How to compete in the community pharmacy sector Print E-mail
Written by Raj Nutan   
The face of community pharmacy is set to change.

Historically the income of a typical community pharmacy can be broken down into distinct segments:

  • Income from OTC medicines and other retail and healthcare products;
  • Dispensing private prescriptions;
  • NHS income from additional pharmacy services (e.g. MURs in England and Wales, Minor Ailment Service in Scotland);.
  • Item fees for dispensing NHS prescriptions;
  • Purchase profits.

The future direction of travel is clear – a move from a volume-driven model to one that is more clinically and service-driven. What is not so clear for individual community pharmacists is how they will compete, with whom and for what? This article describes what competition is and how one needs to compete in an ever-changing environment.

Who are your customers?


For many years if you asked the average pharmacist who their customers were, the typical answer would be a member of the public entering the pharmacy with a prescription. Times have changed and newer markets are opening up: NHS patient, private paying patient, local authorities, drug action teams/drug dependency units, NHS primary care organisations, care homes, GP practices, other healthcare professionals, practice-based commissioning groups, prisons etc. – the list is endless!

To compete in such a dynamic marketplace, you need a complete understanding of who your customers are. To do this you must keep abreast of all the latest developments in the world of community pharmacy – read trade press articles, the NPA In Touch magazine and the NPA website (www.npa.co.uk ). More importantly you need to analyse your current and potential future customer base to understand how you will compete in the markets in which these customer segments are located.

Community pharmacy is competing in a healthcare market that is undergoing profound change, namely the Government is encouraging the opening of the internal NHS market. Healthcare professionals can no longer claim that the delivery of certain healthcare services is only in their domain. The liberalising legislation that allows independent prescribing for pharmacists and nurses is an example.
 
This represents both opportunities and threats for community pharmacy. Opportunities arise from the ability to compete for new income streams that were once out of pharmacy’s reach. The NHS is now increasingly looking for the healthcare professional best placed to deliver the service for the needs of a defined customer base. The fact that the community pharmacist has historically delivered the service is not a prerequisite for future delivery of that service. The reverse is also true as community pharmacy potentially faces threats on its once-exclusive supply function. In England and Wales we have already seen the loss of the oxygen service from community pharmacies to regional suppliers. Recent Department of Health consultations on dressings, stoma and incontinence products also flirt with the concept of central procurement and tendering.

Key success factor in the target market

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Figure 1: Process of identifying key success factors

Once you’ve analysed the market segments in which your business is going to operate, it is important you are aware of the key success factors (KSF) in each of these. Rob Grant1 described the process of identifying KSFs (summarised in Figure 1). They are the factors that you will compete on with other businesses to win customers. KSFs may differ depending on the customer you are targeting. Identifying the KSFs is crucial to see if you can successfully compete in that target market. More importantly it will help you understand your business strengths and weaknesses. This will allow you to play to your strengths and address your weaknesses.

How will you compete in each customer segment?


Once you’ve decided what customer segments you are operating in and wish to operate in in the future – and more importantly what are the KSFs – how do you compete? What is your offering to the customer in each of the market segments? This can be defined as the products/services you are offering to meet your business objectives.

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Figure 2: Four main competitive strategies
 

 

 

 

 

 

 

 

Differentiation is a form of how someone competes in a chosen market place. Mathur2 proposes that there are two dimensions: merchandise (we will refer to this as product) or support. Support differentiating factors are referred to as those that customers regard as helping them choose the offering. Product differentiating factors encompass all the other factors. Mathur also proposes that these two dimensions can be differentiated to varying levels (Figure 2):

  • Commodity buy – If the offering is bought with little awareness of the differences in either dimension (e.g. a straightforward generic OTC sale);
  • System buy – The offering is bought with high awareness of differences in both product and support (e.g. a customer asks for advice on a minor ailment and the differences in any OTC products recommended are explained);
  • Service buy – The offering is bought with a high level of support but no or little differentiation in the product (e.g. a customer uses the prescription collection service for their prescriptions);
  • Product buy – The offering is bought with little or no support but the product has a high level of differentiation (e.g. the customer purchases a unique OTC differentiated product).

 

In order to compete in terms of product you need to have a unique differentiated product but for 80 per cent of the turnover of a typical pharmacy this may be difficult. As a prescription product cannot be subject to this type of analysis, you cannot differentiate your prescription product. But what you can perhaps do is compete on the basis of support for your prescription-based customers. For example, is speed of dispensing important for your target customer, is the level of customer service important or is it the availability of any patient information?

An example whereby you can differentiate with your product offering is in the other 20 per cent of the turnover of a typical pharmacy business. With the Government pushing the agenda of self-care and the average consumer becoming more educated (because of the Internet), differentiating your OTC/retail business can be the basis in which you compete for a target market. This is especially true if you take a look at the P category range, which has grown in recent months. More potent medicines are now available, such as sumatriptan for migraine, and those traditionally associated with a visit to the doctor, such as antibiotics for conjunctivitis. Prostatic hyperplasia and chlamydia are other conditions for which we may see more POM to P switches over the next 18–24 months.

Innovation


You have identified your target market segments, you’ve then identified the KSFs in each of these segments and you’ve formulated a strategy on the basis of how you will compete in each one. So what’s next? You cannot become complacent and take your eye off the ball once you’ve successfully started to compete in a market. Once you’ve developed a robust business strategy that has helped you compete effectively, unless you have a unique differentiated offer (product and/or service) it will simply be copied.

Hamel[3] put forward the concept of the need for all businesses to innovate. This is to ensure you always stay one step ahead of the competition, although differentiating your prescription business by product is difficult because of national pricing. You can still differentiate along the lines of service as explained earlier. However the most important thing is that you continue to differentiate the service you are offering. Hamel cites many examples where the failure to innovate has cost businesses dearly. Motorola was the world leader in mobile phone technology up until 1997 but what happened after that? Motorola missed the shift from digital to wireless technology i.e. they failed to innovate. Nokia overtook Motorola and became the world’s number one. Less than ten years ago, Nokia had been making snow tyres and rubber boots; it has now transformed into one of Europe’s well known technological brands.

Summary


The community pharmacy sector is becoming increasingly competitive as we see new entrants competing for the same pots of money (e.g. private sector competing with existing healthcare professional at PCO level). Opportunities exist for community pharmacy to compete for new income streams (e.g. practice-based commissioning) but on the flip side we cannot rely on supply being in our exclusive domain (e.g. we have already seen the loss of oxygen supply in England and Wales). You need to understand who your target customer is and will be in the future. Once you have this understanding it is only then you can analyse what KSFs are required to compete profitably in each of these customer markets. Then you can differentiate your offering to meet these KSFs. But you cannot stop there. You need to innovate continually to stay one step ahead of the competition.

References

1. Grant RM. Contemporary Strategy Analysis 3rd ed. Blackwell, 2001.
2. Mathur S. Creating Value: shaping tomorrow’s business. Butterworth-Heinemann, 1998.
3. Hamel G. Leading the Revolution. Harvard Business School Press, 2000.

 
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