On one hand, these should be prosperous times. The seeming epidemic rise in chronic diseases coupled with the maturation of post-war baby boomers should be creating unheard-of levels of demand for pharmaceuticals. Moreover, the recent closure of a major chain-store pharmacy means there will soon be a large group of unaffiliated customers up for grabs.

However, these are also some very problematic times. There’s more competition for customers due to the arrival of new competitors (especially from the US) and the continued blurring of retail boundaries by giant retailers like big-box stores, grocery chains and online businesses. Worse yet, the need for more aggressive marketing to fend off that competition, coupled with recent changes to provincial regulations on drug pricing and rebate policies, has already created a new set of margin issues.

If that is not enough, all of this comes at a time when the demographics of most community pharmacies means many owners are weighing options for succession planning. And as they search for replacements, they find chains and mass merchandisers are heavily courting young pharmacists in order to expand their number of store locations.

What is the road ahead for community pharmacies? Can they not only survive but thrive in this “new normal”? I don’t think you can generalize, but I do think there are some basic issues every community pharmacy needs to consider in mapping out that future.

The Anatomy of Profitability

The most important thing for community pharmacies to remember is that it all boils down to profit and your insights as to what drives that profit. Here are some that we have noted in the past:

• You cannot beat the “big guys” on price. Prices and costs go hand in hand: you cannot have the lowest prices unless you also have the lowest costs. Community pharmacies will never be able to match the low costs of chains and mass-merchandise pharmacies. In addition, chains and mass merchandisers can utilize the pharmacy as a “loss leader” or traffic builder for non-drug products.
• You will have to be price competitive. This is not a contradiction of the preceding point. “Price competitive” does not mean matching the lowest price. It does mean an acceptance that while customers want something better than “adequate quality,” they may not need, want, or be able to afford all the bells and whistles. Cutting prices while still giving those bells and whistles may be great for the buyer, but it will destroy profits in the future

The rank order of profit variables in terms of impact on profitability is:

1. price
2. cost
3. volume

Cost and volume may switch position for a pharma firm, where so much of the cost is fixed R&D cost. However, the notion that price has the greatest impact on profitability is not a matter of conjecture or even research. It is a simple consequence of how accountants calculate income: price impacts on the top line of your P&L. Cost and volume impacts have to be less, unless you are already bankrupt!

Here’s the average for North American business over the last decade: a 1% decrease in price reduces profitability by just over 11%, while the counterbalancing numbers for cost and volume are 7.8% and 3.4%. That is, a 1% decrease in costs improves profits by 7.8% and a 1% increase in sales volume via customer acquisition is 3.4%. This means that every 1% price cut requires a 1.34% reduction in costs or a 3.4% increase in volume just to keep profits at their “pre-price reduction” level.

From the Mathematical to the Managerial

These ratios drive home the problem facing any price-cutting business that isn’t the lowest-cost competitor. If cost reduction is used to finance price cuts, the result for retailers is almost always a reduction in service due to large percentage of costs tied to staffing. Since it is hard to sustain prices in the face of falling quality, that reduction in staffing (and thus service) tends to create further price pressures.

Worse yet, because being competitively priced is not the same as being lowest-priced, the shopper most attracted to chains and mass-merchandiser pharmacies (i.e., the price shopper) is unlikely to be moved by the price discount. This makes it almost impossible for the price cut to generate an incremental volume (recall, 3.4% for every 1% less price) required to recover the lost profitability. The only people getting the discount are the customers you already have.

Regardless, community pharmacies will find it hard to avoid price cuts. Even loyal customers will switch allegiance if the price gap between the community pharmacy and the chain/mass pharmacy widens too far. As such, community pharmacies often do not fully control the price they charge.

But the forecast for community pharmacies gets worse. Community pharmacies have traditionally battled against the low-price tactics of chains and mass merchandisers by offering their clients superior accessibility, proximity and customer service. However, we have seen considerable improvement in the capacities of the chains and mass merchandisers, as shown by the bidding wars to locate in medical arts buildings and the variety of prescription-filling related services being offered via internet and mobile communications. Bottom line: it isn’t enough to be a good, well run operation that excels at the basics any more. You must find a point of difference.

