver.

With doubts about its ability to endure erased, the past three years have brought a focus on long-term growth and prosperity.

All areas of the company contributed to building a successful transformation and marketing certainly has done its share. The marketing initiatives for the past two years have been led by vice president and chief marketing officer Dave Lonczak. For his part in fostering the ascendance of drugstore.com in online health and beauty retailing the editors of Chain Drug Review have named Lonczak the publication's 2008 Marketer of the Year.

Drugstore.com's marketing staff has contributed to consistent top-line growth in recent years. The company has outperformed the overall e-commerce sector, which itself has done much better than the brick-and-mortar industry. In the third quarter, for example, the company posted 10% sales growth, while online retailers overall rang up a 6% increase.

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Improved sales in the second quarter of 2006 translated into drugstore.com's first reported positive adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) quarter since the fourth quarter of 2003 and it has now reported 10 successive quarters of EBITDA profitability through the third quarter of 2008. The company has forecast generally accepted accounting principles (GAAP) profitability for the fourth quarter of 2008.

The marketing department has girded that success by bringing a new understanding of the lifetime value of customers. It has won over customers through free and paid search engines, comparison shopping sites, affiliate marketing and online advertising. "This company--and the marketing team in particular--has really stepped up in its sophistication and its competence in getting the most out of each of those channels," Lonczak says.

Meanwhile retention marketing has done much to keep new users coming back to the web site. The core of the e-tailer's retention marketing is its cash-back drugstore.com dollars loyalty program, which Lonczak says is "probably best in class."

Another core element of drugstore.com's marketing is promoting the ability to cross-shop. Visitors to Beauty.com seeking a prestige cosmetic or fragrance are a click away from buying everyday health and beauty items. The upshot is that drugstore.com is the online leader in the over-the-counter product arena, with supplements, beauty, health and other nonprescription products being the company's growth engine, says Lonczak.

There may be a few shoppers for a salon mousse who won't cross over to get aspirin, but Lonczak says the strength of drugstore.com is that it caters to the vast majority who have no qualms about simultaneously seeking indulgences and bargains. The analogous brick-and-mortar shopper may go to Nordstrom for a dress shirt and then drive to Wal-Mart for hand soap. Drugstore.com offers the equivalent of both choices without the drive. Put another way, the web site is a Duane Reade next to a Bloomingdale's makeup counter, with just an archway in between and the ability to put items from both destinations in the same cart.

"Most women have a favorite mass market makeup brand," says Lonczak. "They won't give up Maybelline or L'Oreal. Yet they'll buy other luxury brands. This puts all the items from two great sites into one bag with one checkout."

The web site's customer is not homogeneous, Lonczak says, "but she is consistent," In her mid- to upper 30s, she is buying based on needs ranging from treating herself to a new beauty item to getting basics. "Our value proposition is saving her time, giving her convenience, a wide selection and a terrific value and making sure she knows she gets cash back," he says.

The drugstore.com dollars 5% cash back program on every nonprescription purchase--with no membership fee or requirement to buy and carry a card--has been a key to drugstore.com's marketing success, says Lonczak.

"We were leaders in that well before the economy started to demand such programs," he says, noting that other online retailers are now imitating drugstore.com dollars.

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Drugstore.com also pioneered free shipping for orders over $25. With 44,000 SKUs to choose from, clearing that hurdle is no problem, he adds. "Most people who shop our site are going to brush their teeth, wash their hands, moisturize their skin, shampoo their hair and take a vitamin or two," he says, "so it's easy to get to $25."

Moreover some products under $25 always ship free, such as Centrum vitamins. "If we are able to ship a product efficiently we are happy to share the savings with our customers," says Lonczak.

Another distinction of drugstore.com has been online coupons. To make such coupons viable, the company tapped its systems expertise to prevent over-redemption. The e-tailer's success with coupons has shown how marketing and merchandising flexibility, combined with technology capabilities, can meet manufacturers' objectives while offering consumers value, Lonczak says.