Retail Pharmacy
Business
Perspective
Joydeep Roy
A retail pharmacy business does not depict
only the chain of pharmacies, it also describes
the the three tier system, as the supplier, the
payer, the customers, the information
asymmetry and also the price elasticity for a
An Overview certain market, with a level of regularion and
which in whole describes the public health
care systems for the society.
The retail Pharmacy or the drug store, differs
drastically across nationas, from free overview
to strict regulatory systems.
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Retail pharmacy business also involves the Porter’s five
elemnets to create and gain market share. The elements are
Strategy as below,
Involved in the Supplier: These include the provider of raw materials and
intermediaries, the manufacturing and the production plants, the
business
overseas head offices or the local co-supplier or any third party who is
involved in the supply chain. Each company will have different suppliers
depending on whether they are OTC, ethical, or generic businesses. It is
model important to remember that labor should be viewed as a supplier to
industry.
In analyzing the business environment there is a need to consider how
much bargaining power the suppliers actually have because the more
power they have the more impact they can have. Suppliers can affect you
in several ways: by threatening to raise prices or threatening to reduce
the quality of goods and services. Both these prospects are unattractive
to a business because of their affect on profitability
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The next Element is Buyer
In the pharmaceutical industry, the buyers are the patients, the family
members, the hospital boards, the tender boards, the pharmacists along
with a range of other buyers, depending on the specific business. Their
influence needs to be considered. In various ways, buyers can affect a
business by seeking price reductions, demanding higher quality and
demanding better service.
Buyer Buyer is powerful when they purchase large volumes, when they buy
products from other suppliers because they are standardized, and when
they are knowledgeable and make demands based on this knowledge.
Therefore, buyers can exercise power by seeking price reductions and
threatening to go to other suppliers to get their products. Powerful
buyers demand costly service
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The third element is New Entrant,
New entrants into the industry affect the competitive dynamics and need
to be taken into consideration when analyzing the competition. New
entrants see the market as attractive, they bring new capacity and
resources, new ideas along with a desire to gain market share. Their
impact depends on the barriers to entry already present, together with
the anticipated reaction of existing competitors. There are many barriers
that can be created to prevent new entrants or to slow down their
arrival.
New Entrant In the pharmaceutical industry, a new entrant may be faced with various
hurdles erected by established businesses, such as economies of scale,
product differentiation, capital requirements and financial resources,
access to distribution channels, regulatory policy: patents, and switching
costs. If the barriers are high and/or the newcomer expects sharp
retaliation from entrenched competitors, then the threat of entry is low.
In the pharmaceutical industry, the barriers to entry are high. Companies
have significant manufacturing capabilities that are hard to replicate;
they have patents to protect their products and they invariably have big
marketing budgets designed to protect their brands.
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Substitutes
The fourt element is Substitute,
Substitute products perform the same function as the
product and are a competitive force as they can take away
demand or tie up those customers who choose to use the
substitute instead of your product . For example, generic
brands are substitutes for original products and there are
devices that can substitute for pharmacological
treatments.
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The fifth element is Rivalry,
It occurs among competitors because one or more of them either feels the
pressure or sees the opportunity to improve their position in the
Rivalry marketplace. This rivalry among firms usually takes the form of jockeying for
position using tactics like price competition, advertising battles and product
introductions. It can be intense if companies are scrambling for market share,
but if the overall market is in growth or the position of the company is
protected through patents, then the rivalry are likely to be less intense.
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Strategic Management
HIGH ASSET TURNOVER: These approaches mean fixed costs are
spread over a larger number of units of the product or service,
LOW COST/COST resulting in a lower unit cost, i.e., the firm hopes to take
LEADERSHIP advantage of economies of scale and experience curve effects.
For industrial firms, mass production becomes both a strategy
and an end in itself .
PRODUCT LEADERSHIP: The development of a product or service
LOW OPERATING COST: the company requires a continuous
that offer unique attributes that are valued by customers and
search for cost reductions in all aspects of the business and thus
customers must value it as superior compared to the other
adopting a cost conscious culture. The third dimension is control
substitute products in the market. The firm may opt to charge an
over the supply chain to ensure low costs. This could be achieved
extra cost to the unique product and in this way will cover the
by bulk buying to enjoy quantity discounts, squeezing suppliers
extra cost that was incurred in the production of the unique
on price, instituting competitive bidding for contracts, working
product. Because of the product's unique attributes, if suppliers
with vendors to keep inventories low using methods such as Just-
increase their prices the firm may be able to pass along the costs
in-Time purchasing or Vendor-Managed Inventory.
to its customers who cannot find substitute products easily.