What to Do

Which would you rather have: deep penetration of a narrow segment or shallow penetration of a broad segment? Historically, opinion on this question is mixed. There are some who believe in shallow-broad because it spreads risk and provides a platform for adding new products and services.

While that may be true, my own belief is that there is more risk in becoming a mediocre supplier to many instead of a superior supplier to a few. No one pays more to receive mediocrity, and mediocrity is the common result when you take the limited resources of most community pharmacies and spread them over a wide market.

The key is focus. But don’t limit your focus to your choice of advertising medium or advertising copy. Instead, let your focus dictate everything you do, including which products to discount. While it may seem odd to discount products that your customers are likely to buy anyway, it is precisely that characteristic that makes them the perfect products to feature. Your target customer will respond to that discount on “something they always need” (don’t we all?), and that opens the door to do more for them.

Final Advice

My final advice is that community pharmacies need to stop thinking of themselves as community pharmacies. Survival will require that you sell more than pharmaceuticals, and so customers must see you that way. Instead, think of who you have to win, who you would like to win and who you will take but won’t chase. Design your store around the “must win” customer and orient all major promotions (price and otherwise) to them.

Your goal is not to be their drugstore but rather the store they go to for all their health needs – especially those tied to their chronic connection. We want them thinking, “If anyone will have what I need, it’s you.”

As for the “would like to win,” ask yourself, “Why?” If it is because they would give greater volume and thereby serve to reduce fixed costs per sale, then it becomes a paper-and-pencil test to see how far costs would fall if you hit your target. If that is the case, then considering finding private-label or generic products to promote. Or work with suppliers on occasional manufactured sponsored programs for a one-time price promotion (just remember to make it one time). On the other hand, if the volume of such buyers is small, then focus on hard-to-find merchandise and compensate for the slow turnover by raising your margin.

As for the third group… don’t chase them. Take their money if they are in your store but do not pursue them. They are a distraction and nothing more.

It’s a been a great three years, folks. Thanks to Teva for their focus on the CPs and for always looking for ways to add value for them. Thanks too for the confidence to let me say what I say without censure.

Be focused… stay disciplined… and execute the margin-sucking maggots! Good hunting!

Written by Ken Wong

The Winning Performers

One of the best parts of writing this blog is that it gave me a motivation and opportunity to meet and talk with community pharmacists across the country. While most of those discussions were focused on identifying the biggest marketing problems facing community pharmacies, there were some noteworthy traits among the higher-performing community pharmacies. These themes were covered in dedicated blogs and mentioned in others.

Trait 1: They know what “value” really means

The most dominant common characteristic in winning performers was found without exception: The owner understands the primacy of the customer in articulating what value means and formulating a plan to provide it. This does not mean they always give into the customer’s desires or blindly buy into the notion that “the customer is always right,” nor even that they have some collectively exhaustive list of customer needs that they are built around.

Rather, they service that primacy by the attention they pay to their positioning and target market, both of which they can discuss with a high degree of specificity. They understand that positioning statements are not statements of aspirations, nor do they represent some abstract concept of what a pharmacy should be. Rather, in keeping with the primacy of the customer, they start with their so-called target market: those types of consumers they feel inhabit their local community and around which they can customize their service.

Once the target market is identified, they formulate their positioning in terms a kind of customer experience they believe their customer wants, whether that be extensive service, fast service (note: it’s hard to be extensive and fast) or some special set of needs. That positioning then becomes the starting point in making almost every significant decision, whether strategic or tactical. They understand that their positioning creates customer expectations and, in doing so, provides the reason their loyal customers keep coming back. As such, nearly everything can be evaluated in terms of its consistency with a pharmacy’s positioning.

For example, it is rare that any community pharmacy will find itself with lower costs than national chains. Therefore, trying to be the lowest-priced store is not advised. Rather, community pharmacies are encouraged to reflect the character of local neighbourhood, catering their marketing to its peculiar nature (see blog posts 9, 10, 14 and 22). By that token, stores in neighbourhoods dominated by university students should not be identical – in product mix, pricing, store layout, even background music – to stores located near seniors’ homes or in medical arts buildings. In contrast, all stores within a national chain will tend to be similar, and therein lies the community pharmacist’s window of opportunity: while chains standardize, community pharmacies localize.

