Jason & Scot Show Episode 123 Walgreens Sr. Director Luke Rauch

A weekly podcast with the latest e-commerce news and events. Episode 123 is an interview with Walgreens Sr. Director of Insights, Luke Rauch.

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Luke Rauch is the Sr. Director of Insights at Walgeens.  We caught up with Luke at the PathtoPurchase Summit, where he gave a key-note about how to success in the Age of Amazon..  We covered a variety of topics including:

  • Unique assortments and customer expereince
  • Loyalty Programs
  • Omni-Channel
  • Future of E-Commerce

Don’t forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.

Episode 123 of the Jason & Scot show was recorded on Monday, March 12, 2018.

New beta feature, Google Transcription:

 

Transcript

Jason:
[0:25] Welcome to the Jason and Scott show this episode is being recorded on Monday March 12th 2018 I’m your host Jason retailgeek.

Scot:
[0:37] Hey Jason and welcome back Jason Scott show listeners we are Live From the Past purchase Summit here so apologies are going to a lot more background noise and listen to it used to because we were literally in the spacious exhibit hall where they’re setting up and talking and everything.

[0:52] So think of it as super high-energy.

[0:54] We’re really excited we we’re here to pre-conference all about Amazon and different strategies there and one of the Keynotes was Luke broke he is the senior director of it us insights for Walgreens Andrew excited to have him on the show.

Luke:
[1:09] Thanks for having me.

Scot:
[1:10] Absolutely what would like to kind of using to this list start with kind of career paths and where how do you end up in this exciting world of insights.

Luke:
[1:20] Yeah so after.
A brief Tour of Duty out in the west coast where I surfed and did some other things fun in my life I went to business school and post business school got serious and joined Consulting,
I work for Deloitte Consulting in their strategy practice for about four and a half years where I focused on everything that I would consider Revenue accretion,
so I always tell people if you ask me to help you fix your supply chain I’m not the right guy but if you need,
growth I was the person that you could come and talk to did that again for about four and a half years and for a Litany of reasons both personal professional decide to make the jump over into,
Harvey industry side where I joined Walgreens.
I’m at Walgreens I am currently responsible for pricing for all eight thousand plus of our stores as well as format inside so all of the work that we do it around different you two formats does the insights work related to that,
and then more broadly R-value insights value strategy.

Scot:
[2:18] Brickell enjoy your talk you mentioned you had a brief stint at Amazon tell us more about that.

Luke:
[2:23] Yeah when I was in getting my MBA at Michigan I did my internship at Amazon so I spent a summer working and the Fulfillment side.
Helping them to build models to better predict utilization within their distribution centers as well as to look at product throughput and be able to make,
active analytics to pick what was going to flow in and out the fastest and ensure that we were moving that as close as we could to the Fulfillment centers.

Scot:
[2:51] Sounds like a pretty meaty 3-month engagement.

Luke:
[2:54] Yeah it was it was it was a fun project and you get to see how Amazon operated from the inside which some of the things I learned back then for example how they run meetings I’ve taken with me in my career center.

Scot:
[3:06] 6 pages of typed Pros no PowerPoint one pizza.

Jason:
[3:11] Going over very well at the Y.
The no power point rule.

Luke:
[3:14] No no I didn’t there many days where I wish that there was a no power point rule the funny thing though about about Amazon has a lot of folks still use PowerPoint to create Graphics in one night and then pasted them into their Word document.

[3:29] PowerPoint still exist just it’s a secondary tool there than a primary.

Scot:
[3:33] Awesome.

Jason:
[3:36] Yep so talk to you just gave today I really enjoyed it by the way but you kind of started things off with those.
Three big strategic pillars you can test me my my listening comprehension you talk a lot about assortment.
The value of oil tea program and overall omni-channel strategies where can you tell us a little bit about like what we would have taken away from those three if they had a chance to.

[4:03] Jonas today.

