Pharmacies will never be able to get ahead without a real point of difference, writes John Cao
One lesson that I have taken away from watching the many episodes of Shark Tank, is that to remain relevant in the market place, you need to have a point of difference to your competitors—or as Robert Herjavec would say on Shark Tank, “what’s your secret sauce?”
As well as watching Shark Tank, I’ve been reading Customer Intimacy and Other Value Disciplines by Michael Treacy and Fred Wiersema. Treacy and Wiersema say there are three paths to market leadership:
- operational excellence;
- customer intimacy; and
- product leadership.
Chemist Warehouse is the market leader in operational excellence. They are able to offer products at the lowest cost with minimal difficulty or inconvenience to the customer.
They have an online website that leads the market, have positioned their stores in large spaces with relatively lower rent than their competitors, and operationally are a well-oiled machine.
They are incredibly difficult to compete with on price, as they probably have the lowest costs in the market place. So I constantly wonder why pharmacies are still trying to compete with them on price when they are the market leader and cannot be beaten.
Bruce Annabel asks the same question in his March column of the AJP, “Living in the ‘red ocean’”. Here Bruce makes some excellent points when he asks pharmacy: why the race to price?
At Mt Hawthorn Community Pharmacy—the Guild Pharmacy of the Year in Business Management—I realised two years ago that we could no longer continue the status quo and continue to discount our products to match or beat the discounters, due to our high overheads.
Our pharmacy is situated in a small community shopping centre, and we have two pharmacists and one intern pharmacist rostered on five days a week so there was no way that we could continue to try to compete on price when our overheads were significantly higher than the discounters.
We made the decision to cease catalogue advertising and de-banner from a national brand and become independent. This gave us the freedom to make swift changes to our business strategy and we have enjoyed double digit growth since then.
As Bruce mentions in his article, theoretically, by discounting the price of our products we are meant to sell more units to make up the lost gross profit margin and increase the gross profit dollars. In my experience a pharmacy never sells enough units to make up this discount, and all that happens is the pharmacy bleeds gross profit, while the suppliers make all the money.
Last year I noticed that the majority of the banners advertised discounted large pack sizes of generic antihistamines at the very beginning of allergy season. That a pharmacy would sell its “bread and butter” at little margin at the very start of allergy season when the customer would pay a fair price for good advice and a product to relieve their symptoms is ludicrous.
To make matters worse, because they advertised 50 and 100 pack sizes, there is a good chance you wouldn’t see those patients again until the next allergy season!
If your prices are higher than your competitors’, you have to offer your customers more value. You need to be able to offer a level of “customer intimacy” that is superior in the marketplace.
When any patient comes into Mt Hawthorn Community Pharmacy asking for a product or wants something to treat their condition, our staff make sure they understand their symptoms and recommend all the appropriate products to them.
They will always leave with a solution to their health needs.
It is much harder for a customer to compare the price of one product from our pharmacy to another, because instead, our pharmacy solved their problem with a number of products and therein lies the value. Customers visit our pharmacy thinking they know what they want, but always leave with everything they need.
The final way to lead the market is with product leadership. The last product community pharmacy truly innovated the market with was Tony Ferguson.
It was a product that solved a significant health problem and was highly effective. It contributed a significant financial benefit to the Terry White Chemists at the time, and is probably the most successful health program pharmacy ever implemented.
I believe the next innovative product is around the corner, and it will be a professional service that fulfills a community health need, is highly effective and will be administered by pharmacists, one of the most trusted health professionals.
John Cao is the proprietor of the Mt Hawthorn Community Pharmacy, which won the Guild Pharmacy of the Year Award in Business Management 2016.