Given the importance of positioning, it shouldn’t be surprising that we dedicated our first three blogs to helping readers define their positioning and noted in many of the subsequent blogs that selecting from alternative ways of performing marketing tasks – service quality, store layouts, product assortment, etc. – depended upon the pharmacy’s positioning and target market. To further assist in that task, we dedicated blog posts 18–21 to understanding the distinctive needs and attitudes of millennials, seniors, women, and men. Check these out if you’d like to do a quick audit of your positioning and alignment with it.

Trait 2: They put service first

 A second common characteristic of higher-performing pharmacies is the realization that while positioning starts with the owner/pharmacist, it remains an abstract concept void of impact on performance unless it is manifest in the actions of staff. Almost universally, these pharmacists noted that their number one criterion in hiring decisions is “a service attitude.” As one pharmacist noted “I can train how to do the job but not the desire to do it well.”

Once they assemble a staff with a “natural predisposition toward customer service,” the winning pharmacies go to great lengths to ensure that that energy is directed into the right kinds of actions. There are any number of devices that can be used to that end. Regular meetings and training provide initial orientation to the positioning. Equally important, that orientation is constantly reinforced by devices like informal reminders and motivational signage. One pharmacy had an ongoing competition in which points were awarded for certain behaviours; in another, staff wore badges inviting customers to engage with them. If this is an area of current interest, you may want to review our earlier blogs on the in-store experience and customer service.

Trait 3: They build relationships

The higher-performing pharmacies have “rich” communications programs with their customers. When I say “rich” I do not mean they spend an exorbitant amount of time and money on marketing or advertising (although some do). Rather, they are systematic in how they approach their spending and spend to achieve deep relationships with a concentrated market rather than diluting their message over a broad and diverse market. It is for this reason that they also demonstrate the hallmark characteristics of businesses that excel at so-called “loyalty management” (see blog posts 12 and 13).

These are not the types of operations who fund community teams purely out of charity, nor are they the type to expect a single ad, promotion or story to bring about a massive onslaught of business. Instead, these firms make a systematic assault on their market and often have specific performance expectations tied to past experiences with their market and the media in question. They are the consummate “project planners.”

While they may not develop a formal campaign plan, upon questioning, they could all recite the 6 M’s behind a particular communications piece, and I was impressed by the number who developed campaign objectives around stages of the adoption process (see Awareness–Trial–Adoption in blog posts 15, 23, 24, 25 and 26).

A Final Note on “Rocket Science”

As you can see from the above, success does not require rocket science, it requires discipline: the discipline to think things through before acting and the discipline to stick to that plan. We have a name for the kind of marketing that doesn’t require such discipline: Luck. Unfortunately, luck will be a rare commodity in the coming years. We’ll see why in our next – and final – blog post.

Written by Ken Wong

Actually, let me add another constant to that: No one seems to really want to take my money to their bank.

The Business of Health Care

There can be no doubt that the emergence of big-box players (e.g., Walmart) and national chains (e.g., Shoppers Drug Mart) has altered the landscape for those in business of health care retailing. Nor can there be any doubt that the often stock-market-driven need for these firms to grow has caused a blurring of the boundaries between health care and other products (such as clothes, food and beauty products). What’s more, health care in general and prescription-filling in particular are often focused on building traffic for other merchandise departments rather than being stand-alone businesses. It’s easier to have low prices when you don’t have to make direct profit to be considered a positive profit contributor.

It is smart marketing for these big players. The key success factor becomes finding a way to offer basic services at the lowest possible price. This does not mean the service in these outlets is of lower quality. For the mass market that has basic health care needs tied to the occasional prescription purchase, this service is perfectly adequate.

