The headwinds facing Australia’s retail pharmacy sector reflect many of the hurdles experienced by the wider domestic retail market.
Market share and profits are being eroded by new competition, category expansion by the major supermarkets, white label products commoditising generic products and online specialists.
Over recent years, government policy has accelerated the changes to the traditional pharmacy landscape.
The warning signs are clear:
- Increased price competition – many pharmacies are being forced to cut prices to attract customers, squeezing margins and creating a cycle of discounting that is hard to break.
- Commoditisation of products – improved understanding of product quality has made it easier for customers to switch to lower price generic brands.
- Industry consolidation – small pharmacies find it difficult to adapt their business model to the changing market conditions and become targets for the larger groups looking to gain economies of scale, reach and capability.
To excel and win in these changing conditions, the best practice retail pharmacies are gaining unique insights through analytics. They are leveraging proprietary and public data to better understand the needs of their customers. This valuable information allows pharmacies to adjust their product range and marketing strategies to drive financial performance.
To really take advantage of customer insights in retail pharmacies, we believe a two-pronged approach is necessary.
The first step involves understanding the nature of a pharmacy’s unique relationship with its customers, physician providers (prescriptions) and pharmaceutical suppliers. Examining the repetitive patterns of purchase behaviour can reveal a great deal about this triangular dynamic.
The second step is understanding the ease and transparency in which market supply can meet demand.
A pharmacy owner often has a large amount of quality information that if analysed and used correctly, can deliver fast gains and added advantage. In a market with inherent market-price volatility and asymmetries of information between buyers and sellers, understanding the customer can be the biggest gain.
Best practice pharmacies are developing ‘Price Bands’ using price elasticity modelling. In addition these pharmacies have developed insight- strategies based on analytics, which allow for a deep understanding of:
- Customer behaviour by customer segment. This includes how each segment responds to specific price-points during various seasons of the year (cold/flu, allergy, sporting activities, holidays, travel etc.).
- Customer traffic flow patterns. Analytics can help pharmacists understand how people movements, social activities, the number of patients with chronic diseases and physician practicing in the area affect customer visiting patterns.
- Pricing parameters across ethical, middle and front of store product ranges.
- Optimal product range assortment according to customer needs, demographics and on- demand.
Pharmacies can now adapt to changing market conditions, leaving the legacy business model and its competition behind. Whether the business is a specialty pharmacy (a premium player) or a discount chemist, the opportunity to improve performance is significant.
We believe using analytics can help pharmacies gain unique customer insights to re-tool their business. Implementing these changes will help deliver more agility and mastery of customer signals, allowing pharmacies to improve their strategic positioning.
By adopting an analytics methodology, pharmacies can re-segment their businesses by product type, customer catchment area and understanding of physician provider patterns. In the face of a rapidly changing market, using analytics to drive customer insights has now become the best drug pharmacies can get.
James Stewart is partner at Ferrier Hodgson.