Luke:
[4:04] Yeah I mean from a Walgreens perspective we we are very focused on our missions to be at the the world’s most loved Health and Beauty retailer so we’re spending a lot of time energy enough for ensuring that we’ve got.
The right products in the right stores at the right prices for our customers a good example that I talked a lot about as a point of differentiation is,
the brands that we own so people forget we’re part of the Walgreens boots Alliance and it’s part of that where is cpg in addition to being a retailer,
and we saw a lot of high-end beauty products number 7 I’m sure you’ve seen before we don’t only sell it at Walgreens Victory sell at Target and other retailers as well so how do we take advantage of.
Product differentiation that we have in those areas to place up our stores the right stores to give a differentiated stuff to our customers.
Again in this market place particular where convenience is continuing to feel pressure and comedians is certainly an area that we still pray play really well we’re looking for other ways to differentiate with our customers and drive growth with the customers that we want to grow with.

Jason:
[5:07] And that was for taking you and dear to my heart because I talk a lot like when was common strategies brands have against Amazon is what I called the owned.
Product strategy and I always try to differentiate that from what people call private label cuz to me in private label was.
Exact same formulation is the national brand new marketing customer stumble across the the Walgreens brand of Ibuprofen when they come looking for the Advil.
But it feels like more and more all retailers are like designing differentiated products with their own formulation their own value prop for consumers.
Marketing the heck out of them and in your case even using alternative channels of distribution in addition to your own stores.

Luke:
[5:53] Yeah that’s right and I think you mentioned ibuprofen for us one of the concert is Cushing’s is you as a pharmacy,
think we have unique position in those areas even on the on the pharmacy side and an OTC medicine to have differentiation from a known brand so we’re continuing to look at that,
and number 7 and soap and glory and some of the beauty stuff that we’ve done our what I would say are the starting points for that domestically,
I will continue to be a focus and I agree with you a lot of other retailers are using the same thing is trying to compete with Amazon Walmart directly on price for the same product,
is a bit of an uphill battle but if you can create differentiated offerings that speak specifically to the customers that you want to engage with it could be a more viable path to growth.

Scot:
[6:38] Did.

[6:39] The title of your talk here is start with your reason for being kind of existential kind of a thing and Walgreens your you’re here today.
The gist of your talk was really helping people think through in today’s world is just so overwhelming when you’ve got Walmart and Amazon all these things happening you can’t beat them.

[7:00] Either this companies at their own game so you had some pretty good advice there maybe could summarize that for us and I’m sure every listeners struggles of that so kind of How to Think Through the strategy. I thought it was a good good piece.

Luke:
[7:12] It’s almost basic.

[7:14] Alex got business school blocking and tackling but making sure that everything you do is grounded in your corporate strategy your customer strategy your brand strategy and that,
as you’re making conscious decisions to invest in value in certain areas to invest in research and development other areas you’re doing it with an ion overall is a company who you are and who you want to be,
Austin what I see is retailers trying to compete on every single Dimension pick the dimensions with which you are differentiated.
And plus up on those as long as they’re lying to who you want to be and what you want to stand for and we know customers.
Well the way they engage with retailers continues to evolve and continues to be truly omni-channel they do build relationships with retailers and how do you build those relationships in a unique way that only you can do.
Rather than just trying to build the exact same relationship that Walmart has a Walmart has a very distinctive relationship with their customers and they stand for a very certain.
Why they stand for Value customers know they got a great price that’s the pillar,
that’s the product with a relationship is predicated upon that everybody can build that relationship off price and value so what are the dimensions that you can build a differentiated relationship with customers on.

Scot:
[8:32] Yet it seems like more and more of the people that are winning against the Walmart and Amazon service is one of them cuz it’s hard to Value stop cuz scale.

[8:41] Great Value so just looking recently it’s not fun because Amazon is a biologic things like diapers.com had a better service and kind of kicked off the subscription thing.
Zappa’s had better service returns one that’s kind of work more current is chewy where you know.
They really get to know people’s pets and would write handwritten notes and give her a call or if you had any interaction with them you know they knew you had a cat that was 8 years old kind of a thing.
You’re not going to get that from a company like Amazon.

[9:09] Car guys are talking about you know they want more and more machines interacting with humans and less people any other examples for both you guys you can think of books using those competitive lovers.

