It is no secret that the consumer model is changing. Gone are the days of a scheduled trip to the grocer and the pharmacy. With e-commerce replacing these ritualistic trips to the store, companies must transform their business to compete in the new era of consumerism.
One industry that is starting to feel the effects of this new era is the consumer healthcare (CHC) industry. Amazon is now forcing the issue of DTC in consumer healthcare companies by selling multiple over-the-counter drugs on its platform. Recently, the Seattle based e-tailer partnered with Perrigo to launch an exclusive line of consumer healthcare products. With expedited shipping and subscribe-and-save models, Amazon is positioning itself to become an online pharmacy that challenges the traditional brick-and-mortar model with a pharmacist behind the counter.
Given the disruption in the market, how can consumer healthcare companies engage the digitally-focused consumer? What are the unique considerations for OTC brands?
Addressing these questions will require consumer healthcare companies to pursue one of the below options (or a combination of all three):
- Selling through Amazon,
- Selling through e-tailer partners, and/or
- Building in-house DTC capabilities
No matter the path, your consumer healthcare business will face a myriad of opportunities and challenges. Deciding how to move forward requires careful consideration to your business’ digital capabilities, long-term goals, and growth strategies. Below, we’ve highlighted some of the challenges and advantages to each option.
#1 – The Amazon Effect – Sell Through Amazon
Amazon is a company that needs no introduction. They’ve paved the way in e-commerce by building and continuing to improve a leading platform and suite of capabilities. Companies across a multitude of industries rely on Amazon’s e-commerce aptitude as a means for accessing a sea of consumers. Amazon offers CPG manufacturers a simple solution to a complex problem (no required technology maintenance, shipping services, inherent traffic generation).
However, the solution comes at a cost. Amazon’s service charges can take a deep cut into product margins. Companies also lose control of the brand experience as all products on Amazon are posted following the strict product information management rules that Amazon enforces (e.g. white background on product images, a list of certain specifications, etc.)
Advantages: Guaranteed traffic, easy maintenance, shipping services
Challenges: Steep service costs, demanding compliance with processes, competition with other brands, limited ownership of brand experience, high cost of data, digital content management
Amazon is a solid option for those looking to get into digital commerce space without investing a large amount of time and resources.
#2 – The Trusted Pharmacy – Sell Through E-tailers
Brick-and-mortar giants have realized the need to build a digital presence – e-commerce is no longer an option but an imperative. Pharmacy giants (e.g., Walgreen, CVS, and Rite Aid) and big-box stores with pharmacies (e.g., Walmart, Target) have set up their own online e-commerce presence to compete in the digital space. Brands and retailers have a long-standing relationship and this additional channel can be a simple way to introduce your brand to digital, especially since there is already a supply chain established.
Although it seems like the smart choice, there are setbacks. These e-tailer sites don’t drive the amount of traffic that Amazon does, a lot of consumers will continue to go in-store or directly to Amazon. Additionally, dealing with multiple e-tailers calls for a more complex product information management plan to ensure the right data and images are going to the right channels and following the specific requirements each retailer has in place.
Advantages: Trusted merchant, existing customer relationships, new way of engaging with existing consumer base
Challenges: Additional system set up (ERP, etc.), competition between brands, limited access to consumer data, product/brand information management
Piggybacking on the trend of digital commerce investment from pharmacies can be a great way to engage consumers who prefer the digital experience as opposed to the in-store experience.
#3 – Owning the Experience – Going In-House with DTC
Modern consumers have new expectations for brands. Instead of relying solely on legacy or prestige to make a purchase choice, consumers are expecting an experience. Taking the dive and setting up a DTC channel allows companies the flexibility to own that relationship. From a CHC lens, image the possibilities of creating tailored consumer experiences.
Let’s take the following scenario as an example: a portal where a customer creates a health profile and purchases a personalized OTC product package delivered on a subscription basis. This would allow you to create a mountain of historical data, recommend new/add-on products, and determine which consumers would be the best targets for new product launches. This level of personalized interaction comes at a cost; there is a large up-front investment in technology as well as talent to make a successful DTC channel possible. In additional to the e-commerce technology and new skills that will need to be added to the team, current supply chain and IT processes will need to be updated to fit a very different model than traditional big-box/pallet sales and shipping operations.
Advantages: Own the brand experience, complete access to consumer data for analytics, platform to test new products & educate consumers
Challenges: Large investment in technology and resourcing, warehousing and shipping set up, additional system set up, e.g., ERP
If you are truly looking to invest in digital and owning the online consumer experience, building the capability in house is a cornerstone of being a leader in digital strategy.
One Size Can’t Fit All with DTC in Consumer Healthcare
These strategies should not be viewed as mutually exclusive but instead seen as complimentary channels. Being competitive in the digital space requires a channel strategy that incorporates multiple strategies without allowing them to cannibalize each other. A dive into digital can be daunting, but today’s consumers are no longer just wishing for it, they’re expecting it.
As your consumer healthcare business explores DTC capabilities, it’s critical to align the entire business. Digital enablement is not an initiative that can operate in a silo. Bringing together a cross-functional team ensures sustainable growth and success today and in the future as digital platforms, capabilities, and resources evolve and enter the market.
To learn more about Clarkston’s perspective and experience in consumer healthcare, digital enablement, and direct-to-consumer, subscribe to our insights below or contact us today.
Coauthor and contributions: Eric Gardner