Consequently, a community pharmacy has a difficult time winning mass, low-priced business unless it is lucky enough to benefit from a geographic monopoly – for example, being the only store in a trading area or being the pharmacy connected to a medical arts building. However, even geographic monopolies are getting harder to find, as national chains have strategies for securing medical building locations and entire real estate departments looking for territories with sales potential.

Enter Me, My Friends and My Family

Fortunately, there remains some very profitable business that is still available. Whether or not you can win that business depends on two key perspectives.

The first key perspective is that no one really wants to buy drugs or pharmaceutical advice, and superior service is not why we go to pharmacies. There are three reasons people go to pharmacies: to continue living, to get better and to maintain a good quality of life.

We need to ensure that people never forget that. This doesn’t mean massive ad campaigns with scare tactics suggesting people will die if they don’t deal with us. Nor does it necessarily mean boring “public service” education ads. In fact, it may not require much traditional advertising at all.

Rather, in this era of scarce family physicians and a national “epidemic” of chronic diseases, community pharmacies need to assert themselves as the front line in the health care system. And please don’t tell me it isn’t going to happen until there is compensation to do so: compensation should lie in the stream of business you generate – provided, of course, you are selling to the right customer.

This brings me to the second key perspective: You cannot make much money providing high levels of front-line service to a customer who makes infrequent purchases. While they will appreciate the service, unless you can find a way of billing directly for the service, the infrequent buyer will not have enough chances to reward you with their patronage.

By contrast, the frequent user of your pharmacy is making regular and frequent purchases. You can charge them less per prescription for that front-line service and recover the cost of your service faster. Better still, for progressive diseases, the frequent user will tend to expand the range of drugs they buy over time. Even better still, the frequent user of a service within a family will usually dictate the behavior of the entire family: When you win the business of someone with a chronic ailment you win both their everyday business and that of the occasional user who might otherwise go to a mass merchandiser.

In sum, you don’t need to be the front line of health care for everyone (at least not without compensation), but it makes enormous sense for you to do so for a certain class of customer.

Opportunists or Strategists

It seems to me that most pharmacists are, in the language of business, opportunists and not strategists. They take whoever has a pharmaceutical need and then they try to sell them everything they can. By contrast, a strategist would start with a much more compelling question: Who is my best customer and what do they really need?

If pharmacists asked that question they’d be less focused on groceries and cosmetics and more focused on the health needs of the fifty-plus-year-old. That is the demographic who either suffer from chronic diseases or are worried enough about things like diabetes, blood pressure and other heart conditions that their doctors have them on a preventative strategy. In addition, the extreme end of that segment are prime candidates for supplements and the latest in “medical jewelry.”

Back to Basics

If you want that frequent buyer, you need to earn their business. As noted above, that means going beyond selling drugs to recognizing and servicing the reasons they want those drugs in the first place.

This doesn’t mean that pharmacies should stop providing – nor that buyers don’t appreciate – services like ordering from home, daily dose bags for pills and briefings on new drugs. But anyone can do that and, in fact, machines can do it faster and cheaper than humans can. This means we take all the training and experience of a pharmacist and we use it to compete against a machine. Not smart. And not profitable.

We need to realize that there are several other services that serve buyers’ real needs. Lifestyle advice, education, monitoring, billing and reminder services are just the tip of the iceberg. We need to expand the role of pharmacists as health care professionals and to accept that some of those services may not be tied to the dispensing of medicines. In fact, many of those services may not be provided or even desired while in the store.

The technology is there to do it. The business case is there to do it. And suppliers of prescription and OTC products would love to help someone do it. So, please… won’t someone take my money?

Written by Ken Wong

The actions required to keep customers start long before you’ve acquired trial. Customer satisfaction is determined by what you’ve promised them in your marketing communications. That’s because customer expectations set the standard we must exceed in order to keep the customer satisfied. Since you want to exceed expectations, it’s tempting to under-promise and over-deliver. However, that is a very high-risk approach: your weak promise creates an equally weak motivation for customers to give you trial.

Overselling – making claims you cannot back up with actions – is no better. Customer acquisition is usually so expensive on a per-customer basis that you can rarely recover that cost with the margins won through a single sale.