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Focus Strategy
The focus strategy targets a specific segment of the market and within
that segment attempts to achieve either a cost advantage or
differentiation. The company can focus on either a wide or a narrow
market segment. The assumption is that the expectations of the group
can be better achieved by focusing entirely on it.
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Competitive advantage strategy suggests that states
Competitive and businesses should pursue policies that create
high-quality goods to sell at high prices in the market.
Strategy Advantage Competitive advantage attempts to correct for this
issue by stressing maximizing scale economies in
goods and services that garner premium prices.
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Recent factors making the
shift
Recent factors which has created a shift in the E-
pharmacy from the physical stores is the on going
pandemic, like E-Bola, Sars-Covid-19. These
pandemic diseases have created a shift in the
purchase habits from physical stores to E-
pharmacies.
But the factors which also affects the online
purchases are,
1. E-wallet penetration,
2. Credit/Debit card users,
3. Physical Address/verified address to deliver
and
4. To change the mindset from COD to pay
online.
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Online Retail Models
In online operation there are two models,
• Digital-only stores. This type of e-pharmacy does not have any physical pharmacy store for a customer to
visit. They do not provide a pick-up facility to the customers.
• Digital Twin of Brick-and-Mortar pharmacy. This type of e-pharmacy is most popular. It serves as an
extension of a brick-and-mortar store. It is also termed as “Digital Twin” or their offline store. The store
owner has offline as well as the online presence of their store. This powerful combination allows them to
expand their reach. Customers can pick-up from the store and to order medicines home.
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Centralized Models: In this model, the companies work as “Platform Provider”. They have tie-
ups with many pharmacists and assign orders to partner pharmacists based on location. They
charge commissions from each order. The commission is levied upon considering the amount
and nature of medicines sold via the platform.
Decentralized Models: The decentralized business model has empowered pharmacists to
compete with big players in the pharmacy domain and establish themselves. The pharmacy
owner has almost no authority in the whole operation. works with local pharmacy owners as
a “Technical Partner” and develops the app and website. After the development is finished,
the app is deployed on the Play Store in case of Android and on the App Store in case of iOS.
After the deployment, the pharmacy owner gets to manage the whole operation and has
complete authority over the whole process.
Centralized Vs Decentralized E-Pharmacies
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Centralized
Model
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De-centralized
Model
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Value addition by E-pharmacies
E-Pharmacies purchase in bulk from companies/
distributors, enabling them to get the drugs at a
substantial discount, thereby increasing their
profit margin. Hence, the margins on the sale of
pharmaceutical products are sizeable, and their
effort is to optimize the supply chain to improve
margins further and earn more profits.
Prices online are 10%-20% lower than offline.
Online players cut out many costs — real estate,
inventory, salaries to employees, utilities,
intermediaries. The only high costs that online
players have are related to delivery.
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Major Disruptor in the E-
Pharmacy Model
Many e-pharmacy players across the globe are trying to
integrate other healthcare services like diagnostics,
doctor consultations, doctor appointments etc. on their
platforms to widen their service portfolio. e-pharmacy
players have tie-up with laboratories and offer online
booking of diagnostic tests, health packages, home
collection of pathology samples.
The global trend shows, the clinical diagnostics market
was valued at approximately USD 63,305 million in 2020,
and it is expected to reach USD 93,851 million by 2026,
registering a CAGR of 6.1% during the forecast period,
2021-2026. The market is expected to grow due to the
increasing incidence of infectious and chronic diseases
and the increasing adoption of the automated platform.
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Over View
of
Cambodian
Pharmacy
System
Projected Revenue in USD/Millions
6.6
5.92
5.25
4.51
3.34
3.83
Revenue Projections
in Online-Pharmacy
2.37
1.77
1.16
2017 2018 2019 2020 2021 2022 2023 2024 2025
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USD Per User
2.06
1.99
1.92
1.84
1.77
1.61
1.69
Average
Revenue
1.51
1.42
Generated
per User
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
20
Projected User penetration in Million Users and Percentage Growth
3.2
2.97
2.74
2.45
1.98
2.17
User
Penetration
Numbers
1.48
1.17
0.82
14.27% 15.76% 16.90% 17.99%
8.95% 11.84% 12.80%
5.10% 7.21%
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
in Million User In % Growth
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Thank You
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