Luke:
[9:20] That tree one is such an interesting example of a building a deep relationship with your customer I saw as you an article the other day where someone had ordered food for a pet that passed away,
and not only did they refund the person’s cost with who but then then donated the food on behalf of the deceased animals,
I think that there are ways that you can build a deep relationship like that even in store so if you think about when someone walks into a Walgreens store.
The beauty advisors that we have in certain areas of the store can really be helpful in understanding the unique needs that you have that it’s hard to understand if you can’t look touch and feel and try the product.
And if you look at where some of the growth has been in Beauty for example it’s those High touch.
You can come in and have a makeover down and try and touch and feel that the product for yourself I think that that will continue to be a focal point for a lot of retailers Best Buy I mentioned in my presentation is another one that is completely differentiated on service so,
don’t sell you the product at a competitive price and in most cases there they’re priced to Amazon on the big-ticket items and then they’ll make their money on the setup.
And make their money on the service and I’ll bring someone into your house that makes it really easy for you to install that TV and have it look great that’s an area that only.
Best Buy can uniquely deliver on today.

Jason:
[10:43] Yeah and I I mean I think there’s some examples you think of like Stitch fix and it’s really about customer intimacy and knowing their customers better than anyone else another.
Amazon Amazon acquisition it smell like 8 years ago was you know they bought this flash daily deals.
I say boots and you know today we think of flash as kind of a little bit of a joke because you know most of them have been successful woot is still a successful profitable ongoing thing that Amazon’s been running for 8 years and what.

[11:16] What is the difference between woot and a lot of the now-defunct by cells is.
The really figured out who’s their core audience was and developed the right voice and curation for that audience and and likes or Discord.
A personal relationship with a particular Target segment and so I think that.

[11:37] That notion of getting to know the customer being the competitive differentiators being closer to the customer and being able to serve that you need customer.
That feels like all these other times we talked about really roll up to that.

Luke:
[11:50] Removing friction in pain points for customers I hate to use the old examples of uber and Tesla but you think about the pain points that were within those Industries,
it might not be building an intimate relationship in those cases but streamlining the process and streamline in the communications and taking the haggling out,
there are number of ways that folds continue to to differentiate and I think that builds a relationship with a customer if within that area Uber’s a great example making the transaction easier,
build a relationship with a customer it doesn’t have to be a deep personalized letter to the customer if there’s other ways that you can reduce friction and build a relationship.

Scot:
[12:31] And in your talk you gave folk kind of a little bit of a roadmap for developing a strategy I don’t know if you call it that but it was for D’s in there if I maybe talk to you a little bit of that.

Luke:
[12:41] He goes back to what I was saying earlier I think the first thing is just making sure you understand who you are and what you want to stand for and kind of defining the the.
Objectives that you have is a company from a customer and brand perspective and it’s making sure that you develop the capabilities that you need to support those,
that you think about as you want to go into the market and deploy that you’ve got the right operational configurations that you’ve got,
the right tools and Technologies to be able to support its it’s really mean it it sounds so General and generic I think what often happens as we get.

[13:15] 20 years into running a business 5 years into running a business and we can we forget about the bass.

[13:21] If you have permission to play in a certain area and you have a unique proposition within that certain area.
Then your investment should disproportionately funnel towards that area rather than having to worry about competing with Amazon at Walmart on price for example on every single thing that you sell.

Jason:
[13:38] When the topics that came up in your your talk today was omni-channel and you mentioned you have 8000 stores in the portfolio.
You want to talk a little bit about like where you see the stores being a true competitive advantage or differentiator.

Luke:
[13:54] If we we have some great Partnerships right now for example with FedEx where for folks that live in urban environments as an example where package theft is a real issue being able to have your package sent to the,
38 the local Walgreens and pick it up on your way home from work quick in and out you go to the photo desk and grab it and you’re out I think our location.
There’s there’s nobody that is closer to the customer from a physical location standpoint and Walgreens we are we are at 5,
minute walk or 10 minute drive from just about everyone in the United States and certainly as we could cheetah move forward on the Rite-Aid acquisition that will that gaple close close even more so how do we continue to take advantage of of that.
But give them a reason to come into the store with the products that we sell so you will will continue to look for Partnerships FedEx as an example will continue to look for other ways to get,
products to customers faster and more efficiently but will also look for ways to give them a reason to come into the store and reason for differentiation I think.
You know I talked about this on my on my chat earlier today but.
Convenience has been redefined Sabine close to everybody in and of itself is not enough anymore.
I’ll meet you around 5 to 7 years ago that wasn’t the case but now you’ve got Amazon Prime now delivering under 2 hours.
To enter north of 80 million people in the country that makes it really hard to compete solely on convenience.
Frost that goes back to how do you differentiate which was a big part of the the Ford easy you mentioned what are you differentiated on and then what are the products and services that you can build out that will cause somebody to make that extra trip to your store.

