Consumer surveys that tell you how satisfied pharmacy customers are with the service they receive are rubbish, say Bruce Annabel and Mal Scrymgeour
Recently one of us commented that some aspects of our industry are at ‘sixes and sevens’.
If you are not familiar with that phrase, it means to be confused or lacking clarity. It’s an old English phrase that relates to a dispute between the Merchant Taylors and Skinners livery companies.
They were two trade associations who argued over their order of precedence for such trivial things as marching through the streets of London and seating in the hall for meals.
They were the forerunner of unions and started what has become a long tradition of arguing over both important and minor things. In order to keep the peace, the two groups decided to rotate their order of preference at these events every year.
Consequently, that led to confusion as to who was at six and who was at seven, hence the phrase referring to a confusion or lack of clarity. We’d argue that pharmacists who believe they are great at service are at sixes and sevens. Most struggle to define service and what sort of service customers want.
In the last month or so this lack of clarity has seen at least one pharmacist get himself into financial difficulty. Believing he was giving great service didn’t seem to work and when the crunch came he was not supported by the bank, his wholesaler, brand or anyone else and has ended up selling all his assets.
You could correctly argue that the pharmacist should have made decisions much earlier and not got into this predicament. His definition of service didn’t help. He thought lower prices (as suggested by the banner group) was good service.
At this point you could also argue that as a banner group member, the banner group should help. In fact, it brings into question what benefits a banner should bring to a business owner and who has what responsibilities.
A banner group does many things, but at the end of the day it doesn’t control service. You do. As we’ve said before, no one is coming. You are not at sixes and sevens about who is ultimately going to help – it’s just you. No one else makes the decisions. You do.
Given the challenges the industry faces what do you need to do to remain viable and profitable?
- Business basics:
- Do not over pay for your business.
- Manage your overheads. Tightly and closely.
- Contain and rapidly pay down borrowings. Less is better.
- Monitor performance daily.
- Market Position:
It’s this last point that we want to explore further.
Differentiate your service offer
Your primary options with differentiation are: Product, Price, Place, Promotions and People. If we are smart about it, we can combine these five elements into one word, Service.
Our definition of ‘service’ has both broad and narrow connotations. The broad definition of service is explained easily by considering an airline example. An airlines service involves: schedules, ease of checking in, cleanliness of the plane, quality of seating, in-flight entertainment, on time arrival, ingress and egress and the staff. The narrow sense of ‘service’ relates to that provided by staff that you experience at the airport and during the flight.
For pharmacy, the broad explanation of service is product, price, place, promotions and people. The narrow definition is what a customer experiences in store.
Chemist Warehouse is interesting because it focuses on a broad, process-driven mechanical style where ‘service’ is based on delivering to its customers location accessibility (highly visible and good car parking), wide product range, signage, lowest price, always being in stock and incredible consistency.
Behind the scenes their success is driven by scale, robust compliance, data and analytics that tell them what people want and, of course, immense clout in buying and logistics.
From the broadest perspective Chemist Warehouse provides a wonderful service aimed at saving its customers money. From the narrowest perspective, which may be what you are thinking, the staff ‘service’ provided is very process and efficiency oriented.
On the same competitive spectrum, you’ll also find supermarkets and online providers, particularly Amazon, who are the kings of convenience, range, delivery, technological innovation and most importantly data analytics used to continuously refine their offer. It’s not bad, it’s just different.
Put another way the success of these retailers is far more than just buying and selling stuff at a lower price and it’s here that traditional community pharmacy and banner groups mistakenly believe it’s all about price. It’s not.
Two of our biggest bug bears in traditional pharmacy are the highly questionable level of discounting and owners treating their talent pool, particularly pharmacists, as a cost, or liability, which is to be minimised to cover the lower margins. The position is exacerbated by some inappropriate merchandise ranging, product/price dominated catalogue advertising, clutter and lack of differentiation.
Yes, we also see the consumer surveys that conclude how satisfied customers are with the service they receive. We think it’s rubbish, because it obviously isn’t good enough.
Based on Pitcher Pharmacy Services data, traditional community pharmacy continues to experience falling customer visits, flat or declining script volumes and deteriorating retail section sundry department sales. This is precisely what our failed pharmacist (mentioned above) struggled with.
Having happy customers who don’t visit as frequently or spend as much when they do isn’t a recipe for success. Service relativities with other channels/formats are ignored in these surveys as are financial results inside a sector.
Convenience is crucial
With the massive changes in the pharmacy landscape, the reality is pharmacy now survives on location convenience, regulation, generic supplier discounts and a generous PBS remuneration. But, together these still provide a wonderful platform of opportunity to shift to the other side of the competitive spectrum—away from ‘service’ founded on discounting and towards staff ‘service’ defined as genuinely helping customers.
We continually bang on about service innovation and shine a light on those very few who are doing both broad and narrow ‘service’ well. Their fundamentals too are based on convenience, buying, PBS remuneration, but only as hygiene factors.
After that the concept of ‘service’ diverges significantly. Some, such as the new DDS focus on a health foods concept, extends ‘service’ to carrying a wide health food range, while the Priceline Pharmacy offers a specific front-of-store offer—both suited to a specific demographic.
We often highlight those who embrace ‘service’ broadly and most specifically those with a narrow ‘service’ definition constituting trained pharmacist professionals engaging patients (not assistants just being nice to customers), pricing reflective of the high-quality health solution service experience, and promotion aimed at communicating what the pharmacy stands for, not promotional product/price flyers.
In the past, this column has included case study data of several different pharmacies to support our proposition. And in case you missed it, the critical point is this: pharmacies who have moved across the invisible divide from product/price and irrelevant service to actually ‘winning on service’ are doing very well financially.
Many have much lower total sales than the bigger banner groups but they earn more net profit dollars and enjoy growing customer visits and script volumes.
Here’s a blunt statement of fact: pharmacies ‘winning on service’ generate high retail sale per patient and at a far higher margin $/customer of $17.89 and $7.87 respectively compared with traditional pharmacies who achieve $13.62 and $4.74 respectively.
The additional bottom line net profit for a pharmacy seeing 60,000 patient visits per annum benefits by $187,800 for no additional expense, (refer to our June 2018 column Core Strength). It’s worth noting that the two largest banner groups generate margin $/customer of $4.56 and $6.23 respectively.
These pharmacies ‘winning on service’ generate higher profit per transaction because they don’t rely on product/price and their margins reflect patients who pay for the solution/experience delivered.
Seven steps on the path to winning
We are mystified as to why pharmacy owners persist with many questionable activities. So here is a list of things you should seriously consider if you want to win on service:
- Avoid questionable discounting.
- Customers will pay for genuine ‘service’ from which they receive a valuable experience.
- Treat skilled employees as an asset and increase their proportion.
- Realise that ‘service’, assistants being nice to people while chemists accurately dispense a script, no longer cuts the mustard and is now very ‘me too’.
- Pharmacists present the best health solution service potential/opportunity and should persist with patient engagement. Engagement before transaction!
- Cut back on the sundry and loss making deteriorating categories.
- Innovate and invest in these aspects.
There is now a very large gap in the market because most of the industry now resides on the product/price side of the divide where they will always struggle. On the service side is an opportunity for a group or combination of aligned groups to build a national pharmacy offer that really does ‘win on service’.
Our observation is that most pharmacy owners find themselves at sixes and sevens regarding their service. It lacks clarity. Those with clarity are winning financially.
We suggest you define service like the winning pharmacies do, get the right team with the right training and implement with precision. Then you won’t be at sixes and sevens—you’ll be at number one. You’ll find that’s a nice place to be.