The bottom line? As my father used to say, “Don’t issue any cheques you are not prepared to have cashed.”

Why Customers Leave

Assuming you have made realistic promises, customers can still leave your pharmacy for a variety of reasons. Not all of these sources of dissatisfaction are within your control. For example, one survey found that roughly 10% of customer turnover is due to the combined effect of people moving or having a friend enter the business. There isn’t much you can do about people moving out of your district or people wanting to do business with friends. The best you can hope to do is replace those customers with people moving into your neighbourhood (Don’t forget those “welcome wagons”!) and growing your network of “near friends” via community involvement.

Of the remaining customers, most people think that the majority of customers leave because they are attracted to the promises and offers made by a competitor. That is rarely the case. In fact, surveys have shown that relatively few customers leave because of a more attractive competitive offering: estimates range from 9% to 33%.

The most prevalent reason for customer migration is customer dissatisfaction due to employee attitudes, not overselling. In fact, one survey found that it was five times as likely that the dissatisfaction was due to employee attitudes rather than overselling!

Why It Happens

There are three main reasons why customers may encounter employees with seemingly negative attitudes: disinterest, insufficient capacity and lack of knowledge.

Disinterest means employees feel they have nothing to gain or lose from how they serve customers. When employees provide service in a brusque manner or can’t be found to provide service at all, customers can sense that their business is unimportant and their patronage underappreciated. Disinterest can be countered through a variety of “carrot and stick” approaches. Incentives like bonuses, reward programs and profit sharing seek to motivate employees to be on their best behaviour. Alternatively, you can control disinterest via intense supervision and the threat of dismissal.

Neither of these approaches works in all cases. Rather, human resource managers tell me that the real key is to focus hiring decisions on “service attitude.” Skills can be taught; the desire to serve cannot. Even WestJet, which proudly reminds us that 86% of their employees are owners, concentrate their hiring practice on finding people with the right attitude.

But even the most service-minded employee will have trouble showing their interest in customers if they are overworked. This implies that trying to save money by under-staffing is no bargain at all. That said, no one can afford to have staff on hand “just in case.” The solution used in many retail stores is to cross-train staff so that they can pitch in during unexpected peaks. For example, at some large retailers, every employee is trained in how to operate the cash register and instructed to do so as soon as they see more than three people in the checkout line.

Lack of knowledge is the most common reason why customer interactions with staff are negative. At a minimum, customers do expect staff to know where things are located throughout the store and to provide directions in a pleasant manner. They also expect some degree of product knowledge and to know which products are on sale. Some simple training can provide your staff with the necessary information and ways of conduct. Just remember that customers do not distinguish service staff from other employees: anyone visible to a customer is likely to be asked questions.

However, training isn’t always the answer. Sometimes it is simply a matter of communication.

The Unique Nature of Service

Service is an intangible: before receiving the service, customers cannot see it, feel it, taste it or smell it. This is because services are produced and consumed at the same time. Thus the same staff who perform the service are also your primary salespeople and therefore spend the most time with customers and have the greatest impact on customer loyalty.

This makes them very important people. And yet, beyond the pharmacist, those front-line staff are usually not managers. Rather, they may be part-time staff brought in during peak times. Those staff are rarely privy to your marketing strategy and, as such, may be uninformed as to who your target customers are or how you have positioned your pharmacy in their eyes.

In short, they are likely unaware of what expectations customers have. No matter how service-minded and hard-working your staff may be, they cannot be expected to meet customer expectations – and thereby avoid customer dissatisfaction – if they do not know what those expectations are and what that means for how they do their job.

The key is to run regular orientation and update sessions for all staff. Don’t stop at outlining your marketing strategy. Role-playing exercises are an effective way of insuring that your strategy is translated into action on the floor. For each position, identify a few common types of customer interactions they will have and then review appropriate responses. It may seem a little hokey at first, but customers will grow to love the consistent experience they have from one occasion to the next.

No Silver Bullet

It doesn’t take a sophisticated system to keep customers happy. Focus on doing the basics and doing them in a way that is consistent with the customer expectations you’ve created. You may not be able to control everything, but at least you won’t be giving good business away.