Jason:
[15:37] Yeah and I feel like that.

[15:41] A lot of people talk about the surprise quality and convenience trade off and it is interesting to me how the definition of all three of those is dramatically changing in the in the minds of the consumer.
There I still feel like a retailer that when I’m convenient convenience just can’t mean.

[15:58] Exclusively fast delivery anymore and that that brings me to the next topic I want to ask you about which is a little bit of grocery right like grocery one of the big convenience plays is.
Start a list management and saving your time shopping for all those those things is sort of redefining what convenience means.
I don’t think of Walgreens as a pure grocery retailer but I do have a.
Like a core part of your assortment that overlaps or are you guys thinking about.

[16:29] Sort of Auto replenishment than and you know how is consumers start to embrace digital grocery that might affect the customer experience at Walgreens.

Luke:
[16:37] Yes and we do we do have Auto replenishment not on the grocery side but it certainly it’s something that that were looking into.

[16:45] I see in and I should have Charter earlier today that show growth trajectories kind of across Health Beauty and,
and food and the reason everybody’s going after food is it hasn’t been as explosive on the growth but it’s just exploding so it’ll be something that will get you to look at again you asked a question earlier of,
are seen around our strategic advantage in our Geographic proximity so we’re always looking at are there ways to leverage that Geographic proximity,
in two categories that we already in existence and plus up or into a Json category so Groceries on the road map it’s something that we’re looking at there’s nothing.
Concrete that’s going to Market in the next month but it’s something they could choose to be on the road map that were looking at.

Scot:
[17:27] Another CB kind of woven to your your conversation was around loyalty.

[17:31] And it’s a listeners know that Jason has the most stars of all in the Starbucks loyalty program I hate project 8000 Stars.

[17:42] That’s when we’re all familiar with because you going to collect your stars and get your double star days in that kind of thing what are you.

[17:48] Where some does the spectrums of loyalty that you think about it and is a Fool’s errand or should people be investing in loyalty programs.

Luke:
[17:54] I think loyalty as a tool to better know your customer is going to continue to be an area that folks need to invest heavily in I mentioned earlier today if you were around.
Five seven years ago people find a kind of creepy when they get personalized recommendations personalized emails when their Facebook feed would pop up with an item that they just purchased a month ago now I think by March customers like that and expect.
And the only way that you’re going to learn that deep knowledge about your customers is to incentivize them to share their information with you and to be able to.
In a way that lets you build that personalized relationship so that you’ll continue to see loyalty as a.
As a as a vehicle that folks will double down on and you’re going to see more and more.

[18:41] Retailers using loyalty to personalize value some are doing it today but I would say,
and there’s a lot of Runway there and even depersonalize assortment so there’s a ton of Runway I think still for loyalty and lots of different ways that,
folks are going at the rewards and incentives side your Walgreens we use points some used dollars back others use stars as you mentioned there’s a number of ways to get at that I think you do need to figure out how,
your loyalty program is going back to the point where they’re unique.
From other loyalty programs and gives people an incentive to sign up and participate as an example I think value will continue to be based,
more on loyalty and personalization unless I’m Mass which makes loyalty programs critical in Port.

Jason:
[19:28] Yeah I might just curious about loyalty cuz it to me it feels like there’s this big Paradox like the.
The folks that have loyalty programs and do really well like it’s a huge competitive advantage and it goes directly to that goal of customer intimacy that we talked about earlier.

[19:46] Starbucks is very successful I think you might have the the like highest participation oil to Prague.

Luke:
[19:51] By numbers.

Jason:
[19:52] Yeah and all of retail so you’re certainly winning their.
But then there is also like all of these sort of negative stories that like consumers have loyalty fatigue and they won’t carry all these these cards with him and that uniform.

[20:08] The average wealthy program isn’t very effective and so I’m curious.

[20:12] Did you guys win a bunch of other people not win and loyalty because you you did execute better or added more value or was there something about just your core brand promise that made you more attracted to oil to use.
How do we decide who wins in dozen in loyalty.