Written by Ken Wong

Recall that your primary concern is to get someone to try you. That requires that (1) you give a compelling reason for them to visit your store, and (2), once they are there, you deliver on the experience they expect given the compelling reason for their visit. My last blog post focused on some practices that can block your efforts to give customers a motivation to visit. The experience you provide when they arrive to give you a “trial” is the subject of this blog.

Expectation and Experience

There are two different expectations and experiences to manage. The first, the “trial-generating” experience, is all about getting people to your pharmacy. The second, the “adoption-building” experience, is all about what customers feel once they are on-premise.

One of the most common trial-generating activities involves a promotion of some kind. It may be communicated via weekly flyer, window or in-store banner, email blitz, social media or another medium. Regardless of how it is communicated, buyers attracted by the trial-generating offer have very precise expectations: at a minimum, they expect it to be (a) available in sufficient quantities, (b) easy to find and (c) appropriately tagged for price and deal-expiry date.

Providing a superior trial-generating experience will make it easier to convince that same buyer to return when you run your next trial-generating promotion. However, if that is the total of their activity with you, then we have simply created a “cherry picker.” Clearly we want more.

Therefore, it is important that customers arrive at your store with a second set of expectations as well. These should be about your store’s quality relative to other competing stores. Typically, these expectations are sourced in past advertising, PR, prior shopping experience, exterior appearance of the store and so on.

Adoption-building Experiences

One important question to ask yourself is, “How will my trial-generating offer overcome the reasons why this shopper is not already a patron of mine?” If you answer that the promotion now makes your store “affordable,” your so-called trial-generating offers will likely become part of a full-time merchandising strategy of always being “on sale”: remove the promotion and the buyer ceases to come.

On the other hand, when customer education is the missing ingredient in securing their loyalty, trial generation is an instrument of business development. For example, customers may be unaware of your store, or may need first-hand experience to see the convenience or attractiveness of physical improvements or may need to personally experience your new “customer care” policy.

In these cases, the trial-generating experience should be structured so as to require personal interaction with your staff, whether it’s to get the physical product, claim a coupon, access a promotion or any other part of the purchasing process. This is your one chance to engage that customer by offering advice on product usage, pointing out the availability of accessories or complimentary products, informing them about other pharmacy services, etc. Whatever the nature of that interaction, it should be based on whatever service experience you feel is essential to bringing that customer back. Here are four common options:

1. Superior service: An experience based on good overall service and an exemplary level of commitment to a specific service characteristic like speed, accuracy, assistance, complexity reduction, etc.
2. Superior for a kind of user: An experience based on an intimate understanding of all the factors that a specific kind of user needs. For example, the needs of different chronic disease patients, age groups, ethnic or religious groups, etc.
3. Superior for a specific usage occasion: An experience based on knowledge of the process a customer moves through in connected with that occasion. For example, start of a school year, going off to summer camp, traveling overseas, seasonal ailments, etc.
4. Superior against a specific competitor: An experience focused on that aspect of the competitor’s approach to service that draws the greatest criticism from customers. This type of experience is featured, for example, when competitors expand product lines and can be accused of losing focus on the original products or when they increase the size of operation and can be accused of growing impersonal or inconvenient for shoppers.

Crossing the Finish Line

Customer expectations are the de facto standard against which you will be measured. Meet or exceed expectations and you will likely win a repeat visit (i.e., adoption). Fail to meet expectations and the result is, at best, a dissatisfied customer and, at worst, a reputation for creating deceiving ads. Here are the three steps we discussed above for getting that repeat buyer:

1. Develop an “awareness-building” campaign to communicate a kind of customer experience that customers desire and see as lacking in competitors’ offerings. This is the foundation on which your customer loyalty will be based.
2. Develop a “trial-generating offer” that provides a motivation for that customer to visit your store and to interact with your staff.
3. Be certain to have in place a service process or model so that your staff know how to translate that contact opportunity into an tangible demonstration of the customer experience highlighted in your awareness campaign.

In our next blog we discuss adoption – how to keep what you’ve earned.

Written by Ken Wong