Luke:
[20:29] The first thing is I think we’re moving away from an environment where you need to have a card to be in a loyalty program,
so I agree with you that there was fatigue around having to carry around a card we now know based on your credit card based on a number of other ways you transact Who You Are,
we don’t necessarily need you and I think in the future retailers are going to necessarily need you to type in a number.
To get your loyalty information you see some really interesting loyalty programs like spring and others who will just do it all on the basis of your credit card,
there is no number,
you link it to your credit card and when you use that credit card you accrue loyalty points will be big wins for loyalty in that the other thing I didn’t think of loyalty.
In a in a box which is its a number the unique number assigned to you that you accrue points for I would contend many ways Amazon Prime is a loyalty program.
It is.
Probably not by Common definition of a loyalty program what people think of because you aren’t accruing points but there are other benefits perks and things that you accrue,
as part of that program so part of it to will be,
how do you differentiate on service with your loyalty and it might not be the future floating might not be dollars back and might be serviced I might be speed of delivery and might be a number of other things but it will still be there and I think we will.

[21:53] Pretty quickly get away from an environment where you need to remember your number and remember your login we know who people are based on cookies we know people are based on the credit cards with which they transact.
Will get a lot more frictionless.

Jason:
[22:06] Yeah I know I’d I totally agree and in fact it’s Amazon absolutely I think is excellent welting.
We sometimes lose track of like what oil to even means like it doesn’t mean you earn points that means you’re more loyal and have a higher customer lifetime value one of my favorite loyalty features in Amazon is.
The dynamic card notification so you you put an item in in the car for five bucks you were willing to pay $5 you put it in the car to $5 the price drops before you check out an Amazon messages that price change to you and gives you.

[22:40] The the savings right in that they did that like especially knowing they’re losing money on that transaction that was pure gross margin they’re giving up.
In exchange for earning more trust in Oakley having more lifetime value in so I feel like those kinds of experiences that maybe aren’t even link to point it all are are part of the new definition of loyalty.

Luke:
[23:00] Definitely an in and it doesn’t mean you have to give the richest reward all the time or have the lowest price all the time you just have to be there in those moments that matter for the customer and make an impression on the customer to drive engineering a gender loyalty.

Jason:
[23:15] I just like having all those Starbucks Stars I usually forget to even redeem them for drinks.

Luke:
[23:19] I went to decaf coffee a year ago so I used to be big on the Starbucks program but unfortunately now I don’t get as much bang for the buck buying decaf.

Jason:
[23:27] Literally and figuratively.
The future of e-commerce it’s always interesting to me,
you know you’ve been on the Consulting side of fence we got to work with a wide variety of different clients now you’re in your actual practitioner and you have to take responsibility for the results which gives me a little bit of a rash to think about,
the weird do you think all this is going I give you if you were to put your Consulting hat back on are there are there like.
Particular changes that are coming down the pipe that you think everyone would be thinking about.

Luke:
[24:04] That’s a great question from my vantage point we’re already were already pretty far down the path of where at where at I think things are going you will see.
I believe continued blur lines between brick and mortar and digital and I think you’re going to see.
And you’re seeing some of this already an example would be more personalization where based off geolocation you walk into a store,
you can offer that’s unique to you for that very specific moment in time you’ll continue to see folks try to play on how do I use location and behavior.
To drive digital engagements that will be a way that I think will will continue to see plus. But your mobile isn’t going anywhere.
Online isn’t going anywhere I think brick and mortar will still play its role but the lines between them will continue to blur.

Jason:
[25:00] I want to touch on the mobile for a second cuz that’s another one where.
The stats are overwhelmed by whelming Lee favorable to mobile app so I can use mobile apps there’s much higher spending much better mobile conversion all these good things happen,

[25:16] It’s really hard to get users to use your Mobile app to the overwhelming majority of retailers that have a mobile app like.

[25:24] Doesn’t get downloaded or it only gets used once and so it feels like another one of these paradoxes if you can get it it’s really powerful but for a lot of people it’s not a good.
Good play in once again you guys are on the side of like having a lot of of loyal app users.

[25:41] Do you like do you think that’s going to continue to be a.

[25:45] I think we’re the biggest retailers are going to have that apps and no one else is going to failed you see me like blending of the web and app experiences.

Luke:
[25:52] I think some folks will back away from apps and just invest in pure mobile the only way that you’re going to,
driving option of an app is it is if you have a differentiated offer within the application so for us we’ve got skin refill by scan with an AR app,
so for all of our Pharmacy customers you pull up an app you scan your prescription couple clicks ready to go pick it up at the store that’s unique to the app that would be hard for us to duplicate.
On even a mobile website if you don’t have things like that I think you will see more more folks say.
I’m not going to invest in having an app people are coming to invest that in my mobile web infrastructure.
Which is where really the purchase finals going to flow through so I do think you’ll see traditional brick-and-mortar retailers who don’t have a point of differentiation within their app.
It’s your daddy and vest and apps and funnel all of that investment towards mobile just not from an application basis.

Scot:
[26:47] One follow-up on future of e-commerce so you sit.

[26:51] I’m in. Doing pricing you guys have 8000 stores and on how many skus that’s a big Matrix of things to price Jason talks a lot about Ai and machine learning do you think some point.

[27:01] Machine will do your job effectively or or do you think that there’s just a lot of hype around that and and you still need that human touch.

Luke:
[27:08] You and you always need everything is a bit bit of Art and Science but I do believe.
We have tools and most if not all retailer have tools that I would say border on artificial intelligence already machine based learning tools that help help help us companies make better decisions.
Yes I think you’ll continue to see a scaling down of the number of people required to your question to ask a cute pricing for example but you always need.
The art to Lairon on top of the science tonight from a value perspective I don’t foresee a scenario where where we fully replace,
the human element with artificial intelligence,
where I do think you’ll see artificial intelligence play a bigger role is things like hyper localization where we may say for a set of items across our stores we’re going to let the machines manager.
Because we know that we can drive a lot of efficiency out of pricing that a differential way across the stores and doing that on her own will cost way too much labor to do it so you I think you’ll see people plus up on.
I’m a I in in examples like that like how you hyper localized but it a macro level you still need the human touch and you still need the years of insights and Merchandising to be able to.
The broader strategy and make the bigger pricing and value decision.

Jason:
[28:31] We’re running up on time one last question I wanted to squeeze in there going back to Omni channel for second dimension part of your scope was customer insights and data I’ve always had this perception that.

[28:44] Traditional brick-and-mortar grew up without a lot of data like there’s point-of-sale data sales data.
Very little data about customer behavior in the store and then digital shopping grew up with highly instrumented granular data about those consumer Behavior so you know the digital marketers agonizing over things like conversion rate.
Most brick-and-mortar retailers you talk to him about their store conversion rate and they they they would look at you with.
A blank expression we’re now in at Euro when it is totally possible to collect all kinds of really insightful data about consumer behavior in the store.
Are you starting to see the business users take advantage of that and behave differently or we are most Broken Window guys still stuck in the soda old pair.

Luke:
[29:29] Yes I think people are starting to behave differently and take advantage of that and because we now can trace a customer all the way through their Journey from when they,
look at Walgreens on their mobile to an actually walk into the store and they ultimately make a purchase I think it’s impossible and foolish to not look at that data,
to make better decisions and as you figure out you know how you want to cost you your assortment I even set your stores being largest and the consumer Behavior,
the drives those decisions I would say all retailers all big successful retailers are using,
data now in-store the same way that data was used and has been used from The Last Five Years online.
And a lot of that is getting the technologies that we now have to understand customer Behavior through things like credit cards.
Things like website cookies Etc being able to trace that through you don’t have to back your questions early on low T have.
Have someone entering and punching their code to know what they’re doing and how they’re shopping there other ways to get at that.
And that will I think allow people to use that information to make better decisions and businesses are doing that.

Jason:
[30:31] Well that’s encouraging for the future and that’s going to be a great place to leave it because it’s happening again we’ve used up all our a lot of time.
But Lucas super grateful to you for taking the time to sit down with us today and share in the POV if folks have questions or want to continue the conversation or.
Welcome to jump on our Facebook page and will continue it there as always if you enjoy the show we sure appreciate you jumping on iTunes and giving us that 5-star review.

Scot:
[30:58] Thanks.

Luke:
[30:59] Thanks I appreciate it.

Jason:
[31:00] Until next time happy commercing.

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